Recently in Divorce Finances Category

Life Insurance and Support in Divorce

January 27, 2015

divorce-life-insurance.jpgAt the beginning of each divorce case, the parties always have questions regarding how the divorce will impact their daily lives, especially their finances. One of the biggest issues, and often most disputed, is support. The parties cannot plan for their separate futures until they know whether a support order will be made and the level of support which will be ordered. Once the parties have a support order or agreement they will next consider what that support amount is intended to cover? Will my spouse have to continue paying my health insurance? Will my spouse pay for our children's health insurance? Will my spouse pay for uncovered medical and dental expenses? Will my spouse pay for extracurricular activities? Will my spouse pay for childcare? Typically these are the main concerns for divorcing parties when discussing support issues. However, it is not uncommon for family law litigants and their attorneys to forget one important issue - support in the event of the death of the paying spouse.

Life insurance can be an uncomfortable topic of discussion; however, the issue of life insurance is an extremely important subject to include in divorce settlement negotiations. In the event that the parties cannot reach a full agreement regarding all issues, they can ask the court for orders. The court has jurisdiction to address the issue of life insurance and to make appropriate orders for the parties. In cases where child and/or spousal support amounts are relatively high, it is reasonable to consider insuring the paying spouse as a form of security for support. In high conflict cases the supporting spouse may be hesitant to agree that his or her former spouse will be the beneficiary of an insurance policy on the supporting spouse's life. The supporting spouse often says "I don't want to give my former spouse more incentive to kill me". This type of argument will not likely be given much weight by a family court judge.

divorce-insurance.jpgThrough agreement or court order, once the parties determine that the supporting spouse's life should be insured as security for support, the attorneys and clients should discuss the amount of policy and which party should be responsible for the premiums. In cases where the parties take out life insurance as security for child support, the supporting spouse may be ordered to pay the life insurance premiums in the form of additional child support. If available, the parties often agree that the supporting spouse shall maintain a currently existing life insurance policy. The total amount of insurance should be based on the monthly support obligation and the number of years support will likely be paid. Each case is unique; therefore, it is important to discuss the issue of life insurance as security for support with an experienced family law attorney.

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New Years Resolutions Especially for Divorcees

January 12, 2015

New-Year-Divorce.jpgAlong with the New Year comes a plethora of New Year's resolutions. Most people chose a resolution like exercising more, eating less or starting a new hobby. Some are able to stick to their resolution the whole year while other barely make it through the first of the year. For divorced individuals, there are a handful of resolutions that could put you on the right track for the upcoming year if you can resolve to stick to it throughout the year. These resolutions focus on improving your post-divorce relationships with your ex-spouse, your children and yourself.

Whether you just wrapped up your divorce or you have been divorced for quite some time, there is always room for improvement in the following areas.

1. Attempt to Communicate Better with Your Ex-Spouse
Divorce is filled with a variety of emotions, typically emotions that include a whole lot of anger and resentment. After the divorce is finalized you might have a bitter taste in your mouth and want nothing to do with you ex-spouse. However, if you have kids, chances are you aren't quite done seeing or speaking with your ex. Do yourself a favor and make a resolution to work on communicating better with your ex-spouse. Simply avoiding the snarky emails to your ex can put you in a step in the right direction. And if you're up to it, perhaps you could try going to lunch with your ex-spouse. This will give you an opportunity to catch up on the children's activities and exchange information. Better communication will inevitably lead to better co-parenting.

New-year-kids.jpg2. Put your Attention on Your Kids, Not your Ex-Spouse
Chances are you have spent a whole lot of time thinking about your ex-spouse...thoughts about what you could have done to make it work or thoughts about how upset you still are with him/her. Well it's a new year and that means its time to shift your focus to your kids! Whether they show it or not, your kids have gone through a lot of change as a result of your divorce. Putting more attention on your kids can help them adjust in the New Year.

3. Limit Sharing Your Private Life on Social Media
Although Facebook, Twitter and other social media sites offer you the perfect opportunity to just say what is on your mind and let the whole world know about it, resolve to stop "bashing" your ex-spouse through your status updates. Also, if your ex-spouse can still view your social media profiles think about putting a halt to posting intimate details of your new relationship. If there were unresolved feelings between the two of you, this will give your ex-spouse a chance to heal without stirring up more feelings of anger and resentment.

