Articles Posted in Divorce

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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Medical advancements are adding decades to the average human lifespan, extending it by around 30 years. Of course, this is fantastic news in terms of self-fulfillment and productivity. However, with longer lifespans comes the unprecedented increase in divorce rates in the later years of our lives.

Such separations are often referred to as “gray divorces,” and while the overall divorce rate has begun to decline and stabilize, these late-life divorces see the opposite. And the reasons for this spike are largely unsurprising when you stop to give them serious thought.

Reduced Stigma of Divorce a Contributor?

For one, long-term relationships tend to become more challenge to maintain later on in life. Pair this with our newfound longevity and the dwindling stigma surrounding divorce, and the remarkable increase in gray divorce no longer seems so shocking. Another potential reason is that marriages by this age tend to be the second, third, even fourth for many Americans, and remarriages are sociologically accepted as a contributing factor.

And at this point in the lives of seniors, many of them feel that they’ve done their part—earned their money, got their promotions, put their kids through school. It’s easy to start thinking that the milestones and functions of married life have been lived fully.

But whatever the reason for getting a gray divorce, like all things, it comes with its fair share of benefits and dangers.

Writing for the New York Times, Katie Crouch narrates the positive changes in her family life after her mother divorced at the age of 72. She recounts that her 4-year-old daughter found herself in high demand and at the center of attention, receiving constant phone and Skype calls from her grandparents.

But then there’s the darker side, which mostly has to do with your finances.

Increased Risk of Poverty

First, there is an elevated risk of poverty for senior citizens, who tend to face greater difficulty and higher hurdles in establishing and maintaining their footing in the corporate world. This is especially alarming when you factor how 1 in 3 Americans have not saved a single dollar for retirement.

Dangerous for Housewives

Perhaps no one is more heavily hit by a gray divorce than the housewife, who would have no retirement plans to augment her alimony. Even women who just took time off from work to focus on domestic life are vulnerable to financial difficulty.

Gray divorced housewives face greater difficulty paying for the divorce proceedings and looking for work after years of being at home. This underscores the need for married women to be proactive in securing their personal finances while they still can.
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While many divorce attorneys in Texas know the Lone Star State observes community property laws, many lawyers erroneously believe this extends into a similar concept called “community debt.” This is simply not true.

Yes, divorced couples are liable for any property acquired during their marriage, but these laws don’t apply to debt incurred during your union with your spouse, save for a few very specific exceptions.

In this guide, we answer a few questions about community property law, clearing up misconceptions about community debt in the process.

What is Community Property?

Texas, which observes community property laws, treats all assets acquired during the marriage as equal conjugal property. This means that any property acquired by either spouse is shared and subject to property division proceedings during a divorce.

Only under specific conditions can one spouse prove a certain asset is a separate property, which includes property owned by one spouse before the marriage, or property inherited or received as a gift.

What is Community Debt?

Community debt is a false concept that takes the provisions of community property laws, applying them to debt inquired by the couple during the course of their marriage.

Essentially, the community debt concept makes the wrong assumption that any debt incurred by either spouse during their marriage is shared debt. So, if you are debt-free but your spouse incurred credit card debt while you were married, you are supposedly liable for paying off that debt after getting divorced, which again, is not true.

However, there are very specific kinds of debt that a spouse may be liable for.

What Kinds of Debt are Divorced Spouses Liable for?

Texas law requires each spouse to support the other. For example, spouses are liable for providing each other necessaries, be it food, clothing, or shelter.

According to Texas Family Code §3.201, a person can be held liable for the debt of his or her spouse only if that spouse incurred a debt while acting “as an agent for the person” and incurred “a debt for necessaries.” A person, however, is not automatically considered an agent of his or her spouse due to marriage.

What About Debt Incurred Together as a Couple?

Yes, couples can incur joint and several liability for debt acquired together as a couple. During divorce proceedings, the court generally takes a hands-off approach to avoid affecting the rights of the creditor for joint and several liability of debt.

