Articles Posted in Divorce

Aside from causing tremendous emotional turmoil and stress, a divorce can be particularly dangerous to either spouse’s finances. Both men and women face an equal amount of financial risks during and after a divorce, making it necessary to plan accordingly.

Below are 4 financial risk areas spouses should be aware of when going through a divorce and even after the divorce proceedings have ended.

A Budget, Or Lack Of It

Let’s face it, it’s rare for divorce proceedings to not be expensive. Whether you’re in the process of a divorce or have been separated for months, you need to gather as much of your financial information as you can to determine your assets and liabilities.

Next, you need to create a budget, identifying debts to be paid, costs that need to be absorbed (e.g. mortgage or car payments), and assets that can/should be divided.

You also need to plan for the future of your children. How will you take care of college? Will you and your ex split the expenses of raising your kids.

Alimony (Spousal Support)

After a divorce, it’s common for one spouse to pay alimony to the other, not including child support. But while child support is non-tax-deductible, ex-spouses who pay alimony can deduct that amount on their tax return, which means the person receiving alimony must also report it as income for tax purposes.

For some people, alimony and child support can be the only form of income they receive, which rules out the possibility of saving for retirement.

But it doesn’t have to be this way, not when individuals who receive alimony can contribute as much $5,500 per year or the amount of alimony received—whichever is less. And for people over the age of 50, the contribution limit increases to $6,500 per year.

For more information about these contributions, consider talking to a tax advisor to discuss your eligibility.

Social Security Benefits

If claiming Social Security benefits is confusing for married couples, it’s even more complicated after a divorce.

For starters, you can only claim spouse benefits on your ex if you were married for at least 10 years. And if you decide to remarry, you’re effectively waiving the ability to claim benefits on your ex. This may turn out to be disadvantageous if there’s a significant gap between you and your new partner’s earnings, and your ex’s earnings.

Investments, Or Lack Therof

A divorce can throw a wrench in your current financial holdings and how much money you may need in the future. This means your investments have to change accordingly to insulate yourself from these new risks. It’s a good idea to talk to a financial advisor to reassess your risk tolerance and your portfolio’s current lineup of equities based on your current and future income needs.
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The idea of a divorce often brings to mind constant bickering, toxic custody battles, ill will, and the fear that either spouse’s lawyers will intentionally prolong the process as a way of hurting the other party.

And true enough, there are many divorce lawyers out there who make these fears a reality. However, there are also lawyers committed to making the divorce process as painless as possible, using a practice referred to as “Collaborative Divorce.”

Collaborative Divorces, Explained

As the name suggests, a collaborative divorce is when both spouses work with their attorneys to arrive at a positive resolution that both sides can agree to. It’s an amicable way to end the marriage, ensuring that both sides sign off on all agreements without ever having to go to court.

Collaborative divorce lawyers can only work with couples who are actually ready to sit down and talk in a collaborative setting. Should the divorce proceedings become contentious, or the couple refuses to compromise and work together productively, lawyers who handle traditional divorces must take over.

If anything, the option to have a collaborative divorce should serve as a wake-up call for separating spouses, who need to ask themselves how they can make the divorce proceedings smoother and more productive.

How Does a Collaborative Divorce Work?

Before entering a collaborative divorce, couples must first sign a contract stating their commitment to practice good faith and fairness in their negotiations and communications. Couples must also promise to be honest and transparent about all required documents, finances, and paperwork.

Once done, the couple and their respective lawyers meet in a neutral environment without the need of a third-party mediator. Both sides agree to work constructively and with an open mind, ensuring that everyone walks away from the proceedings in as positive a manner as possible.

For a collaborative divorce to work, each member of the couple must set aside their differences and focus on what’s best for everyone, including themselves, their children, and their respective families. The last thing you want is to begin the collaborative divorce process only for things to fall apart because you stubbornly refuse to make concessions in exchange for your own requests.

The Benefits of a Collaborative Divorce

A collaborative divorce allows each side a chance to step back and listen and explain themselves without feeling they’re being judged or shut down. It allows everyone to put aside their differences and hurt feelings, and explain in clear, objective terms what they feel they deserve and why. Collaborative attorneys can then step in and provide solutions for each person to meet their needs in an equitable way.

This setup goes a long way towards speeding up the divorce proceedings and keeping the costs of a divorce down. However, it’s also true that collaborative divorces are not for everyone. Some separations will always be bitter and painful, making it impossible for both spouses to even talk to one another, much less work together.
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The messiest part of a divorce is often splitting assets and debt. When a couple can amicably decide how to split their assets and debt, they submit a marital settlement agreement to the court, which outlines the provisions made. When a couple can’t work together to split their assets and debt, however, the court will step in and make the decisions for them.