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Complex Issues - Required Financial Disclosures in Divorce

January 6, 2015

financial-disclosure.jpgWe often blog about the statutory requirement in all California divorces for divorcing parties to exchange complete financial disclosures. The required disclosure documents consist substantially of an Income and Expense Declaration and a Schedule of Assets and Debts. Through the completion of these documents, the parties are obligated to provide all material facts and information regarding their income, expenses, assets and debts. Failure to complete these forms in accordance with the highest duty of good faith and fair dealing may result in severe sanctions imposed by the court. Considering these strict requirements, the California Court of Appeal surprised family law attorneys in a recent case, In re Marriage of Evans, in which it held that the parties could reach enforceable divorce settlements prior to the exchange of the financial disclosure documents.

In Evans, prior to filing for divorce, the parties negotiated and signed a "pre-divorce agreement" which divided their interest in the marital residence. After a Petition for Dissolution was filed, Mr. Evans filed a motion to set aside the parties' pre-divorce agreement. Mr. Evans argued that the agreement was invalid because the parties did not exchange their disclosure documents prior to its execution. The trial court disagreed with Mr. Evans and held that the pre-divorce agreement was valid and ordered its terms to become part of the Judgment of Dissolution. Mr. Evans appealed the trial court's decision and lost again. The appeals court held that the financial disclosure statutes only were intended to apply after service of a divorce petition.

pre-divorce-agreement.jpgWith the Evans ruling now a published opinion, there is a loop hole for parties who wish to enter into property agreements prior to exchange of disclosure documents. It is important to note that Evans does not extinguish the requirement for both parties to abide by the disclosure statutes once a divorce has been filed; it only addresses agreements made prior to filing for divorce. In addition, pre-divorce agreements made in contemplation of divorce may be set aside for various other reasons. If you and your spouse would like to enter into a pre-divorce agreement, but are not yet ready to file for divorce, it is important to consult with an experienced family law attorney prior to executing any agreement. The right attorney can help you draft an agreement that will be enforceable in the event of divorce.

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Qualifying for a Home Loan after Divorce

December 30, 2014

home-loan-divorce.jpgGetting through a divorce and preparing to move on from a marriage is an emotionally and financially draining process. However, if all of the issues were handled correctly, you should be able to make a new start and begin building your new future without your former spouse. Unfortunately, sometimes important issues fall through the cracks because they were not within focus for the parties at the time they negotiated their settlement. If you want the ability to purchase a new home after divorce, below are some considerations which must be addressed at the time of settlement or trial.

It is not uncommon for divorced parties to discover that they are still liable on their old home loans when they approach a bank for a loan on a new home. In many San Diego divorces, one party buys the other party out of their interest in the parties' home and remains in the marital residence (often with the children). When the parties reach these types of agreements, their settlement documents might only contain a provision awarding the home and all encumbrances to one party with a simple "hold harmless" clause. This means that the party retaining the home is responsible for all obligations encumbering the home. However, this provision is irrelevant to the creditor who holds the note on the loan. The creditor can still seek payment from either party. The only way to get off of your home loan is to sell the home or have your spouse refinance the home into his or her name alone.

home-loan-checkbook.jpgDepending on your finances, if you are still liable on a home loan, you will likely not qualify to purchase a new home even if your spouse is responsible for the debt. It is important to talk to a certified family law specialist regarding this issue before your divorce judgment is finalized. If your spouse will not qualify for a refinance in his or her name alone, you may want to consider selling the home so that you are able to separate that one remaining financial tie. If your spouse may qualify for a refinance, ensure that your divorce judgment has appropriate provisions in place regarding transfer of title and a deadline for the refinance. For example, you can require that your spouse refinance the home within 120 days of execution of the settlement. If your spouse does not refinance, the home will be listed for sale. If your spouse does complete the refinance, you will execute a quitclaim deed transferring title to his or her name alone.

If you do agree to a buy-out by your spouse and your spouse is unable to refinance the home, it is important that your name remain on title to the home. Review your settlement documents carefully to ensure you are not required to transfer title without your removal from all related loan obligations.

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Making a Major Purchase Before Your Divorce is Final

November 24, 2014

divorce-asset-division.jpgAfter 23 years of marriage, Kris Jenner filed for divorce from Bruce Jenner. Sources say that Bruce "celebrated" his upcoming freedom by dropping $50,000 on a new NASCAR-approved UTV race car. Although the Jenners' divorce documents allege that their date of separation was back in 2013, a significant impulse buy before their divorce is even close to final could potentially cause some problems, when it comes to division of their property.

