Property Division
If you’re thinking about separating from or divorcing your spouse, here are some practical steps you can take now to ease the transition once the separation occurs:
Open a checking and savings account in your name only, and transfer money from joint accounts into your own accounts.
If you don’t have credit cards in your own name, now’s the time to apply for them and establish your own credit with any service provider you’ll need after the separation.
If you can afford it, establish a relationship with a therapist or counselor you’re comfortable with. At a minimum, strengthen your ties with close friends and family, and be honest with them about your marital problems.
If you don’t have your own health insurance, find out whether it’s possible to continue coverage through your spouse’s insurance until the divorce is final. At a minimum, get needed medical and dental work done while you still have insurance coverage.
Collect and make extra copies of all financial information (tax returns, business records, bank account records, investment records, deeds, mortgages, employee benefit information, debt records, etc.) while you still have access to it. Put this information in a safe place outside your home.
Locate and make extra copies of any prenuptial agreements, community property agreements or powers of attorney and put them in a safe place outside your home, such as a safe deposit box in your own name.
If you’re not currently working, update your resume and begin thinking about what type of work you could do. Start the training or retraining you’ll need to get yourself back into the workforce as soon as possible.
Most people going through divorce resolve at least at the beginning that they're not going to lose control of themselves, their temper, or their legal bill. And the good news is that most people keep these resolutions. That is, they quietly get about the cruddy, painful business of ending their marriage. They don't spend hours in court, they don't run up thousands of dollars in legal bills, and they're able to get through the pain and get on with their lives.
But there's no question that some people do make mistakes in divorce — big mistakes. And unfortunately, because of the nature of divorce, we often have to live with those mistakes for years — sometimes even for the rest of our lives.
Here are the most common missteps and some ways to avoid them:
Giving up control of the divorce — usually to your lawyer. Your lawyer is a professional; he or she is trained to represent your interests in court, and you need to listen carefully to the advice your lawyer gives you. But this is not your lawyer's divorce. It's yours, and you're the one who's going to have to live with the results.
Dividing up property without a thorough inventory. I see it nearly every day. Before you begin negotiating, you must build a thorough inventory of what you own and what you owe.
Spending too much time and money letting lawyers gather information. The legal term for this is “discovery,” and it includes interrogatories, requests for the production of documents, requests for admissions and depositions. Lawyers love discovery. It turns little cases into big cases and keeps the lawyers thoroughly in control of your divorce. Better to gather the information some other way if you can. You and your spouse might be able to simply exchange the information you need. You could use mediation to help you share the information with each other. Before you even go to see the attorneys or mediators, you might consider using a financial preparation kit to help you calculate the after-tax value of your house and other real estate as well your vehicles, household belongings, stocks, bonds, IRAs, retirement plans, and other financial assets.
Letting your family or friends tell you what you need, and even sometimes what you should be feeling. Remember, this is your divorce. No one, and I mean no one, should tell you how you should get through it, what you should be saying, what you should be doing or what you should be feeling. Don't be afraid to rely on your own judgment.
Not paying enough attention to taxes. I see this one all the time. People negotiate, reach agreement, and get divorced without thinking through the tax impact of the concessions they're making. It's not at all unusual for one of the spouses to get a nasty surprise several months — or years — after the divorce, when they realize for the first time that they're facing a big tax bill they didn't know about, such as capital gains on the sale of property. I see more of what I call "big dollar boners" in this area than in any other, so I've given a lot of thought to what makes it happen that way. What happens is that judges in most states don't pay much attention to tax, and so most lawyers don't pay much attention to tax, either.
Trying to win back your spouse by being generous. This one makes me cry. Here's the scenario: the spouse who is the left one isn't ready for the marriage to end and decides that he or she can win back the leaver by "being nice." He or she lets the leaver have everything and agrees to far less than fairness would dictate, fantasizing that the leaver will realize what a wonderful person he or she is leaving and return to the marriage. I've haven't yet seen this work. What tends to happen instead is that the leaver holds the left in contempt, takes what is offered and leaves. The left realizes his or her folly only much later when it's too late to reverse it. The knowledge that he or she has been taken advantage of makes the left one resent the leaver and the system, and further delays the left one’s recovery from divorce. Yes, you read that right. It makes a bad situation worse, not just financially but emotionally as well.
Community Property Division
In community property states, each spouse is entitled to one-half of all the property acquired during the marriage.
The separate property of each spouse isn’t included in property division in community property states. “Separate property” typically includes:
Property or businesses owned prior to marriage or living together
Gifts and inheritances from family that haven’t been “commingled” with community assets (such as in a joint bank account)
Pension proceeds of either spouse that vested prior to marriage
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Equitable Distribution
In all other states, courts will divide a couple’s assets in an “equitable” (fair) manner. “Equitable” doesn’t necessarily mean “equal,” but what’s fair to both spouses.
In deciding what’s “equitable”, a court will commonly take into account:
The length of the marriage
The work history and job prospects of each spouse
The physical and mental health of each spouse
The source of particular assets
Expenses of the children
Taking A Property Inventory
It’s very important to give your lawyer a complete list of all property belonging to both you and your spouse. It’s vital not to hide assets, as anything left out of the property settlement will have to be dealt with later.
