Bedrock Divorce Advisors
Five Best Financial Tips for Women Divorcing in 2021
Now that 2020 is in the rear-view mirror (thank goodness!!), it’s time to focus on 2021.
If you have put off filing for divorce because of the pandemic, you are not alone!
According to a recent article on Bloomberg.com, “the number of Americans getting divorced plummeted last year…” “The data contradict early predictions that Covid and the stresses of quarantine would cause divorce rates to surge.”
If you are now planning to divorce in 2021, here are the five best things you can do now that will make the process go more smoothly once it formally begins:
- Gather financial documents.
Along with holiday greetings, this month’s mail and/or emails brings year-end statements from banks, brokerages, credit card companies and the like. Make copies of these. Go through our Financial Information Checklist to see what other financial and legal documents you should gather and copy as well. Secure the copies with a trusted friend or family member or use a safe deposit box that your husband can’t access.
Having important documents on hand early in the divorce process means you avoid any possible unpleasantness (not to mention time and expense) trying to get copies of them later.
- Assess your credit.
Request a copy of your credit report and correct any misinformation it contains. Good credit is the foundation of your financial future, so watch it carefully! Without credit it can be near impossible to obtain loans for any purpose, or even to manage the expenses of running your household.
Keep an especially close eye on credit card statements. If your husband used your joint credit cards to buy his girlfriend gifts this holiday season, you’ll want to be able to document that.
- Open accounts in your own name.
As a single woman, you will need your own bank accounts and credit cards. It is not too soon to set these up. Use a different bank than where you currently have joint accounts, and open both savings and checking accounts in your name alone.
- Begin to assemble a professional divorce team.
Gone are the days when, if you or your husband wanted a divorce, the only thing to do was for each of you to retain lawyers who would then work through all the legal matters. Today, financial portfolios –and the regulations that govern them –are much more complex, and many women find they need multiple layers of professional help to navigate all the legal and financial details.
If you’ll be divorcing in 2021, it’s a good idea to begin researching divorce professionals who can steer the process. I recommend you start with a matrimonial/family law attorney, a divorce financial planner and a therapist/counselor. Gather and compare information and schedule interviews with the best candidates for January. Then, you can relax a bit, knowing that, as the New Year unfolds, your divorce will be in expert hands.
- Be watchful.
As your focus turns from being married in 2020 to getting divorced in 2021, there are some important things to watch out for. It is still very common for husbands to hide assets and/or income during divorce –even though that’s underhanded, unethical and illegal. The tactics run the gamut from stashing cash in safety deposit boxes, to underreporting income and overreporting expenses, to unloading property to family and friends with the understanding he’ll get it back after the divorce settlement is final. I’ve written before about specific signs that your husband might be hiding assets. Be vigilant.
Moreover, if you have any reason to suspect there is something amiss financially, you may want to seriously rethink filing a joint tax return for 2020. In most cases, the IRS is likely to find you are equally liable for any misdeeds, no matter how innocent or ignorant of them you are. (There is a very limited and hard-to-get I.R.S. and state exception called “Innocent Spouse Relief,” but it is rarely accepted.)
In closing, I’d like to tell you about my new company, Next Act Properties, Inc., (https://nextactproperties.com/) which provides one-stop real estate solutions for divorcing couples (Bedrock Divorce continues to exclusively work with women on the financial aspects of their divorce).
Here is a brief description of how we can help you:
One of the biggest issues people face when going through a divorce is what to do with the marital house, which is frequently the couple’s largest asset.
Often one spouse, typically the wife (especially if there are minor children), wants to remain in the house for a certain period-of-time, such as when the youngest child graduates from high school.
If this is the case, the first step would be to see if the spouse who wants to keep the house can 1) buy-out the other spouse’s share of the equity in the house and 2) Refinance the mortgage so that the new mortgage is only in the name of the spouse who will remain in the house.
We can help with both these issues.
Having worked since 2010 with hundreds of women around the country on the financial aspects of their divorce, we can work with the divorcing couple and their divorce attorneys to see if there are sufficient assets for one spouse to buy-out the interest in the house from the other spouse.
If a buy-out is possible, we would then help that spouse refinance the house in his or her name (the other soon-to-be ex-spouse will want their name off of the current mortgage) through our nationwide network of divorce mortgage experts, most of whom are Certified Divorce Lending Professionals (CDLP™ designation) and/or have many years of experience dealing with divorcing couples and their mortgage financing/refinancing needs.
Unfortunately, sometimes it’s just not possible for the spouse who wants to remain in the house to do so. He or she may not be able to buy-out the other spouse and/or refinance the mortgage.
If the spouse who wants to remain in the house was unable to buy-out the other spouse and refinance the mortgage, then we have a new and unique solution that will still allow the spouse to remain in the home.
