Texas Divorce Lawyer Blog

Although much has been said about the emotional and mental turmoil brought about by a divorce, there’s not a lot of information on just how damaging it can be to your finances. Sure, you’ll occasionally hear about the professional athlete or celebrity driven to bankruptcy because of ridiculously high spousal and child support payments. But things like debt, property division, and credit during a divorce don’t get the attention they deserve.

In truth, a divorce can have a significant impact on your credit score, which in turn, affects your ability to take on a loan, open a new line of credit, or refinance an existing loan. The good news is that there are ways to protect your credit during and after a divorce. Below are four steps to do just that.

Check Your Credit Report

Run a credit report during the divorce proceedings and double-check every credit card or loan item in your report. You might have a credit card under your name you’re unaware of with a balance owed that should be settled in the divorce process. Ideally, you want to close all joint accounts before finalizing the divorce to insulate your credit score from any spending activities.

Close Joint Accounts or Remove Your Name from Them

For loan accounts that can’t be closed right away, such as your mortgage or car loan, be sure you and your spouse agree on how to divide these debts.

When it comes to the family home, the cleanest thing to do is sell the property and use the proceeds to pay off what’s left of the mortgage. If your spouse insists on keeping the family home and shouldering all subsequent mortgage payments, remember that late payments will still affect your credit score.

The lender only cares about whose names are on the mortgage, regardless of their marital status. In other words, your liability for shared debt doesn’t go away after a divorce.

Apply for a Personal Credit Card Before Finalizing the Divorce

A credit card under your name can be a lifesaver for a spouse with no income after the divorce. To get circumvent the problem of having no income or not enough income to qualify for a credit card post-divorce, you can apply just before finalizing your separation. This way, you can leverage your spouse’s income to meet the credit card company’s requirements.

Evaluate Your Cash Flow Needs in the Future

High interest rates on credit cards will make it a challenge to pay off credit card debt with just one source of income after a divorce. It’s a good idea to consult a divorce financial planner to assess your cash flow needs and determine how much debt you can realistically keep. It may be in your best interest to sell off assets to pay your debt or create a settlement to pay off credit card debt.
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Financial problems are a dimension of divorce that catches many divorcees off guard. Aside from the emotional turmoil and mental and physical exhaustion of the divorce negotiations, you also have to anticipate its financial impact during and after the proceedings.

Many men and women are shocked when they learn that their money problems don’t go away after their ex-spouse signs the final divorce settlement papers. Sure, these documents will state how your assets and liabilities will be divided, but as with many things in life, actual implementation is often another story.

The good news is that most financial problems you’ll face during and after the divorce can be mitigated with some simple measures. If you’re in the process of a divorce or have already signed the papers, be sure to follow these 6 steps to protect your finances.

Take Care of Your Credit

If you still have any joint credit cards with your ex or soon-to-be ex, make sure you cancel these to avoid tying your credit to your ex’s spending habits. If you have yet to build a good credit score under your name, now’s the time to do it.

Plan Your Estate

If you’re still in the middle of the divorce proceedings, it’s a good idea to prepare to disinherit your ex. If the divorce has already happened, talk to an attorney about altering your will and estate planning documents in light of your new status. Should something happen to you, you may not be keen on your ex inheriting your estate.

Update Your Beneficiaries

You should also update all your insurance policies, pensions, annuities, trusts, retirement accounts, and anything else where your ex is listed as a beneficiary.

Divide Your Retirement Plan

Dividing retirement assets can be tricky, requiring the guidance of an attorney who knows how to split retirement plans while protecting you from exorbitant administrative costs and tax consequences. For division of 401(k)s and pension plans (not IRAs), you will need to execute a Qualified Domestic Relations Order (QDRO), which will ensure your plan administrators will pay benefits according to your divorce’s settlement.

Ensure Your Receive Alimony and Child Support

Although your divorce settlement states that your ex must pay child support and alimony, many former spouses do not honor these obligations. What you can do is place measures to ensure you receive maintenance and child support, whether it’s through an annuity purchase, automatic bank transfers, or transfer of specific property to your name.