Many lawyers have property checklists designed to jog your memory regarding property you may have forgotten about.
Assets which people sometimes forget to list include:
When you and your spouse can’t agree on the value of a particular piece of property, it may be necessary to have a professional appraiser- such a real estate broker- put a value on the property for you. You’ll want to provide your lawyer with any information you have regarding the value of property, including prior appraisals and assessments from tax collectors and so forth.
Many divorcing couples make the mistake of fixating on one piece of personal property, such as an art object or something else of sentimental value, and spending many times the value of the object in arguing over who will own it. It’s almost always better to compromise between the two of you as to how to divide your personal household possessions, unless your lawyer finds some reason to get involved.
Tax Considerations
You’ll want to consult with a tax lawyer or certified public accountant regarding any possible tax consequences of holding, transferring or selling property as part of the divorce process.
Property Settlement Agreements
If you and your spouse can agree on how to divide your assets, whether it follows your state’s guidelines or not, your lawyers will write up a formal agreement called a “property settlement agreement” or “separation agreement.” Detailed lists of who gets what will be included in this agreement.
Read the property settlement agreement carefully, and ask your lawyer about anything you don’t understand. Once you’ve signed the agreement and it’s been approved by the court, it will be difficult and expensive to change.
Following Through After the Divorce
As soon as the property settlement is approved or the court finalizes the divorce, you’ll want to take care of the details of property transfer:
Get your ex-spouse’s signature on any deeds, stock transfers or bank account forms that will be necessary to transfer property into your name
Make any payments necessary to fulfill your end of the property division arrangement
Start the process of refinancing property if that is a part of your agreement
Make sure you release your name on the title to any property your ex-spouse is receiving
While it may be the last thing you want to do, taking care of these details will save future trouble and make it easier to gain closure on this chapter of your life.
When you’re divorcing, you’ll need to divide up your debts according to your state’s divorce laws and the advice of your lawyer.
Factors to Consider
How you ultimately divide your debts will depend on how you answer the following questions:
Who will keep what pieces of property? It’s easiest for each spouse to take debts for items of property each is taking.
How will you be dividing liquid assets like bank accounts and stocks? If you’re getting more of these assets, you may end up with more of the debts.
Will one spouse take the tax refund for the year, or will you divide it? Tax refund money can go to paying off joint debts.
Will you be selling assets, such as vehicles and the family home, to pay debts?
Will one spouse be paying alimony to the other spouse?
Does one spouse make a much higher income than the other spouse?
Will increases in rent or insurance premiums make it impossible for you to take on certain debts?
Paying Special Attention to Credit Accounts
With joint accounts, both you and your spouse are each individually responsible for any balance. No matter what the court order says, you’re both ultimately responsible to the creditor for the bill getting paid (even though the court ordered your spouse to pay).
If you maintain joint credit accounts, you’ll want to make regular payments throughout the divorce process, so your credit rating won’t suffer.
It’s a good idea to close all joint accounts or individual accounts on which your spouse was an authorized user. Your creditor may be willing to convert joint accounts into individual accounts of the spouse who will be taking responsibility for that particular debt.
The creditor may require you to reapply and requalify for credit when converting a joint account into an individual account.
Protect yourself from getting stuck with the debts your soon-to-be-ex is supposed to pay by insisting on a “hold harmless” clause in your divorce agreement. Your spouse takes responsibility for any damage done to you or to your credit rating if your spouse doesn’t pay off the debts as agreed between the two of you in your divorce agreement.
Mortgage Refinancing
All home mortgage lenders will require refinancing before removing either spouse’s name from the mortgage. The mortgage lender will look solely at the financial situation and debt-to-income ratios of the remortgaging spouse in determining eligibility for a new mortgage.
If your spouse is taking the family home, and taking on the responsibility for the mortgage, insist on a clause requiring him or her to refinance the mortgage to relieve you of responsibility for future payments.
You’ll also want to get a “hold harmless” clause in your divorce paperwork that makes your spouse responsibility for any damage done to you or to your credit rating if your spouse doesn’t pay the mortgage as agreed between the two of you in your divorce agreement.
Potential Bankruptcy
If your soon-to-be-ex-spouse is contemplating bankruptcy, it’s important to consult with a bankruptcy lawyer to protect yourself. You don’t want to be stuck with all the debt as a result of your ex-spouse filing bankruptcy as soon as the divorce is finalized.
Generally,a person filing for bankruptcy will still be responsible to pay:
Child Support
Alimony
Student Loans
Whether a person will have to live up to property and debt settlements made in divorce proceedings depends on whether he or she will be able to continue paying the debts and still be able to take care of himself or herself, dependents and business obligations. The bankruptcy court will balance the harm done to the person bankrupting against the benefit to creditors and former spouses of the person continuing to pay the debts.
You only have the obligation to pay spousal support (“alimony”) when you are actually married. While a number of court decisions have allowed claims for support between unmarried people who have lived together (“cohabitants”), these claims are different from the claim for alimony.
An alimony award is generally paid in “periodic” (regular) installments, usually monthly.