Next Act Properties, Inc. will purchase the house for cash from the divorcing couple and lease the house back to the spouse who wants to remain in the house (sale-leaseback) for a period of several years (typically 3 – 5 years, although it could be longer or shorter).
And finally, should none of the above solutions work out, we can, through our real estate brokerage subsidiary, Next Act Realty, LLC, help the divorcing couple sell their home through our nationwide network of divorce real estate experts, most of whom have specialized training in the unique financial, legal and tax aspects of selling real estate in the context of divorce and/or have many years of experience helping divorcing couples sell their marital home.
Steer Clear of Financial Advice from Friends and Family During Your Divorce
Imagine you are enjoying a wonderful evening at a five-star restaurant. You’d like to order a bottle of wine, but you’re not sure which one would best accompany your meal. Would you ask the bus boy or valet for their recommendation? Of course not! If you’re ordering wine at a five-star restaurant, you want the advice of the wine expert on staff. Naturally, you would turn to the sommelier.
The same logic applies to other aspects of daily life. If you have a problem with your car, you take it to a trusted mechanic. If you have a concern about your heart health, you consult a cardiologist, etc.
So, to whom should a woman turn when she has concerns about the financial aspects of her divorce?
The answer is simple: She should consult only with a professional divorce financial expert – someone who is specially trained to handle the multifaceted financial aspects of today’s complex divorce settlement agreements.
Unfortunately, that’s often easier said than done.
Why? Because when it comes to divorce, there’s no shortage of friends and family who are willing to lend their advice.
In fact, as I see it, divorcing women need to learn to make an important distinction. They need to learn: 1) where to get financial advice, and then, just as importantly, 2) where NOT to get financial advice. Quite frankly, the opinions and recommendations of friends and family can often be more detrimental than helpful. They all mean well, of course. But, this is definitely one of those instances where a little knowledge can be a dangerous thing.
To illustrate my point, here is my short list of people you should “tune out” if they start volunteering financial advice during your divorce:
1. Friends, family, or anyone who claims to have “been there” (or knows someone who has)
Lots of people have a divorce story to tell, and usually, they’re quite eager to share it. In reality, though, no two divorces are alike. Even relatively fundamental things like differences in geography can have a profound impact. Just because a friend of a friend who lives in Silicon Valley received a settlement that included half of her husband’s tech company doesn’t mean you will get the same deal in your east coast divorce. (See my earlier post for more details about the differences between Community Property and Equitable Distribution States.)
Likewise, even though your cousin kept her marital home , that doesn’t mean you should. And, discussion about your stock portfolio can lead to a veritable minefield of misinformation, as well. Uncle Joe, who helped you get on the right track with investing as a twenty-something, just isn’t the right person to help you understand how dividing your current portfolio will impact your long-term financial well-being.
As I mentioned earlier, all of these people are well-intentioned, and there’s no doubt that they can provide support for you in other ways during your divorce. But, when it comes to advice about your finances, please learn to say, “Thanks –but, no thanks.”
2. A financial professional who doesn’t specialize in divorce
A CPA can file your taxes or give you a snapshot of your current and past financial status. A typical financial adviser is hired to help you invest in stocks, bonds and mutual funds. But should you rely on financial professionals like these during your divorce? No, you shouldn’t.
Instead, you need someone with a skill set specific to divorce finances. A Certified Divorce Financial Analyst (CDFA) specializes in divorce finance and will carefully weigh each settlement proposal presented and project how it will affect your short- and long-term finances while calculating the tax implications for each scenario.
Keep this in mind: The US is home to more than 1 million accountants and some 320,000 financial advisors. But there are only about 3,500 CDFAs who are specifically trained in the financial aspects of divorce.
What’s more, many CDFAs have completed additional education and training. For example, in addition to being a CDFA, I have attended law school and have also completed dozens of advanced training courses in finance and divorce, including many of the same continuing education courses that are required for divorce and other attorneys (trust and estate, asset protection, etc.).
3. An attorney
Finding a firm that specializes in divorce/family law and dedicates at least 75 percent of its practice to divorce is a MUST.
But, these days, there are numerous critical financial tasks that are beyond the scope of even the finest divorce attorney’s expertise. For example, preparing financial affidavits and projecting the financial and tax implications of each divorce settlement option are now the purview of CDFAs.
Put another way, think of the CDFA as the financial leader of your divorce team. A CDFA is responsible for creating comprehensive financial analyses and projections so you and your divorce attorney can fully understand the short- and long-term financial and tax implications of each proposed divorce settlement offer. Then, your attorney can use that information to substantiate and justify his/her positions when negotiating with your husband’s attorney.