When couples go through a divorce, the court (or the parties via settlement) will make decisions about how to divide their assets and debts. Since California is a community property state, assets acquired during marriage are considered community property and thus subject to 50/50 split between husband and wife. Assets acquired before marriage or after the parties' date of separation, on the other hand, are considered separate property of the spouse who acquired it. However, issues can arise when a significant asset is purchased after the couples' separation but before their divorce is finalized. For instance, purchasing a new vehicle after separation may complicate a divorce as it relates to disclosure of assets and determining whether the new vehicle is indeed separate property.

divorce-calendar.jpgOne potential issue with purchasing a new car after separation is inadequate disclosure. Once a spouse files for divorce each spouse will be required to draft and exchange Preliminary Declarations of Divorce ("PDODs"). One aspect of the PDODs is the Schedule of Assets and Debts, which outlines all of the parties' assets and debts, including vehicles. If you have already exchanged your PDODs and then later purchase a new vehicle (before the divorce has been finalized), then you will need to disclose this new purchase to your spouse. You will likely need to augment your Schedule of Assets and Debts to reflect the new asset. The new vehicle will also need to be addressed in your Martial Settlement Agreement. It's important not to omit any of your assets from your final divorce paperwork, even if you are sure that the asset is your separate property.

Another potential issue with purchasing a new car after separation is determining whether it truly is separate property or not. If the date of separation is a contested issue, then determining whether the new car was purchased "during marriage" or "after separation" may be quite a problem. If you and your spouse cannot agree on a date of separation then it may need to be litigated in court. Once the date of separation is decided and it is clear that the vehicle was purchased after that date of separation, it does not mean that you are home free. You then need to look at the source of the money that was used to buy the vehicle. If you used your earnings that you acquired after separation then the source of the money was separate property. But if you used money from a joint account that you and your spouse acquired during marriage or if you traded in a community property car, then the new vehicle might not be your separate property.

It may be best to simply avoid buying any significant assets before your divorce is final. Unfortunately, divorces are often dragged out over a couple of years or more and thus it is unrealistic for parties to avoid making new purchases. Luckily for the Jenners, sources say that the couple has already reached an amicable settlement regarding the division of all of their assets, so it doesn't look like Bruce's recent vehicle purchase will pose that much of a problem.

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Understanding the Basics of Preliminary Declarations of Disclosure

November 10, 2014

PDOD-divorce.jpgAfter you retain a family law attorney and file your petition or response for dissolution or separation, one of the first things that your divorce attorney will likely do is hand you a blank Form-150 and Form 142 and ask you to start gathering a plethora of documents related to your income, assets and debts. This can be very overwhelming for clients, especially those who are still dealing with the emotions and shock of grasping that they are about to go through a divorce. Consequently, the importance of preparing complete and accurate preliminary declarations of disclosure ("PDODs") is often ignored because it appears to be a very daunting task for divorcing spouses.

Family Code Section 2100 specifically states that "a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties." It's important that the parties get started on their PDODs right away because pursuant to Family Code Section 2104, the petition must serve his/her within 60 days of filing the petition and the Respondent must serve hers/his within 60 days of filing the response. Also, having PDODs allows the parties to move forward in identifying potential issues of dispute and resolving financial issues early on.

The PDODs are comprised of the following:

1) Declaration of Disclosure (FL-140): This form is signed by the party and is simply a summary of the attachments enclosed with the PDODs. You will note that all tax returns (personal, corporate, etc.) filed in the past two years need to be included.

2) Income and Expense Declaration (FL-150): This form is a summary of the party's current income from all sources and his/her monthly expenses. Paystubs from the past two months need to be attached to the form.

3) Schedule of Assets and Debts (FL-142): This form sets forth a summary of the party's assets and debts. Many people think that their separate property doesn't have to be disclosed; however, all known assets and debts, including your separate property, community property and your spouse's separate property that you know of must all be disclosed. This means all tangible and intangible items ranging from a residence to airline frequent flyer miles to student loans. Along with each asset or debt listed, you need to attach supporting documents. You may redact part of the account number on the account statements to protect your privacy.

4) Declaration Regarding Service of Preliminary Declaration of Disclosure (FL-141): This form is confirmation that of the date that you served your PDODs on the other party.

5) Proof of Service (FL-335): The proof of service is what is actually filed with the Court to let the Court know when you served the other party with your PDODs.

Failing to have complete and accurate preliminary declarations of disclosure can lead to potentially significant monetary and other sanctions. However, if you serve your PDODs and later realize that you have changes or updates, you can amend your PDOD at any time. However, you must file a Proof of Service of each amendment with the court.