For example, if both spouses are on contract for paying a credit card account, even if the court rules during divorce proceedings that one spouse should shoulder the burden of making all further payments, both parties are actually still jointly and severally liable for said debt.
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Divorces are rarely not messy. What was once a happy a marriage can spiral into a hurricane of emotions, accusations, revelations, and alimony checks. This can create ripples across each spouse’s circle of family and friends. And in many ways, the rise of social media has only made divorces even more complicated.

Couples who just filed for divorce or are newly-divorced are especially vulnerable to social media misuse, with some cases leading to consequences as serious as losing child custody.

The key to avoiding this is knowing a few important social media dos and don’ts that apply both in the online and real world.

Don’t Embarrass Yourself Online

You see someone cute at work, go for a night out with your friends, or find yourself a new lover shortly after your divorce, and your first impulse might be to post about it on your online page. Resist. If you’re in the middle of a divorce, your spouse’s lawyer probably has a magnifying glass on you right now, and every move and statement you make can be construed against you.

That means a simple group picture of a night out with friends is now fodder for the opposing counsel to question your parenting skills. Post wisely, or child custody and spousal support could be on the line.

Don’t Continue Using Social Media as Your Personal Journal

A divorce can take a massive emotional toll on anyone, with the slightest mistake and frustration ruining your day. Further complicating this is how many people have the habit of expressing their troubles and frustrations on Facebook or Twitter, which, as previously mentioned, can come right back and hurt your case unnecessarily.

If expressing yourself is cathartic, now may be the perfect time to visit a bookstore and pick up a journal. Let your frustrations and discoveries out on paper where no one else can see and take them against you (although personal journals can be subject to discovery – ask your lawyer). Remember to keep your frustrations and rants private.

Don’t Expose Your Ex

Having married your spouse, it’s only natural that you know about secrets about that person. In times of anger and agitation, you could be tempted to rage, go online, and shame your ex for everyone to see. But in situations like this, it’s best to seek the moral high ground.

From a more practical standpoint, remember that your spouse also knows things about you that you wouldn’t want to be shared online. So it might be better to hold your peace than cast the first stone.

The safest and quickest thing to do during a divorce is to deactivate your social media accounts—at least until the divorce proceedings are finished. Not only does this prevent you from making a mess online, it makes your online history unavailable for research, and protects you from viewing provocative posts yourself.
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Aside from the heavy toll on your emotions, a divorce also raises a number of issues concerning your finances. For many married couples, the family home is often their most expensive asset, so it’s no surprise why dividing a home’s value, or at the very least agreeing on what to do with it, can be a prickly affair. And with the ending of your marriage, the family home can turn into a place neither of you may want to continue living in afterward.

If this problem is something you’re dealing with right now, below are a few options to choose from to resolve the issue of the family home.

Let One Spouse Keep the House

There are cases where one of the parties will want to continue living in the family house. Perhaps they don’t want to let go of the place they call home, or know that keeping their residence is the most convenient option.

Option 1 – Your Spouse Keeps the Home
In any case, if you or your soon-to-be ex-spouse decides to keep the house, one of you will have to be released from the liability of paying the mortgage. This means executing the proper documentation.

Option 2 – You Keep the Home
On the other hand, if you’re the one who keeps the house, you can either continue under the same mortgage terms or refinance the mortgage to get better rates. You also need to have documents drafted to remove your soon-to-be ex-spouse’s rights to the home;

No One Keeps the Home

This means both spouses agree to sell off the home and split the proceeds. If you haven’t been married for very long or just recently moved into the house, you’re probably still paying the mortgage, which means you’re still liable for making payments, even after dissolving the marriage

If you and your spouse can agree on it, selling the house is usually the most expedient and cleanest option for dividing the property. You can then use the proceeds from the sale to pay off your mortgage, allowing you to move on from any payment liabilities and start life anew. Depending on how much you earned from the sale, you can also use the proceeds to pay off any conjugal debt you might have.

Take note, there are no guarantees that you can sell the home at a profit. Your home’s value will depend on several market factors, including the condition of the house, the neighborhood it’s in, and the general real estate outlook in your city or county.