Sell or Refinance the Family Home

The cleanest way to ‘get rid’ of the marital home is to sell it and split the proceeds equally between the two parties. If either spouse chooses to stay in the home, it’s critical to refinance the mortgage under the name of the person who gets to keep the property. This will ensure that whoever moves out is no longer liable for mortgage payments. Remember, just because your name isn’t in the title, doesn’t mean you’re off the hook as far as the mortgage goes.
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A divorce in itself is a complicated process. But it gets even more complex when the spouses have to figure out what to do with a privately-owned business.

If you’re facing this situation, below are three important factors to consider.

The Value of the Business

It’s important to first look at the company’s financial statements, giving each side’s valuation expert equal access to the company’s books, tours of the company’s facilities, and time to interview the management. This is especially important for spouses who may not play as much of an active role in the business’s daily affairs as their partners do.

Inadequate discovery may cause an expert to miss important information, leading to an inaccurate valuation of the enterprise.

If the business interest was owned before the marriage, this may require the inclusion of the appreciation of the business’s value over the duration the marriage, which will, in turn, require an analysis of the current market conditions and comparing it with the business’ value at the start of the marriage.

What to Do in Case of Spousal Support Obligations

Under Texas law, which distinguishes community property from separate property, if one spouse started a business before the marriage, that company is his or her separated property. If it was started during the marriage, it will be community property, and thus divided equally upon divorce.

There are instances when it’s necessary to adjust the value of the business from the marital estate to avoid ‘double dipping,’ which happens when one spouse receives twice the recovery from one asset. Some courts will decide that it would be unfair for a spouse to receive spousal maintenance payments and a share of the business’s value, but this is not always the case—ultimately it depends on your state’s laws.

Honesty in Reporting Income

It’s common for a spouse who is a controlling shareholder of the business to hide assets and/or income to try and get a better deal during a divorce settlement. Hiding income and assets, or even exaggerating expenses and liabilities, can lead to a lower valuation of the business, which in turn, means lower child and spousal maintenance payments.

It’s for this reason that it’s important to work with an experienced valuation expert who knows how to find these kinds of anomalies.

In Summary

When a business is part of a marital estate, a fair settlement during divorce hinges on the company’s accurate valuation. This can be done by working with a reliable divorce attorney and experience valuation expert who knows how courts handle property division and how spouses hide their income and assets to undervalue the business.
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Two generations of record high divorce rates have nearly cemented the image of the father who was only around on weekends as part of American culture. But this is quickly changing, as more and more couples in recent years are opting to co-parent their children, even after separating from their spouses.

Seeing the benefits of co-parenting, lawmakers from more than 20 states have sponsored bills to encourage shared parenting or make it a legal presumption, even if it’s against the parents’ wishes.

Earlier this year Kentucky passed legislation that made joint physical custody and equal parenting time standard throughout the divorce proceedings.
Florida’s state legislature unanimously voted to approve a bill to presume equal time for child custody setups, but this was vetoed by the governor.
In Michigan, local lawmakers are looking at a bill that would make all custody decisions focus on equal parenting time the starting point of the divorce proceedings.

Why the Push for Co-Parenting?

The push for custody arrangement can be traced to years of lobbying by fathers’ rights groups, who argue that thousands of men around the country feel alienated from their children and are overburdened by their child-support. The movement is drawing bipartisan support from lawmakers, who are responding to this call for gender equality and, for some conservatives, increasing frustration from men who feel they are being shortchanged by current custody laws.

Women as Instinctive Caregivers

For more than a hundred years, court decisions were guided by the notion that women were instinctive caregivers. This changed in the 60s and 70s when no-fault divorce laws paved the way for a wave of divorces and more women joined the workforce.

And so, custody rulings began to shift to the gender-neutral standard of doing what’s in the “best interest of the child,” leading the way for joint custody arrangements. Still, many judges continued to use their discretion to award physical custody to mothers, which critics and fathers’ rights groups believe reflect a lingering bias.

Is Co-Parenting Actually Beneficial?

Research shows that shared parenting has a significant impact on children; kids with active fathers tend to have better self-esteem and better grades. Studies on shared parenting across 15 countries also showed benefits that cover emotional, behavioral, and even physical health.

But researchers also point out that these findings need to be investigated further, as children who display the benefits of shared parenting may have been raised in environments where the parents actually got along despite being divorced. This situation may not apply to those forced into shared custody arrangement, especially when the separation involves abuse and neglect.