Without a doubt, if you’re going through a divorce, you’re going to get advice –whether you asked for it or not. The trick is to know which advice to heed and which advice to ignore. Get the specialized help you need by hiring a CDFA. They’re the professionals that can evaluate your financial circumstances before, during and after a divorce, while helping you plan for a secure financial future.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Should I Keep the House?
Many women start divorce proceedings unprepared for the emotional rollercoaster surrounding the marital home.
Often, it starts as an internal struggle. After all, most women fully expect to keep their house. To them, it represents a place of comfort that will provide solace during, and after, a time of great uncertainty.
But at times, the marital house can be just the opposite. It can serve as a painful reminder of all that went wrong with the marriage.
Mix in the feelings (and opinions) of a husband and children (not to mention the fact that the marital residence is typically a couple’s largest asset), and it’s easy to understand how a single piece of real estate can ignite a contentious tug-of-war.
Despite all these emotions, however, every woman must answer the question “Should I keep the house?” based on practical financial reasons. Part of our job at Bedrock Divorce Advisors is to complete the financial analyses and projections needed to help a woman understand if she can afford to do so, and if so, for how long.
Are you trying to decide whether or not you should keep your marital residence? If so, here are four key questions you need to consider:
1. Is your marital home a good fit for the new “single” you? Perhaps the house you’re living in now was purchased with the needs of others in mind. Did you choose the location because it was convenient for your husband’s business and travel? Or did you seek out certain accoutrements largely because they were conducive to entertaining his business associates? If you did, maybe those accessories now seem frivolous and unnecessary. Are the children you raised in the home grown and living on their own? This could be the right time to downsize and find a place that better suits your life now. It’s important to sort through and separate what you needed from a home in the past vs. what you need now and in the future.
2. What is the current value of the house? Because the marital home is often one of a couple’s largest assets, an unbiased third party real estate appraiser can be an integral member of your divorce team. An appraiser will calculate the market value of the house by comparing it to homes recently sold and those that are currently on the market. Ideally, these comparable houses are in close proximity to your home and have similar square footage, acreage and amenities. Using this information, the appraiser will present an accurate selling price in the current competitive market. The appraiser’s report could feature prominently in divorce negotiations whether or not you decide to keep the house.
3. What is the cost of keeping the house? Along with mortgage payments, you’ll also have to pay for taxes, utilities, seasonal maintenance, monthly service contracts and perhaps even additional staff to manage the property. Costs like these can add up to become a significant addition to your monthly expenses. You’ll also have to consider looming repairs and renovations. While projects like these may add value to the home, they could also prove to be a further financial drain on your resources.
4. What will you have to give up in order to keep the house? Often keeping the marital residence is a tradeoff, rather than an exchange of cash. In other words, your spouse will keep something that is presented to be of equal value in exchange for the house. If you are concerned about hidden income/assets/liabilities, the possible dissipation of marital assets and/or the value of any item that’s under negotiation, you may need to add a forensic accountant and/or a valuation expert to your divorce team. They can determine the true worth of a business, professional practice or other asset with a keen eye for any misrepresentations that could skew that figure. The valuation expert can also establish the value of stock options (and/or restricted stock, etc.) and intangibles such as an advanced degree or training to help ensure that you do not unwittingly give up something of inequitable current or future value in exchange for the house.
Choosing whether or not to keep your marital residence may be one of the most difficult decisions you have to make during your divorce. Give yourself the time to think it through carefully, and remember: Think Financially, Not Emotionally®. You need to strategically manage your assets and develop a sound, comprehensive plan for financial stability and security in the future.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
How To Start Preparing Your Personal Finances for Divorce
“A journey of a thousand miles begins with a single step.”
When the Chinese philosopher Lao-tzu said that nearly 3,000 years ago, he certainly wasn’t talking specifically about divorce – and yet, his words of wisdom do apply.
Divorce is a journey, of sorts. And, even though the mere thought of divorcing your husband may seem completely overwhelming at first, you do have to engage in the process. You have to take the initiative. You have to begin with that all-important first step.
As a Divorce Financial Strategist(TM), my advice is that you start this “journey” by getting a handle on your personal finances. With just a few relatively simple steps, you can be on your way to establishing a firm financial foundation, one that will serve you well as you proceed through the divorce and long into the future, too.
For example, in order to start preparing your personal finances for divorce you need to:
1. Take inventory of all financial documents and records. Gather all your financial records, including bank account information, mortgage statements, credit card bills, wills, trusts, etc. (See more details in our Divorce Financial Checklist.) Once you have collected them, don’t keep these records in your home. Make copies, and take them to a trusted friend/family member, or use a safe deposit box that your husband can’t access.