Deciding to end a marriage is always hard, and dealing with the fallout is even harder. It’s best to plan ahead for what happens after the divorce, especially in matters that deal with money and property.
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As a business owner, you’re probably used to tracking a wide range of risk factors, whether it’s your competitors, technology, supply and inventory costs, marketing, and churn among others. However, have you stopped to consider the damage a divorce can do to your business?

If you’re managing a family-owned business together with your spouse, a separation can be put the fate of your company in jeopardy. And for couples that have their entire net worth tied to their business, a divorce can easily be the ruin of their financial health, leaving them with insufficient cash to buy each other out.

Depending on the circumstances of your divorce, you may have to keep the business up and running and split profits, which may not be an option for ex-spouses who have parted on bad terms. Another option is to shut down the business entirely and split the assets, or sell the business and split the selling the price.

But it doesn’t have to be this way, not when you have a number of options for protecting your business.

Get a Prenuptial if You Can

Although it has a pejorative aspect, a prenuptial agreement before your marriage can help save your business by specifying what happens to the company should your marriage end in a divorce. When done right, prenups can be airtight, protecting your company from property-division laws, even in community property states like Texas.

An ironclad prenup should have the following characteristics:

The agreement comes in a written document
It’s executed voluntarily before witnesses
It has full disclosure from both spouses (i.e. cannot be unconscionable)

Use a Trust to Protect Succeeding Generations

It takes foresight, but one of the best ways to protect your family’s wealth in the long term is by using a trust, which will protect the next generation of your family should any of them go through a divorce.

For example, if a father gives his son shares in the family business worth $2 million, this amount can be placed in a trust accessible to him and only him. Should he marry and remarry in the future, his spouse cannot touch this money, even during a property division battle.

Stay Together for the Business

One of the simplest solutions to managing a business during a divorce is to remain as co-owners, even after dissolving the marriage. This, however, is easier said than done, as many divorcing couples are locked in emotional battles and cannot stand the sight of each other, much less run a business together. Still, this option is worth considering if you and your ex-spouse parted on amicable terms and can agree to “stay together” for the company.

You’ll often hear many businesspeople say that business is business, even when family is involved. But when it comes to divorce, the lines between family and business can get blurry.
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Many divorce lawyers refer to it as a ‘hidden’ fee that adds insult to injury. As 401(k) plan participants amass wealth in defined-contribution plans, more and more baby boomers filing for divorce are learning of a little-understood abbreviation that causes frustration in what is already an exasperating divorce process.

The QDRO fee is for processing a qualified domestic relations order, which transfers assets in a defined-contribution account. During a divorce or legal separation, a QDRO splits and changes a retirement plan’s ownership to give one spouse a share of the pension or asset plan.

Here are 3 things you should know about QDROs and the fees that come with them.

A QDRO Fee Can Be Expensive

If you’re lucky, your employer might have opted to make the QDRO fee part of the plan’s costs, which are divided among account members.

However, if a third-party administrator like Vanguard or Fidelity Investments handles the 401(k) plan’s records and administrative details, a plan participant can be charged a QDRO fee as high as $1,200 and beyond. And that doesn’t include the cost of paying the lawyer to prepare any paperwork for the process, not to mention the cost of filing for the divorce itself.

As consumer rights attorney Carl Engstrom of Nichols Kaster notes, record keepers typically “enhance profit margins, while remaining competitive on record-keeping charges” by charging “bloated transaction fees to participants.”

And it’s a problem that’s becoming increasingly common in recent 401(k) litigation cases.

The QDRO Process Requires the Guidance of a Skilled Attorney

While class-action lawyers can quickly spot a potential case involving exorbitant transaction fees, divorce lawyers often have a harder time going through the dense and rigid 401(k) language used by financial services companies like Fidelity. In short, many lawyers specializing in divorce are ill-equipped to understand the ins and outs of QDROs and tax-advantaged retirement benefits.

And when an administrator receives a QDRO with the wrong language, it’s sent right back to the lawyers, which means their clients have to pay for it once more. And when clients are hit with a thousand dollar fee out of nowhere that the divorce lawyer didn’t see coming, it naturally makes the lawyer look bad.