As Robert Emery, author of “Two Homes, One Childhood” and a professor of psychology at the University of Virginia, points out, what’s important is not the amount of parenting time but the quality of parenting and co-parenting.
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When a Texas judge makes you liable for paying child and/or spousal support after a divorce, the terms are usually based on your situation at the time of the divorce or legal separation.

But let’s face it, life happens, which means that your ability to support your ex and child may change at any time. And before you know it, the original support stipulations of the divorce agreement or family court order are no longer sustainable for you. In other words, you can no longer continue making payments.

You may have run into employment issues, your work hours may have been reduced, you may have remarried and have another child to provide for, or your child may have developed a special need that requires you to increase your financial support.

In cases like these, Texas family law allows to modify the child or spousal support order, but only if you can prove that your current circumstances require it.

How to Make Changes to Child Support

To modify a child support order, a parent must prove a substantial change in their ability to provide financial support and/or a change in the financial needs of the child. Typical examples include:

Becoming unemployed or getting a promotion and raise
Becoming disabled and being unable to work because of said disability
The child has long-term special needs that will continue after they turn 18

In instances where the initial support order was issued more than three years ago, the custodial parent can ask for an increase in child support to keep up with current Texas child support rules. For example, if you have custody of your children and your ex-husband makes over $7,000 a month, you can seek a support increase.

Under the three-year rule, parents no longer have to prove a substantial change to modify their child support order. And if the expected change is at least $100 or an increase over 20 percent, Texas family courts will usually order the new amount right away.

How to Make Changes to Spousal Support

Likewise, decreasing or terminating spousal support requires providing a significant change in the circumstances of the supporting or receiving spouse. Such changes include a significant reduction in your income or becoming disabled, which the court will consider as valid reasons for reducing or terminating support payments.

Under Texas law, spousal support ends at the date specified by the court, provided that no modification was requested before said date. Spousal support, however, ends when the receiving former spouse remarries. Payments can stop automatically without the need for an official court order. The same rule applies if your former spouse cohabitates and enters a romantic relationship with another person, but this will require presenting evidence in court and obtaining a release order.

Note that supporting spouses are still required to continue paying back support payments until they’ve met all obligations.
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The Republican-led tax overhaul, the Tax Cuts and Jobs Act, is poised to change a number of deductions, some of which will affect the nature of divorce in the United States. For starters, one provision in the tax overhaul will remove a 75-year-old tax deduction for alimony payments. But the new rules won’t kick in until 2019, so spouses who file for divorce or sign a separation agreement have two more years to qualify for the deduction.

Several divorce experts have expressed concern that the change will throw a wrench in divorce negotiations, possibly leading to less spousal support as cash goes to taxes.

We take a quick look at the facts of this tax change.

No More Deductions After 2018

At present, spouses paying alimony can file it as a tax deduction, while spouses receiving alimony have to pay income taxes on payments. Under Congress’ new tax plan, in any divorce or separation finalized after December 31, 2018, the spouse paying spousal support can no longer deduct alimony from their taxes, while spouses receiving alimony no longer have to pay taxes on it.

According to divorce attorneys, the existing setup makes it easier to preserve more money to divide between spouses, helping them make ends meet.

Lower-Income Couples to be Affected Most

The removal of the tax deduction could make ending marriages a longer and more expensive process, which can be particularly painful for lower-income couples.

Whereas wealthy people can afford higher taxes on spousal support, for lower-income couples with limited means, $200 to $300 a month is enough to make a difference in their quality of life. It’s money that could go to food, car payments, and other bills.

Benefits of the Change, According to Supporters

According to the tax-writing House Ways and Means Committee, the alimony deduction is a “divorce subsidy,” further adding that spousal support should be considered similar to child support, which is not tax-deductible for payers nor taxable for recipients.

Repealing the alimony deduction is also estimated to increase the country’s tax coffers by $6.9 billion over the next 10 years, as per Congress’ Joint Committee on Taxation.

Criticisms

Critics expressed concern that without the deduction, higher-earning spouses will no longer pay as much to their ex-spouses. Some divorce lawyers believe the change is equivalent to lawmakers taking money away from people who have suffered the trauma of divorce. As for the House Ways and Means Committee’s argument that the deduction is a “divorce subsidy,” divorce lawyers pointed out that no one gets divorced for tax reasons.

