Articles Posted in Divorce

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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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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