2. Begin securing funds for legal and other professional fees. You’ll need resources to hire a qualified divorce team. If your husband controls all access to the family funds, he can make this difficult (if not impossible). Choking off the money supply is a common tactic, but there’s no reason you have to fall victim to this kind of financial squeeze. Be proactive instead. Make sure you have funds that are secure and available only to you.
3. Open new accounts in your name. Your divorce attorney may instruct you to withdraw up to half of your joint funds and deposit them in new accounts. (State laws will dictate what you can and cannot do.) Don’t use the bank where you have your joint accounts. Go to a different bank, and open a new checking and savings account in your name. Moving forward as a single woman will require that you establish good credit, so open a new credit card account in your name, as well. Keep in mind, though, that new federal regulations are making it harder than ever for women with little or no income to establish credit on their own. You’ll have to proceed with caution . . . just make sure you do proceed.
4. Get a copy of your credit report. While gathering your financial records (Step 1), be sure to get a copy of your credit report, too. Monitor it so you can keep tabs on your credit score. (See my post, How To Protect Your Credit Score During Your Divorce, for more tips.) Plus, if you keep a watchful eye on your credit report, you’ll also be the first to know of any unusual activity. Is your husband charging gifts for his girlfriend on your joint credit cards? Or is he dissipating marital assets in some other way?
5. Open a post office box. You need your mail delivered to a secure, locked box that only you can access. Make sure you use this address to receive correspondence from your divorce team, your new accounts, etc.
6. Change your will, medical directives/living will, etc. Most states won’ t allow you to completely disinherit your husband until after the divorce is final. But, you can take steps to prevent him from making medical decisions on your behalf or inheriting all of your assets should you die before the divorce settlement agreement is signed. Remember, you’ll also want to change beneficiaries on life insurance policies, IRAs, etc.
Once you have completed these initial steps, you will be on your way towards a new and secure financial future. Take it step by step, and you’ll start feeling less overwhelmed, more knowledgeable and better equipped to continue on your journey to a single life.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
How is Debt Divided in Divorce?
Everyone seems to understand that divorce involves the division of marital property and assets.
However, over the years, I have found that many people fail to fully appreciate that divorce involves the division of debt, as well.
Ironically, debt is typically cited as one of the top reasons couples split up. But, getting divorced doesn’t make those troublesome debt problems “magically” disappear. In fact, it’s exactly the opposite. Just as debt can often play a major role in the failure of a marriage, it can also play a major role in adding stress and contention to divorce proceedings.
What can you do minimize nasty debt headaches during your divorce? My best advice is to be prepared. Educate yourself about debt, in a broad sense. Then, gather all the relevant data about your specific case. You’ll want to collect credit card bills, information from your mortgage/home equity/auto loan accounts, etc. and learn all you can about what you and your spouse owe.
In addition, here are a few tips to help you better understand how to handle dividing debt in your divorce:
1. Where you live impacts how debt will be divided. Divorce laws differ from state to state, and how your debt will be divided depends largely on where you live and whether you live in a Community Property State or an Equitable Distribution State.
There are nine Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Couples living in Alaska can “opt in” for community property, and Puerto Rico is a community property jurisdiction.
The remaining 41 states are known as Equitable Distribution States (or Common Law States).
(An earlier post discusses the differences between Community Property States and Equitable Distribution States in more detail.)
In general terms, if you live in an Equitable Distribution State, debt that’s incurred during a marriage is the joint responsibility of both parties, provided both parties are co-signers on the account (mortgage, credit card, etc.). In other words, if your husband opened a credit card account in his name only, then only he is responsible for that debt.
In Community Property States, both spouses are responsible, even if only one incurred the debt.
Of course, once you and your husband have separated, the rules change. Any debt incurred after you separate is the sole responsibility of the person who made the charges. The wrinkle here is that “the moment of separation” varies from state to state. In some states, you need to legally declare a separation. In others, a legal separation is not required; you’re separated once you start living apart.
2. It’s often best to eliminate shared debt. Our firm usually advises women to eliminate shared debt before the divorce is final. Naturally, that may mean you need to use marital assets to jointly pay off what you owe –but, usually that’s a worthwhile step, if it means you can begin your single life with a fresh start. Alternatively, some couples decide to divide and transfer their debts, so that each person is individually responsible only for his or her portion.
Either way, the goal is to separate your finances (and any remaining debt) from your husband’s finances (and any of his remaining debt). As a result, you’ll remove your liability for what he owes.
If possible, you’ll also want to close joint credit cards and eliminate your husband as an authorized used on any credit cards in your name. Remember: Credit card companies and other third party agents are not bound by divorce agreements. It may sound harsh, but if your names are both on a credit card account, the credit card company can hold you responsible if your ex rings up a balance and then decides not to pay.
One word of caution here: New federal regulations are making it harder than ever for women with little or no income to establish credit on their own. You’ll need to proceed with caution as you set out to establish credit in your own name . . . Which brings up my third point . . .