It’s important to remember that courts have the discretion to distribute community property in any way believed to be fair, and often times, fair doesn’t necessarily mean equal. When determining if the presumption of equal division should be adjusted, the court will consider factors such as age, education levels, income, and health. Other considerations include:

If one spouse is the primary caregiver for the couple’s children
If one spouse is determined to be at fault for the divorce

Understanding The Difference Between Communal And Separate Property

For divorcing couples looking to divide their assets without court intervention, it’s important to understand what assets actually are. Texas is a communal property state, meaning all income earned and property acquired by either spouse throughout the marriage is community property and belongs to each spouse equally. The court presumes that all property held by either spouse throughout the marriage is community property. Assets that are to not be treated in such a manner are what’s known as separate property.

Separate property can include anything that belonged to one spouse prior to a marriage that was kept separate throughout the marriage. Common examples include an inheritance, and money received by one spouse as part of a settlement or lawsuit due to injury can be considered separate property. The only time this would not be considered separate property would be if the money was intended to compensate for earnings lost due to an injury.

Dividing Assets

The first step in dividing assets fairly is to make a list of all community property, along with the value of each asset. This list will likely include houses, cars, bank accounts, investments and retirement plans.

When dividing assets, both spouses should consider the fairest way for assets to be split. Sometimes, it may not be best to split everything 50/50. For example, if a couple’s assets were two bank accounts, one with $100,000 dollars and one with $80,000, and a car worth $20,000, options may include:

Splitting both bank accounts, selling the car and splitting the money from the sale
One spouse keeping the bank account with $100,000, and the other spouse keeping the other bank account with $80,000 and the car worth $20,000. This is still equally split, but simpler.

Dividing Debt

When couples file for divorce, they may find they have acquired a considerable amount of debt, including car loans, mortgages, credit cards. These debts factor into a couple’s net worth, which means both spouses are responsible for them.

In Texas, certain debt is considered community property. If a debt is incurred during the marriage, and the creditor agreed to look solely at one spouse’s separate property for satisfaction of the debt, the debt may be viewed as separate property. Debt incurred prior to the marriage is generally considered separate property.

When a divorcing couple is trying to figure out how to split their debts, the first step is to write down each debt, along with its dollar amount. The court will ultimately decide who is responsible for each bill when dividing assets and debt, but having a proposed plan in place is helpful and a good starting point.

Division of debt should always be fair. So, if one spouse receives more property, that spouse should also take on more of the debt. The net worth of all of the debt and assets in a marriage is what should be considered, and should be split evenly, but can vary of course, depending on the particular circumstances.
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There’s no denying that a divorce is a highly disruptive event in a person’s life. It represents the end of a way of living you have become familiar with, taking a heavy toll on your emotional and mental health.mIt can also pose significant damage to your finances, so much so that even moneyed divorcees can lose a significant portion of their current and future wealth.

More importantly, even if you have substantial savings tucked away in your accounts, these assets may be frozen throughout your divorce proceedings, leaving you with no way to pay for your divorce. 

Financial Damage Intentionally Brought Upon by Spouses

But that’s not all. Some spouses who wield the financial power during the marriage intentionally cut off their ex’s access to credit cards, joint accounts, and other conjugal assets, hiring the most cunning of attorneys to put financial pressure on their former partners.

Some wealthy husbands and wives have been known to drag the divorce proceedings to a crawl, a tactic that intentionally drains their spouse of all funding. This forces the weaker party to surrender and agree to an unfair settlement that could have been avoided with enough resources.

Sure, you can borrow money from your friends and family, but not everyone has that option. Fortunately, situations like these are where divorce finance can do a lot of good.

What is Divorce Finance?

Divorce financing helps to even the playing field, giving spouses with little to no financial options the funding to pay for their attorney and other litigation fees. Financing also helps them maintain their quality of life.

Financiers can be reimbursed through a “contingency fee agreement,” which means they “win” if the client reaches a favorable decision or settlement. This contrasts with dealings with divorce lawyers, who can’t represent clients based on the outcome.

With independent financing, cash-strapped spouses can go after the settlements they think they deserve but would never have access to without the right resources.

