Gayle Rosenwald Smiyh, JD
W HY DO SOME PEOPLE RECEIVE EQUITABLE DIVORCE SETTLE -MENTS WHILE OTHERS GET THE SHORT END OF THE STICK? The answer lies in the ability to keep emotions in check. Based on my legal experience and interviews with hundreds of judges for my book, here are secrets to getting your fair share...
Hire a top-notch divorce lawyer. Get referrals from friends and relatives, your accountant or family attorney, or try http://lawyers.com.
Consider the end of your marriage as a business transaction. (IT IS!) This may not be easy emotionally, but tell yourself that your partnership didn’t work out. You’ll fare better if you wrap up loose ends and separate on good terms.
List dollar amounts for your important financial needs, such as housing, utilities, in-surance, transportation, credit cards and other debt payments, retirement contribut-ions and other savings . Refer to this list whenever you sense yourself becoming emotional or irrational . Don’t waste time worrying about anything that isn’t on your list.
(Case study: ) A nonworking wife was battling her husband for the couple’s new $12,000, state-of-the-art home theater system. It was a hot button because they had spent months researching it. I pointed out that the “top priority” on her divorce list was health-care coverage. While federal law (COBRA) ensured that she would continue getting coverage under her husband’s plan for 36 months after her divorce, she still would have to pay $200 per month. My client decided to let her husband have the home theater system, (which was now worth much less than the purchase price,) if he agreed to pay her premiums—potentially more than $7,000 for the three years.
Eliminate joint debt. Pay off credit cards and non mortgage-related loans from joint funds, or transfer balances to cards in your own name. Reason: When you reach a property settlement that stipulates who is responsible for joint debts. it won’t be binding on a third party, such as a bank. If your ex-spouse defaults on a credit obligation, the bank still can pursue you for the money.
Important: If you file joint returns, you are liable for your spouse’s taxes. If you fear that your spouse has understated income or overstated expenses, ask your accountant about preparing your returns as “married filing separately.” If you trust your spouse, ask your accountant if you can get a tax break by signing a joint return for the year of the divorce.
Protect assets you had before the marriage. In most states, money, securities, property and gifts you brought into the marriage remain yours after the divorce, but you will need proof of ownership of those original assets. (Example:) You owned a condominium prior to your marriage. After you got married, you sold it and put the sale price toward a home purchase with your husband. In many states, you may be able to get full or partial credit for that down payment when you sell your house, but you’ll need copies of statements showing withdrawals from your separate bank account that were deposited into a joint account or delivered to the bank or mortgage company. These should be with your closing documents for the home purchase.
List your joint assets to ensure that they are included in the “marital estate.” Include your home, vehicles, bank an investment accounts and often-over-looked assets --prepaid life insurance , frequent-flier miles, club memberships season tickets to sporting events, up coming tax refunds, vacation pay and stock options.
Smart: Hire an experienced accountant or a divorce planner to assess to your assets and help you propose an appropriate settlement based on your financial sit-uation. For a free referral, contac t the Institute for Divorce Financial Analysts 800-875-1760, www.institutedfa.com.
Caution: If you suspect that your spouse is trying to hide personal or joint assets from you (see box below), take action.
Opt for mediation if you feel that you can negotiate directly with your spouse. It costs much less than divorce litigation. How it works: A trained divorce mediator sits down with both parties, negotiates an agreement and prepares a memorandum of understanding, which then is reviewed by a lawyer and submitted to the court for a judge’s approval.
Ask your attorney to recommend a local mediator or contact the Association for Conflict Resolution, 202-464-9700, www.acresolution.org.
Familiarize yourself with your state’s divorce laws. Unless you signed a prenuptial agreement or reached an agreement with your spouse out of court, your property settlement will be governed by th e law in your state. In nine states— Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wash-ington and Wisconsin—all wages, income and property acquired during the marriage are considered community property to be split 50-50, regardless of the length of the marriage or the financial contribution of each spouse.
In most other states, (41) a judge can divide the assets in any way that he/she deems fair. To learn your rights where you live, call your chapter of the American Bar Association (800) 285-2221, www.abanet.org ) or go to DivorceNet (www.divorcenct.com ), a family law advice Web site, for links to state specific information.
Transfer retirement assets in a way that avoids triggering tax penalties. When figuring out how to divide retirement plans, courts look at the entire marital estate. If there are enough assets, one party can equitably take, say, the house and the boat, while the other takes the retirement accounts without having to divide them.
If the estate is small—a house and a pension—and the pension is worth more, it might have to be split . Your attorney may draft a qualified domestic a relations order (QDRO), a court order that tells how retirement plan assets will be distributed in a divorce. It must be approved by your spouse’s retirement-plan admin-istrator and the divorce judge.
Once you receive your distribution from your spouse’s qualified plan, you can roll the money into an IRA. If you take the proceeds in cash pursuant to a Q DRO, you will owe ordinary income taxes hut not a 10% early withdrawal penalty—even if you are under age 592.
Resource: Dividing assets in a traditional (defined-benefit) pension plan may require an evaluation expert. Get a referral from your lawyer or contact the Pension Analysis Consultants Inc., a fee-based service , 800-288 3675, or go to www.pensionanalysis.com.
Make sure that your spouse purchases term life insurance if you expect to receive child support or alimony. The insurance benefit should be enough to cover your agreed-upon income stream in the event of your spouse’s death. He/she should make you the irrevocable beneficiary of the policy. The property settlement should stipulate that the supporting spouse will notify you every time a premium is due and every time one is paid.
Don’t give up your right to sue. Most settlements stipulate that each spouse must waive the right to file “known” claims against the other in the future. Don’t (DO NOT) waive your right to file unknown claims. “Example:” After you settle your divorce, you discover that you contracted a sexually transmitted disease as a result of your spouse’s extramarital affair. You want to retain the ability to file a tort claim for money damages for this “unknown claim.”
Include “cost-of-living adjustment” and “late fee” clauses in child-support agree-ments. Otherwise, you will face expensive trips back to court if payments are late or if you want payments increased due to inflation.
HOW DIVORCING SPOUSES HIDE ASSETS
Besides shifting assets out of joint accounts, there
are many creative ways to keep money out of the
hands of a spouse—some legal and some not.
What to watch out for...
Asking an employer to delay payment of bonuses
or raises until after the divorce.
Setting up a custodial account in the name of a child,
using the child’s Social Security number, and trans-
ferring the joint assets to that account.
Investing in municipal bonds or Series EE US
savings bonds. Interest does not need to be re-
ported on tax returns.
“Repaying” bogus debts to friends or family mem-
bers, who hold the money for the spouse until after
If your spouse has a business, he/she could pay
a “salary” to a non-existent employee to hide assets.
Self-defense: If you suspect that your spouse is
hiding assets, you may need a forensic accountant.
Ask your attorney for a recommendation.. or if
a business is involved, hire a business evaluator.
Try the National Association of Certified Valuation
Analysts, 800-677-2009, www.nacva.com
Bottom Line/Personal interviewed Gayle
Rosenwald Smith, JD. an attorney specializing
in family and divorce law, Philadelphia.
She is author of Divorce and Money:
Everything You Need to Know (Perigee).
BOTTOM LINE PERSONAL
Volume 26. Number 9. May 1, 2005 (pgs. 7-8)
Boardroom, Inc. 281 Tresser Blvd., Stamford, CT 06901-3246.
800-274-5611 or : www.BottomLineSecrets.com
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