3. Protect your credit. Once you have: a) established control of your own debt and b) separated your liability from your husband’s debt, it’s time to turn the page and begin a new chapter. You’ll need to establish credit in your own name –and then, once that credit is established, you’ll need to work hard to protect it. Start slowly and proceed with caution, keeping a careful watch on credit card balances, debit and ATM cards, etc.
A good first step should be to create a budget that will allow you to maintain your lifestyle, pay off any remaining debt and increase your savings. A divorce financial planner can help you determine how to manage your assets and which adjustments are necessary for continued financial stability.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
How Are Appreciated Assets Divided in a Divorce?
In an earlier blog post, I explained the difference between separate and marital property.
Now, it’s time to delve a bit deeper and discuss some of the financial nuances you may encounter as the division of separate and marital property proceeds during your divorce. For example, it’s likely your case will involve assets that have appreciated in value during the course of your marriage. Here’s the issue:
In many states, if your separately owned property increases in value during the marriage, that increase in value may be considered marital property. What’s more, the division of this particular subset of marital property can be further complicated by the differentiation between active and passive appreciation of the assets.
Let’s take this step-by-step.
First, understand that an asset can increase in value in one of two ways. An asset can either
- Actively appreciate –as a result of actions by the owner of the asset . . . or it can
- Passively appreciate –as a result of changes in the market.
While there are many complex rules that govern division of property and asset appreciation, here are a few fundamentals, in very general terms:
In community property states, where both spouses are typically considered equal owners of all marital property, the division of appreciated assets is often computed based on a series of formulas. The calculations can prove enormously complex, but here’s a short summary of the most salient points by David M. Wildstein, Esq. in his brief, Allocating Active and Passive Appreciation of a Separate Business Asset for Equitable Distribution:
“If the increase in a separate asset is passive, it is not a part of the community estate as long as no community resources were used for the asset. If the asset increases due to the effort of either party, it is part of the community. The time, toil and talent of each spouse is perceived to be a community asset. To reach a fair result, community property law created the doctrine of reimbursement: ‘The fundamental purpose of the doctrine is to bring back into the community estate value which was created by community contributions, but which took the form of appreciation in the value of a separate asset.’”
In equitable distribution states, it’s not as “straightforward” because none of the equitable distribution states use a formulaic approach as described above for community property states. In equitable distribution states, passive appreciation on separate property remains separate property. But, active appreciation on separate property can be considered marital property.
What can qualify as active appreciation on separate property? That’s a very good question, and courts often struggle to make this determination. Typically, the judge will use a three-pronged test to evaluate active appreciation in separate property. The judge must find that:
1. The separate property did, indeed, appreciate during the marriage.
2. The parties directly or indirectly contributed to the appreciation.
3. The appreciation was caused, at least in part, by the contributions.
Of course, as with other aspects of divorce proceedings, the rules governing the determination of asset appreciation can vary from state to state. In some states the burden of proof is on the spouse who claims the appreciation is passive. In other states, it’s the reverse –the burden of proof rests on the spouse who claims the appreciation is active.
Clearly, asset appreciation is a complicated topic that demands thorough and thoughtful consideration. It’s essential that you seek guidance from a qualified divorce team concerning the particular circumstances of your individual case.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Do You Live in a Community Property State or an Equitable Distribution State?
Divorce laws differ from state to state, and so the simple truth is this:
Where you live impacts how assets and debts will be divided in your divorce case.
So, in addition to recognizing the difference between separate and marital property, you also must understand the laws that govern your place of residence.
The first step is to determine whether you live in a Community Property State or an Equitable Distribution State.
There are nine Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Couples living in Alaska can “opt in” for community property, and Puerto Rico is a community property jurisdiction.
(You may be interested to know that the Community Property system is derived from Spanish law, and that’s why it’s found predominantly in the southwestern states.)
The remaining 41 states are known as Equitable Distribution States (or Common Law States).
What’s the difference between a Community Property State and an Equitable Distribution State?
In a Community Property State, both spouses are typically considered equal owners of all marital property. In other words, if you live in a Community Property State, whatever you earn or acquire during the marriage is co-owned by both parties, regardless of who earned it or whose name is on the title. That means whatever you earn or acquire during the marriage is spilt 50-50 during a divorce.
If you live in an Equitable Distribution State, the law “sees” assets somewhat differently. In an Equitable Distribution State, if your name appears on an asset (the deed to a house or the title to a car, e.g.), you are considered the owner. However, in an Equitable Distribution State, your spouse has the legal right to claim a fair and equitable portion of those assets in a divorce.
The equitable distribution of assets may result in a 50-50 split of marital property, or it may not. The goal in an Equitable Distribution State is not a 50-50 split. The goal is a fair (equitable) distribution of family property.
