Articles Posted in Divorce

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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Going through a divorce can take an emotional and psychological toll on just about anyone. But what many divorcing couples often underestimate is just how expensive a divorce can be. Even worse is how the financial impact of a divorce is felt throughout an excruciatingly drawn-out process.

It’s for this reason that it is absolutely necessary to have a support system around you who can help you move forward both emotionally and financially. The people you surround yourself with will be your most important asset when taking the challenges of a divorce head on. Listed below is a list of personalities you will need to have as successful an outcome as possible.

Family And Friends

For divorces involving children and property division, it’s important to have family and friends who can provide the necessary emotional support as you go through this tumultuous period of your life. Having friends and family who can empathize with your situation and just listen to you goes a long way towards putting you on the path to healing.

It’s also a good idea to regularly see a therapist during this time to ensure you have someone who can help you make sense of your stress and emotions.

A Divorce Attorney

An experienced matrimonial lawyer—ideally one you’ve known for years—will prove invaluable during a divorce, ensuring that you’re getting the best possible representation, especially when the separation involves dividing assets and/or child custody.

If you don’t know any attorneys specializing in family law, start by asking your friends and family. You should also seek referrals from other sources, whether it’s resources like Justia or family law attorney associations. It’s a good idea to narrow your choices down to three attorneys, interviewing each one before making any commitments.

Remember that a divorce process may end up taking years, so you want to work with an attorney that you can actually get along with. You also want to hire an attorney who offers a practical fee structure, at least to your current situation.

Financial Advisor

Besides an experienced divorce attorney, you should also consider working with a financial advisor specializing in divorces and other matrimonial matters. As you go through the divorce proceedings, you will need someone who can help you plan your current and future financial decisions.

A financial advisor’s expertise will also prove invaluable when evaluating settlement proposals and even witness testimony. And after the divorce, you will need an advisor to help you deal with the financial fallout of the separation, particularly if you have been out of the workforce for years and have depended on your spouse’s income.
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After making the decision of ending your marriage with your soon-to-be ex-spouse, you have to brace yourself for even tougher decisions during the course of your divorce.

For starters, you need to decide as early as now what you intend to do with the family home, which is perhaps your family’s single biggest asset. Will you keep it or put it on the market?

The answers to these questions will depend on factors such as who owns the house, whether you have children or not, you and your spouse’s personalities, and the nature of your divorce (i.e. amicable or not).

While you weigh these factors, here are a few suggestions on what you can do with the family home.

Option 1: Sell The Home, But Only In The Near Future

This is an ideal option if you and your spouse can agree to dispose of the family home until the kids are older or have moved out of the house. Many divorcing couples pre-agree to split the equity of the home upon selling it, having one spouse stay in the home in the meantime to avoid disrupting the kids’ lives.

This arrangement can come with serious setbacks, however. Many parents, particularly women, negotiate for the home instead of cash, and so they find themselves with a home to live in but no cash to support their lifestyle after the alimony and child support run out.

It’s also a good idea to hold off from making any decisions about your home during and even after the divorce. Once you’ve gotten used to life after marriage, you may be in a better position to make decisions about the fate of your home.

Option 2: Sell Right Away

There are often also situations when it’s financially smarter to just sell the house right away and split the profits with your partner. This is a good move when you consider the closing costs of selling a home, from commissions for your listing agent and home inspection fees to repairs and improvements before selling.

If you’re cash poor, it may be better to just sell the house right away, split the profits, and divide the costs of selling.

Option 3: Consider Nesting

Nesting is a setup that may work for you, especially if you and your soon-to-be ex are on good terms.

Nesting involves keeping the family home and having the kids stay put while the parents take turns living there. The parents can agree to rent and split the costs of a nearby apartment or home, taking turns living there too.

It’s a progressive and downright crazy idea, but one that somehow works for some families. The time will eventually come when it’s more sustainable for one person to buy the other person out of equity or sell the home and split the cash, however, so don’t expect for any nesting setup to last.
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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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