Divorce financing is a relatively new product, with firms like New Chapter Capital and BBL Churchill among the few to offer loans and financing options specifically for individuals going through a divorce. These firms offer loans or advances to help clients pay for attorney fees and personal expenses, with repayment only required until reaching a settlement.

But how do these firms turn a profit? In theory, any divorce can lead to a favorable settlement if the litigant has enough resources at his disposal. Financiers know this, which is why they see your divorce as an investment opportunity. By investing in your divorce, the financier is making a calculated risk to get a solid return on their money.

Although no amount of money can completely ease the emotional and mental stress of a divorce, these kinds of products and services offer a solution to the financial burden of a separation, allowing litigants to devote their time to more pressing matters, like child custody and property division.
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Most divorced couples probably already know that when it comes to claiming Social Security perks, a couple must have been married at least 10 years before the date of their divorce to be eligible for benefits on their ex’s Social Security earnings record.

But that’s just the tip of the iceberg. Below are a few more Social Security rules for divorced couples you probably haven’t heard of before.

On Couples Who Divorce the Same Person Twice

While divorcing your spouse and later on remarrying that person, only to file for another divorce once more may seem strange, it’s common enough that the Social Security Administration has outlined the following example:

“Robert, who married Lois on 5/6/80, was divorced 5/2/86. On 7/7/87, they remarried but were again divorced 9/5/90. The 10-year requirement is met. However, if Robert and Lois had remarried in 1988 instead of 1987 and were divorced again on 9/5/90, the 10-year requirement could not be met. The marriage must be in existence in each of the 10 years before the final divorce in order for the claimant to be entitled.”

On Maximum Benefit Amounts

For benefits based on your ex-spouse’s earnings record, you can only claim a maximum of 50 percent of the amount your ex-spouse would receive upon reaching full retirement age. However, this spousal benefit amount will go down if you file before reaching your own full retirement age.

On Remarrying and Collecting an Ex-Spouse’s Benefits

If you thought you could remarry and still receive your living ex-spouse’s social security benefits, think again. You can, however, collect on a deceased ex-spouse’s Social Security record if you remarried after turning 60 years old. Any remarriage before this age automatically stops any benefits based on your ex’s record.

On Tying the Knot to a New Spouse and Filing Benefits

If you have just married a new spouse, you need to wait approximately 12 months before you can file an application for spousal benefits based on your partner’s Social Security record.

On Changes Under the Bipartisan Budget Act of 2015

Under the Bipartisan Budget Act of 2015, divorcees will no longer be allowed to file a restricted application for divorced spousal benefits. This once gave divorced spouses the benefit of having their own retirement amounts accrue delayed retirement credits. However, there is an exception to the rule: divorcees who turned 62 by the end of 2015.
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Aside from infidelity and irreconcilable differences, financial issues often top the list of reasons why married couples file for divorce. In fact, one survey found that as much as 53 percent of Americans admitted to financial infidelity—the act of hiding their spending from their spouse. And while it may seem that women are often portrayed as irresponsible spenders, the problem affects both sexes pretty evenly.

It’s no surprise then why many divorced couples often have problems sorting out their mortgage and end up facing foreclosure, a situation further compounded by a divorce. Below are a few of things you need to watch out for when fixing your mortgage after a breakup.

On Transferring Interest and Liability

During a divorce, both parties may agree to have one spouse transfer his or her interest in the home to the other. However, while it may seem that this arrangement relieves the transferring spouse of any liability for mortgage payments, this is not actually the case.

If the house was listed under both spouses’ names, transferring interest of the property will not remove a spouse from mortgage liability. From the bank’s perspective, both spouses are still required to ensure the make timely mortgage payments, regardless of whose name is on the deed.

On Unpaid Mortgages

Should you or your ex-spouse fail to pay your mortgage, the bank will file a foreclosure against you and your ex, which will negatively affect both your credit scores. Worse, you could face a deficiency judgment, which orders payment of any deficiency between the remaining balance on the mortgage and the price the property sold for after being foreclosed.

Obviously, this is a nasty surprise for unsuspecting spouses still recovering from the cost of a divorce, only to find themselves dealing with a foreclosure for a house they no longer live in, much less own.

Solutions for Divorcing Spouses

During the divorce proceedings, it’s important that divorcing spouses put aside their differences and work towards a mutually beneficial arrangement that will insulate them from mortgage problems and fear of foreclosure.

Below are a few possible solutions:

Assumption: Should one spouse choose to continue living in the marital home, that person can assume the mortgage, taking over any responsibility for making future payments. This would release the other spouse from any mortgage liability.