According to the Census Bureau, more than 240,000 people received alimony in 2016, 98 percent of whom were women. The IRS says over 360,00 taxpayers claimed to have paid $9.6 billion in alimony in 2015, although only 178,000 people reported having received spousal support—a discrepancy that has concerned lawmakers for years.
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It’s no secret that a divorce is a difficult and painful process. It represents an end to a way of living you may have grown familiar with and attached to, taking a heavy toll on your mental and emotional well-being. But what many divorcing couples underestimate is just how damaging a divorce can be to their finances.

Aside from the cost of attorney’s fees, you also have to anticipate the impact of a divorce on your credit. Here’s a quick look at just how this happens.

You May Have to Refinance Your Home

If you want to negotiate to have the house under your name, you need have to refinance your mortgage, which in turn, will lead to a credit inquiry and taking on more debt.

You will also need to buy your ex’s share on the equity of the property. While the buyout amount is negotiable, expect to pay taxes and other fees if you want to sell the property in the future.

You Have to Split Assets and Debt

When dividing assets, you or ex may negotiate to get more alimony, property or assets. But this can come with the hidden cost of taking on more debt, hence the importance of working with a divorce attorney to determine how existing debt on conjugal assets can be divided.

You’ll Have Just One Source of Income

Many divorcing spouses get caught off guard after realizing that what was once two sources of income end up becoming just one. And so, they find themselves faced with the reality of having to adjust their lifestyles relative to their income. In fact, many divorced people confess that losing another person’s income made the greatest impact on their finances.

The best solution to this problem is to create a budget and make the necessary lifestyle changes ahead of time. Consolidate your debt and trim recurring bills—do what you can to live within your means.

You May Have Debt You Never Knew About

During the divorce proceedings, both you and your soon-to-be ex are required to disclose all your financial accounts. But as many people have learned, not everyone is honest about their assets and liabilities.

In fact, your spouse’s outstanding debt might even be under your name. The best recourse is to get a credit report, which will provide a comprehensive overview of any account with your name on it.

Liability for Mortgage Payments After the Divorce

Even if your ex buys you out of the family, you may still be liable for making mortgage payments. If your ex misses a payment, your credit score also takes a hit because the mortgage still has your name on it. Lenders only care whose names are on a joint mortgage, so unless you sell the house, refinance to remove your name, or pay off the mortgage in full, you are still liable for missed payments.
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The tumultuous process of a divorce can be painful and emotionally draining. With all the emotions and thoughts going through your mind, the last thing you’d want to worry about is dividing the marital or family home. But given that a home is probably the most expensive asset you’ll own, discussions on property division will naturally center on what happens with the house and mortgage.

The “cleanest” option?

Refinancing.

Here are four reasons why.

It Protects Your Credit Score

Even if your soon-to-be-ex buys you out of the family home, you are still liable for the mortgage, which will come back to hurt your score should you miss a monthly mortgage payment. In the eyes of lenders, spouses—divorced or not—are liable for a joint mortgage, unless you sell the house, pay off the mortgage in full, or refinance to remove your name.

Remember, removing your name from the title does not remove your name from the mortgage, which means your credit score takes a hit when your spouse misses payments. Even if you trust your spouse and are parting on amicable terms, trusting him/her to continue making payments after you divorce is too big a gamble to take.

It’s Fair

If you decide to keep the family home, your spouse will probably want a fair share of the equity. You have a number of options when buying out your spouse. For starters, you can offset the equity with other assets like a larger share of your retirement funds or savings.

You can also forego spousal support in exchange for the family home. Be sure to consult a Certified Divorce Financial Analyst to crunch the numbers and see if this is an equitable and financially sound option. You also have the option of a cash-out refinance, which lets you tap your equity to take a new mortgage, which you can then use to buy out your spouse.

Refinancing Provides Access to Low-Cost Capital

Leveraging your equity also offers other benefits aside from buying out your spouse. It’s common for many divorcing couples to be cash poor but house rich. With interest rates now at all-time lows, taking a new mortgage gives you access to low-cost capital, which you can use to pay off bills and credit card debt, create an emergency fund, invest in assets with a higher return than your mortgage interest, or make home improvements among many others.

It Lowers Your Mortgage Payments

With interest rates at historic lows since the 2088 recession, refinancing is a good way to bring down your payments. This is especially useful after a divorce when cash flow is tight because of the higher cost of supporting two households. Talk to a mortgage professional to determine whether it’s possible to lower your payments.
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