A variety of different factors are considered when dividing family property in an Equitable Distribution State. For example, equitable distribution may be based on:
- the length of the marriage
- the age and health of the parties
- the income and future earning capacity of parties
- the standard of living established during the marriage
- the value of homemaking and childcare provided during the marriage
- the value of the investment one party made to help with the education, training of the other party
- other factors
Please keep in mind that the entire discussion above involve marital property. Separate property is a different matter.
Whether you live in a Community Property State or an Equitable Distribution state, assets that you bring into the marriage or receive individually (an inheritance or your grandmother’s diamond ring, e.g.) remain yours. This separate property is exactly that –separate –unless you co-mingle it with marital property. For instance, if you deposited the inheritance from your parents into a joint bank account, it’s likely that those funds would no longer be considered separate property. Instead, once co-mingled, these funds would be considered marital property and subject to division as required by your state’s laws.
In a nutshell, here’s the difference between a Community Property State and an Equitable Distribution State:
In a Community Property State, marital property is divided 50-50.
In an Equitable Distribution State, marital property is divided equitably, based on a variety of factors.
Assets aren’t necessarily the only thing acquired during marriage. Debt is often acquired, too. And just as assets are divided in divorce, debt is divided, as well. Generally speaking, the division of debt follows the same principles as the division of assets. For example, in most Community Property States, both spouses are equally responsible for the repayment of debt acquired during the marriage, even if only one spouse enjoyed the benefit. (I’ll discuss the division of debt in more detail in a future blog post.)
Okay. Are you now feeling comfortable with the distinction between Community Property and Equitable Distribution States? You are? Great! Then, I won’t feel too badly about offering this one last wrinkle:
A few states have laws with both Community Property and Equitable Distribution characteristics.
(As I’ve said before, the division of assets can get complicated quickly!)
Please, consult with your divorce attorney to learn which laws are specific to your state, and remember, when it comes to divorce, geography is critically important. Regardless of where you live, it’s essential that you seek guidance from a qualified divorce team concerning the particular circumstances of your individual case.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
The Difference Between Separate and Marital Property
Divorce involves dividing the family’s property, and I’m sure you won’t be surprised if I tell you that this process can be extremely complicated and contentious –especially if there are significant assets to be considered, such as houses, rental property, retirement/pension plans, stock options, closely-held businesses, professional practices and licenses, etc.
Because it’s so complex and often emotional, many women find the division of assets quite overwhelming.
But, that doesn’t have to be the case.
Over the years, I have seen that the feeling of being overwhelmed typically stems from a lack of understanding about how assets are divided. Most women aren’t even familiar with the terms used –and why would you be, unless you’ve gone through this process before!
So, let’s start with the basics. Let’s discuss one of the key factors divorcing women need to understand:
The difference between separate and marital property.
States differ in some of the details, but typically, separate property is rather limited in scope. Generally speaking, separate property only includes:
• Property that was owned by either spouse prior to the marriage
• An inheritance received by the husband or wife (either before or after the marriage)
• A gift received by the husband or wife from a third party (your mother gave you her diamond ring)
• Payment received for the pain and suffering portion in a personal injury judgment
All other property that is acquired during the marriage is usually considered marital property, regardless of which spouse owns the property or how the property is titled.
As you can see, compared to separate property, marital property is a VERY broad category.
In other words, don’t think you’re not entitled to a specific asset (such as a 401K, stock options, etc.) simply because it is titled only in your husband’s name. Typically, all property that is acquired during the marriage is considered marital property, even if your spouse “owns” the property or it is titled in his name.
In fact, even separate property can lose its separate property status if it is co-mingled with marital property. For instance, if you re-title the condo you bought when you were single and add your husband as a co-owner, that property will most likely now be considered marital property. Likewise, if you deposited the inheritance from your parents into a joint bank account, it’s likely that those funds would now be considered marital property.
A qualified divorce team can help you sort through all the details of your particular case. As you can see, even a case that seems relatively simple at first can get quite complicated once you start scratching the surface. Keep in mind that understanding the difference between separate and marital property is only Step #1 in approaching the division of family property. You must also recognize that:
• Divorce laws differ greatly from state to state. Do you live in a Community Property state or an Equitable Distribution state? Where you live impacts how your assets and debts will be divided during divorce.
• In many states, if your separately owned property increases in value during the marriage, that increase in value may also be considered marital property. The division of this particular subset of marital property can be further complicated by the differentiation between active and passive appreciation of the assets.
• Debt is also handled in accordance with state laws, and Community Property states and Equitable Distribution states deal with debt quite differently.