Refinancing: The spouse who opts to stay in the property can also refinance the mortgage, which, just like an assumption, relieves the other spouse from liability. However, refinancing means that the spouse in question can only use his or her own credit to qualify.

Sell the House: When it comes right down to it, the safest thing you can do during a divorce is to sell your home. If you have equity, sell it and split the profits.
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Divorce can be a traumatic time for children, often resulting in long-term emotional and psychological complications. To cope with these problems, more divorced couples are turning to new approaches to remedy a broken home.

One such trend involves children still staying in the same home they grew up in, with the parents taking turns moving in and out of the house to spend time with their kids. This arrangement has come to be known as “nesting” or “birds-nesting,” a reference to how some species of birds also take turns to tend to their offspring in the nest.

But is nesting a viable option for your family? Before anything else, there are several factors to consider.

Property Division, Support, and Taxes

For starters, you have the legal implications of this arrangement. In some states, ex-spouses might not be considered separated if they engage in the practice of nesting. When this happens, your property division arrangement and support orders might be compromised.

Aside from the alimony issues that come from the sharing of a home, you also need to consider the tax issues that may come up when you decide to sell it in the future.

Financial Issues

You also have to consider the financial burden of nesting. On top of transportation costs, legal fees that tend to go upwards of $20,000, child support, and alimony, maintaining multiple homes at once is not a financially sound arrangement for many people—divorced or not.

Benefits

Divorced parents who are practicing nesting have, however, justified the technique by pointing out the positive effects it can have on children.

If you find yourself feeling conflicted about your divorce because of what it might do to your children, nesting can be a way to ensure your children’s needs are the top priority. It won’t be perfect, but they can spend more time with either parent without having to be shuttled back and forth.

Nesting may also be an option for you if you believe that children need both parents to lead healthy and normal lives. Many divorcing couples tend simply want their soon-to-be ex-spouse out of their lives right away. But when kids are part of the equation, the dynamic of the separation changes.

In other words, nesting reduces the feeling of having a broken family—a common cause of emotional distress for many children of separation. Nesting provides much-needed stability at a time when the children themselves feel conflicted about the divorce, to the point that they end up blaming themselves.

While a divorce might be unavoidable, compromising the time you spend with your children need not happen. With nesting, parents can ensure their children can spend a fair amount of quality time with each parent.
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Although divorce rates in the United States have fallen to a 35-year low according to the National Center for Family & Marriage Research at Bowling State University, it’s a different story for adults ages 50 and above.

For older Americans, divorce rates have doubled since the 1990s, with 10 in every 1000 married individuals having divorced in 2015—up from 5 in the early 1990s. It gets worse for older baby boomers (ages 65 and up), where divorce rates have tripled since the 1990s—around 6 in every 1000 married people.

Such separations are often referred to as “gray divorces.” While they may not seem different from any divorce at a younger age, gray divorces come with unique concerns, mostly having to do with your finances.

Danger to Retirement

One thing is for sure: when a gray divorce becomes part of anyone’s financial equation, it can put the retirement of both parties in danger. For starters, both spouses may be forced to live on only half the income they would normally have, leading to some uncomfortable lifestyle changes.

This is especially dangerous for homemakers who have been out of the workforce for years, and must now deal with the potential of finding a job even with alimony.

If there’s a silver lining to these divorces, it’s that spouses usually don’t have to deal with bitter custody battles. At this age, their children are likely to be adults and have their own families.

Expect a QDRO

A gray divorce usually leads to the division of whatever money the couple shares in 401(k) plans, retirement accounts, 403(b) or 457 accounts, and pensions. This usually requires an expensive Qualified Domestic Relations Order (QDRO).

Some points on QDROs to remember include:

For non-IRA retirement plans, you will need a QDRO to divide whatever money is in these accounts. Otherwise, you might end up paying taxes when moving any amount to your ex-spouse improperly.
Work with a divorce attorney who knows how QDROs work. This is a specialty not all divorce attorneys are experts in.
An improperly filed QDRO will be sent back to you, which means having to start all over again and paying the QRDO fees once more.

How Do You Avoid these Issues?

Of course, the most obvious solution is to simply not go through a divorce at this age. But while this may seem like the most practice choice for couples to avoid splitting their assets and retirement funds, money is not always the concern for these people. Personal happiness and independence are just as, if not more, important for couples of any age.