It’s a Lucrative Business for Third-Party Administrators

According to Bill Burns, a QDRO and pension valuation expert with Lexington Pension Consultants, it’s the large third-party administrators that charge excessive fees for QDROs.

Burns adds that while many other investment plan fees and expenses have declined significantly over the years after multiple consumer complaints and lawsuits, QDRO fees at at certain places haven’t changed for more than 15 years. In fact, they seem to be on an uptick.
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It’s no secret that a divorce can be particularly damaging on either spouse’s finances. Unfortunately, many divorcing couples often go through the experience without so much as a safety or a basic understanding of the repercussions of a divorce on their finances.

While the U.S. divorce rate has been in steady decline over the last 20 years, it’s still estimated that more between 40% to 50% of all marriages in the country end in divorce. But among baby boomers, divorces have actually been on the rise, earning the nickname “gray divorces.” For these former couples, the cost of a divorce can be especially high as they no longer have time to recover from the financial damage they incur.

In any case, the consequences of a divorce can be significant for anyone going through it. To keep your finances in good health, be sure to consider the following factors.

Get Professional Help

A divorce can take a huge toll on your emotions. One moment you’re emotionally charged with fear or anger, the next you’re feeling sad and lonely. This rollercoaster of emotions is a perfect recipe for making bad decisions. The best way to minimize the likelihood of making costly mistakes is by getting professional advice from a divorce lawyer and financial advisor. This is especially important for women, who still tend to be more negatively impacted by divorce than men, suffering serious setbacks to their standard of living.

Get Insurance for Support Payments

For divorces that involve children, one partner is usually tasked to pay child support and/or spousal support for the other. The parent taking greater responsibility for raising the children is usually the recipient of such support.

But the challenge with making these payments over a long-term period will always be liquidity. Chances are high that the paying ex-spouse could soon find himself unable to pay for support, which in turn means that their former partner will have to shoulder the financial burden of paying the bills.

This is where financial advisors can come in by running estimates on marital assets and taking into account factors like liquidity, taxes, and risk to help a divorce lawyer reach a realistic settlement.

Consider Tax Implications

Taxes are an often overlooked factor in many divorce cases, with many ex-spouses focusing only on dividing assets. For instance, assets of $1 million in a 401 (k) are worth much less than the same amount of money in a taxable account. This is because a 401 (k) will ultimately be subject to marginal income-tax rates when used in retirement. In contrast, the latter will be taxed at a lower capital gains tax rate.
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Two U.S. Department of Defense appropriations bills filed before Congress and the Senate could very well change the rules and regulations that govern the division of the pensions of military personnel after a divorce.

If enacted into law, the bills would revoke the power that states traditionally have to partition military pensions. Moreover, it could reduce the share of the pension benefits that former spouses are entitled to receive after separation.

Division of Military Pensions Under Current Law

The situation could look like this: Assume that John, a sergeant major (E-9) in the army, retires after 30 years of service. He had divorced his wife, Jane, 10 years ago, after 20 years of marriage.

This means that they were married for the 20 years that John served in the military. At present, the law states that Jane would receive half, or 50 percent, of the two-thirds (20 out of 30 years) of John’s military pension.

It sounds simple enough, right?

Division of Military Pensions Under the Proposed Laws

But the proposed laws stipulate that, under the same circumstances, Jane would only receive half of John’s military pension as a sergeant first class (E-7)—his rank throughout the 20 years in which they were married.

It might not seem like much, but the loss to Jane, as well as the bonus to John, can be significant when calculated. And things could look even bleaker for Jane, as there is no cost of living adjustment that allows Jane’s share of the retirement fund to rise with time. All adjustments of this nature would only benefit John.

Moreover, the bills would restrict any exemptions that allow divorcing couples to settle their cases in another manner, despite the fact that more than 90 percent of divorce cases are resolved in a settlement. This kind of “fixed benefit” division has been criticized by both the American Bar Association and the American Academy of Matrimonial Lawyers as a form of interference on the court system, as well as lawyers, military personnel, former spouses, and retirees.
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