But, wait. Take a deep breath. Please don’t let all this information fluster you. I know it can all seem a bit daunting initially –and that’s why I’ll walk you through each of these topics in upcoming blog posts. Understanding the fundamentals of how assets are divided will help you feel less overwhelmed and help you start on your way to a successful settlement.
If you still have questions after reading these blog posts, please call one of our Divorce Financial Strategists™, who will be able to help you with your specific situation.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
How to Find a Divorce Attorney, Divorce Financial Planner and Other Members of Your Divorce Team
Everyone wants to survive divorce with their finances –and their emotions –intact. So, I suppose it’s not surprising that the question I get asked most often is this:
Jeff, what can I do to ensure the best possible outcome for my divorce?
That’s a great question, and I love responding to it because the answer is quite simple and direct.
If you want to ensure the best possible outcome for your divorce do this:
Build a winning divorce team.
Granted, the words “divorce team” may sound a little strange at first. Years ago, a couple didn’t need a “team” to help them navigate the divorce process. Typically, lawyers were the only professionals required. Over the past decade or so, though, our day-to-day lives, our careers, our finances –and the rules and restrictions that govern all of these –have grown much more complicated.
To ensure the best possible outcome for your divorce today, you’ll also need the support of other professionals, particularly those who can help ensure your financial protection both now and in the future.
Sure, hiring additional professionals will cost you more in fees, but it will be more than worth it to protect your long-term financial well-being. Take my advice: Get all the help you can, and use this help to plot a course strategically.
Who should be on your winning divorce team?
Individual circumstances vary, but in general, I find that these three players are the cornerstone of an optimal divorce team:
• A Matrimonial/Family Law Attorney
• A Divorce Financial Planner
• A Therapist/counselor
Here’s some advice about how to go about finding each of these team members.
1. A Matrimonial/Family Law Attorney. Look for an attorney who exclusively handles divorce cases or one who devotes at least 75% of their practice to divorce. Ideally, your lawyer will be a Fellow of the American Academy of Matrimonial Lawyers, which requires their members to fulfill a variety of stringent requirements. For instance, a Fellow of the American Academy of Matrimonial Lawyers, must:
• have at least a 75% specialization in matrimonial law
• be admitted to the Bar for at least 10 years
• pass both oral and written exams
• pursue continuing education
There are both state and national legal organizations that offer Board Certifications in Matrimonial/Family Law, but I do not believe that their requirements are as rigorous as the American Academy of Matrimonial Lawyers.
I suggest you interview at least three attorneys for this critical position, and during the interview, please talk openly about the individual complexities of your case. I realize this may seem painful, or embarrassing, or stressful, but it really is best for you to have all your cards on the table from the very start.
Of course, you’ll want to talk openly about each lawyer’s qualifications and fees, as well. Ask each candidate:
• How many divorce cases have you recently handled?
• How many have been settled and how many have gone to trial?
• What were the outcomes of the cases that went to trial?
• Do you typically represent the husband or wife? What percentage of each?
• Will you personally handle all aspects of the case, or will you pass responsibility for the case to a more junior attorney and/or paralegal (and at whose rate will you be charged)?
Ultimately, you should hire a qualified divorce lawyer who has sufficient experience in cases like yours (e.g. custody, high-net-worth, etc.).
And, here’s one more important piece of advice to keep in mind when selecting a divorce attorney: Remember to make certain you feel personally at-ease with whomever you choose. By its very nature, divorce is a delicate and emotional experience. You need your attorney to be a trusted, supportive and forward-thinking resource before, during, and even after, the divorce is complete.
2. A Divorce Financial Planner. The divorce financial planner is the financial expert on your divorce team, the person who is responsible for creating the comprehensive financial analyses and the projections that you and your divorce attorney will need to fully understand the short- and long-term financial and tax implications of each proposed divorce settlement offer.
Divorce financial planners should work hand-in-hand with divorce attorneys, but their job is to take care of the critical financial tasks that are beyond the scope of the divorce attorneys’ expertise. Those tasks can range from preparing the financial affidavits to projecting the financial and tax implications of each divorce settlement option.
At a minimum, your divorce financial planner should have the Certified Divorce Financial Analyst (CDFA) designation. Do not use a regular financial advisor, financial planner, CPA or accountant. Instead, you need someone who has a complete understanding of, and specialized training in, divorce.
Ideally, your divorce financial planner also will have additional advanced training in divorce financial planning strategies and asset protection. The CDFAs with advanced training here at Bedrock Divorce Advisors™ are called Divorce Financial Strategists™.