Careful financial planning also goes a long way if you want to insulate your finances against marriage problems. Just as people would adjust their lives and portfolios before retirement, it would be wise to prepare contingencies for unexpected separations in your golden years.
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Divorce proceedings are all but guaranteed to be trying, emotionally draining times. Emotions run high, tensions between family members are palpable, and all you want to do is get things over with and move on. But what many divorcing couples often don’t realize is just how damaging a divorce can be to their personal finances. And the closer you are to retirement age, the repercussions of a divorce can be even more severe, especially to the spouse who has chosen to stay at home and forego employment for years.

It’s for this reason it’s important to claim everything you are entitled to of what you saved as a couple. Unfortunately, this is easier said than done, as things like retirement savings are relatively easy to hide if you don’t know where to look.

Here are a few places to focus your attention on.

Turn to the Internal Revenue Service

Most of us tend to avoid any kind of dealings with the IRS out of fear of being audited. But during a divorce, the IRS can be one of the best places to check for a paper trail leading back to your ex-spouse’s Individual Retirement Arrangement (IRA) and retirement account distributions, which can be found on a 1099-R form.

Let’s say your spouse moved funds from a retirement account into an IRA with Ameritrade or a 401(k) with Vanguard. Either way, if your spouse did this to siphon funds away from their account and make it seem it contains much less than expected, this transaction would still trigger Ameritrade or Vanguard to send a 1099-R to both your spouse and the IRS.

And even if your former spouse were to throw their copy of the form away, the IRS would still know and report this in the tax return for the year the transaction happened.

Check for Fake Documents

In a world of Photoshop and digital manipulation, it’s never been easier to doctor documents so they show any amount you want to declare. And that doesn’t even include the ‘traditional’ defrauding tools like a photocopier, typewriter, or even something as simple as correction fluid or tape.

In any case, if you’re going through a divorce or have just been through one, be sure to check the authenticity of any tax, IRA, or 401(k) documents you get from your spouse. When in doubt, talk to your lawyer or a fraud specialist to determine the veracity of the barely legible document given to the courts.

You can also multiply the number of shares of the retirement fund by its latest share price to see if the investment value lines up with the number you see on the document.
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Couples who have finally finished the often-rigorous process of getting divorced often have one thing in mind: get out and start anew. But while it’s certainly important to start finding some semblance of normalcy as quickly as you can after a divorce, acting too hastily may have unexpected repercussions for the future—especially when it comes to your finances.

Many divorced spouses often underestimate the impact their separation can have on their retirement. Below are 4 steps to protect your retirement assets during a divorce.

Decide What Happens to Your Retirement Plans

The Internal Revenue Service needs a Qualified Domestic Relations Order (QDRO) to divide the amount in a retirement fund between two former spouses. This document is a court order determining how your retirement assets will be divided, and is also typically presented to your retirement plan provider.

Executing a QDRO can be complicated, and unfortunately, many divorce lawyers don’t fully understand the process. It helps to consult the advice of a financial advisor and hire a divorce attorney familiar with this aspect of your case. Your attorney can tell you about all its nuances and rules, especially the fees, which can be obscenely high if you make a mistake in filing.

Change Your Beneficiaries

Thought your new will covers your retirement accounts? Think again. You should still change your beneficiary designations on all your retirement plans. Unfortunately, many divorced spouses make this all too common mistake, thinking their last will and testament takes care of everything.

Changing your beneficiaries is especially important if you named your former (or soon-to-be) spouse as one of them. Despite your divorced status, your ex will still inherit your retirement money upon your death if it says so in your account. And even if your spouse respects your wishes and gives the money to your kids, he/she can be liable for a tax payment for doing so.

Bottom line? Get your lawyer to execute this simple legal document.

Go Over Your Social Security Benefits

You can receive a portion of your former spouse’s Social Security benefits if you were married to your spouse for at least 10 years prior to the divorce. Now is a good time to compare your Social Security benefits with your ex’s, because you can only claim either one.

And if you decide to remarry, doing so before you turn 60 voids any chance you have of collecting your ex-spouse’s Social Security benefits.

Review Your Investment Portfolio

Now would also be a good time to look at your investment accounts and reevaluate your risk tolerance. There are many instances when a person’s risk tolerance for investment matches that of their spouse. Your risk tolerance may also be more aggressive due to the higher combined income you share with your spouse. As someone who’s single once more, your investment options now need to consider your current income, current savings, profession, and likely future.

Everyone knows divorce can take an extreme toll on your stress levels and emotions, but many people fail to grasp how big of an impact a separation can have on their future retirement. If you’re not sure how to secure your finances, talk to a qualified divorce attorney.
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