Think of the divorce financial planner like the leader of your financial team. Your attorney will use analyses and projections prepared by the divorce financial planner to substantiate and justify his/her positions when negotiating with your husband’s attorney. If needed, your divorce financial planner also can bring in additional specialists, including:
• A forensic accountant. Are you concerned about hidden income/assets/liabilities and/or the possible dissipation of marital assets (vacations taken by your husband with his girlfriend and gifts he might have bought her)? A forensic accountant helps explore these concerns and may also be very useful when one or both spouses own a business or professional practice where, unfortunately, it is rather easy to hide income/assets and/or delay revenues and increase expenses (pad the payroll, fictitious charges, etc.).
• A valuation expert. Once you have “real” numbers from the forensic accountant, a valuation expert can determine the worth of a business or professional practice. A valuation expert can also establish the value of an advanced degree or training, stock options and/or restricted stock, etc.
• A real estate appraiser. The marital home and other real estate are often among the largest assets that need to be divided. A real estate appraiser determines the value of the marital home and can also appraise vacation home(s), commercial real estate, land, etc.
3. A therapist/counselor. Many people describe divorce as an emotional rollercoaster. A qualified therapist can help you cope with your feelings as you navigate the ups and downs along the way. As with the other members of your divorce team, choose carefully. You want to feel comfortable with your therapist, and you want to work with someone who is qualified to meet your needs. You will need to choose among:
• Psychiatrists. These doctors have medical training and are licensed to prescribe drugs.
• Psychologists. These professionals have PhDs or PsyDs in psychology. They specialize in cognitive behavioral therapy.
• Licensed professional counselors. These mental health professionals are licensed by the state. Most have a master’s degree or doctoral degree in counseling or a related field.
• Social workers. Social workers offer psychosocial services for the treatment of emotional concerns.
Ask your primary care physician for recommendations of therapists who work in your area, and be sure to inquire with your health insurance provider to determine the mental health coverage provided by your plan.
No one thinks divorce is easy. But, you don’t have to go it alone. Build a top-notch divorce team, and you’ll have the professional expertise and support you need to survive with your finances –and your emotions –intact.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Divorce Alternatives – The Case for Litigated Divorce
Over the past few weeks, I’ve been discussing divorce alternatives. Both collaborative divorce and mediation have their place and have been successful for many divorcing couples. However, most divorcing couples today still choose the “traditional” model – litigated divorce.
Since more than 95% of divorce cases reach an out-of-court settlement agreement, I will not focus on how the litigation process actually works, but rather, on why I think this is the preferred method for most cases.
Contrary to popular belief, divorce usually does not involve two people mutually agreeing to end their marriage. In fact, 80% of the time, the decision to divorce is unilateral, meaning one party wants the divorce and the other does not. That, by its very nature, creates an adversarial situation right from the start. This fact alone will often disqualify mediation and collaborative divorce, since both methods rely on the full cooperation of both parties and the voluntary disclosure of all financial information.
And it is for that reason that I prefer the traditional method for the vast majority of divorces (mediation and collaborative tend to work quite well for the 20% of cases where the decision to divorce is more mutual). Since we are already starting out with an adversarial and highly emotionally charged situation the chances are very high that collaboration or mediation might fail. Why take the risk of going those routes when the chances are very high that they might fail with the resultant waste of time and money?
The most important and most difficult parts of any divorce are coming to an agreement on child custody, division of assets and liabilities and alimony payments (how much and for how long). Although you want your attorney to be a highly skilled negotiator, you don’t want someone who is overly combative, ready to fight over anything and everything. That will not only prolong the pain and substantially increase your legal fees, it will also be emotionally detrimental to everyone involved, especially the children.
As I mentioned in my last blog post, most divorce attorneys, at least those that we recommend, will always strive to come to a reasonable settlement with the other party. But if they can’t come to a reasonable settlement or if the other party is completely unreasonable then, unfortunately, going to court, or threatening to do so, might be the only way to resolve these issues.
If you have tried everything else and you do end up in court, things can get really nasty and hostile. Up until this point both attorneys were “negotiators,” trying to get the parties to compromise and come to some reasonable resolution. But once in court, the role of each attorney changes. Negotiations and compromise move to the back burner. Their job now is to “win” and get the best possible outcome for their client.
And don’t forget, at the end of the day, it’s a judge who knows very little about you and your family that will make the final decisions about your children, your property, your money and how you live your life. That’s a very big risk for both parties to take and that’s also why the threat of going to court is usually such a good deterrent.
The bottom line is that every family, and every divorce, is different. Obviously, if you are able to work with your husband to make decisions and both of you are honest and reasonable, then mediation or the collaborative method may be best. But, if you have doubts, it is good to be ready with “Plan B” which would be the litigated divorce.
I hope this series on the different types of divorce has been helpful for you. Remember, in all divorces, no matter how they are handled, there are financial decisions to be made that will determine how the rest of your financial life will play out. It is highly recommended that you consult with one of our Divorce Financial Strategists™ as early as possible to ensure that the right decisions are being made.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
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