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Ways to Value Your Home During a Divorce Buyout

September 24, 2014

house-valuation-1.jpgThe family residence is sometimes the parties' biggest asset acquired during marriage. It is also typically an asset that one or both of the parties feel very attached to. When going through a divorce, the parties will have to decide whether to sell the house, continue to co-own it or have one spouse keep the house and "buyout" the other spouse's interest in the house. A "buyout" is typically an attractive option when there are kids involved and the parent staying in the house wants to continue to provide continuity and stability for the kids. It is also an appealing option if the market conditions don't favor the seller at the time. To "buyout" the other spouse means that the house will be assigned a certain value and the spouse not keeping the house will instead receive a percentage of the that value less the debt. The buying spouse either pays money to the selling spouse or gives up other marital property in the amount of the selling spouse's share. Thus, the fair market value of the home makes a big difference on how much the "buyout" will cost the selling spouse.

There are a few different ways to value your marital residence. It is important for the valuation to be as fair and accurate as possible. Typically parties either get the residence appraised, have a realtor do a comparative market analysis or the parties do individual research based on online websites.

If the parties choose to value the home based on individual research, they will typically use an online website such as Zillow.com or Eappraisal.com, which gives immediate estimates of the home's value. The parties can also ask a real estate agent to perform a Comparative Market Analysis, for little or no cost, which provides information about recent sales prices of comparable houses in the neighborhood. Then you can you're your home's value on those comps.

However, not all houses are the same, and thus comps and online websites are not always the most accurate way to determine the fair market value of a house. Instead, the most accurate way to determine the fair market value of a house is to have an appraisal done by a neutral and licensed appraiser. Of course this method will cost the parties a small chuck of change. The parties can either agree on a joint appraiser and perhaps split the cost, or they can each pay to have their own appraisers do an appraisal and split the difference between the fair market value. The cost of an appraisal is usually worth it to make sure that you are using an accurate number to value your home and thus calculate the buyout amount.

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Questions to Ask Yourself Before Filing for Divorce

August 18, 2014

divorce-questions.jpgThinking about or talking about the possibility of divorce is very different than actually taking affirmative steps to file for divorce in Family Court. Moving forward with this step can take a significant amount of mental and emotional strength. If you're still in the thinking or talking stages of a potential divorce, ask yourself the following questions to help determine if you are ready to take the next step and file for divorce from your spouse.

1. Are you Facing a Hard or Soft Problem?
The need for a divorce may be more immediate if you are in a situation where you are facing a "hard problem" as marital therapists like to call it. "Hard problems" include situations in which you are facing abuse from your spouse or your spouse has an untreated addiction. If this is the case, you may want to act fast and stop just dwelling on the possibility of divorce. However, if you are facing a "soft problem" maybe you need more time to decide if you and your spouse can work on the problem or if a divorce is the preferable option. "Soft problems" include things such as feeling as if you've grown apart from your spouse, that you're unhappy in the relationship or that you aren't in love anymore.

2. Are You and Your Spouse Even Compatible?
What are your odds of succeeding as a married couple? Perhaps taking a "Rate Your Mate" quiz (http://www.divorcenet.com/interest/rate-mate-compatibility-divorce-test.htm) will help you determine if you're destined for doom, in which case you might as well just go ahead and prepare those divorce papers. The "Rate Your Mate" quiz tests areas such as common interests, money, mutual respect and personal safety, which are common issues that many couples face.

3. Should You Stay Together for the Kids?
There are two opposing schools of thought: 1) stay together because divorce is destructive to children; or 2) get a divorce because if the parents are happier the children will ultimately be happier. If you are contemplating divorce and you have children with your spouse then you should think about whether it's in your children's best interest if you stay with your spouse or split. Many couples prefer to wait until their children have turned 18 and left for college before they decide to get a divorce. But if your children are young, this might not be a realistic option for you. Also, if your marriage is filled with havoc and constant fighting then staying together for the kids might actually be hurting, rather than helping your kids.

4. Are You Ready to Part With Some of Your Stuff?
Your house, your cars, your furniture and furnishings...these are all things that were likely acquired during your marriage and will be subject to division during a divorce. Getting a divorce means parting with some or all of these "things" in order to divide assets with your spouse. For instance, in many divorces, where one party cannot afford to keep the home and "buy out" the spouse, the family home will need to be listed for sale. Even though you can likely negotiate with your spouse to keep certain items or assets, you will need to accept the reality of parting with some of your stuff. If this idea seems too traumatic for you then you should re-evaluate whether or not a divorce is the route that you want to take.

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The Uncovered Secrets of Saving Money in a Divorce

August 11, 2014

saving-money.jpgAs a family law litigator, I see on a first-hand basis how much clients are shelling out just to get a divorce. The entire process can very quickly take a dramatic toll on someone both financially and emotionally. In today's economy, most of us don't have unlimited funds set aside to spend on a divorce. Instead, we would rather save our pennies for our children's college education, our retirement, our mortgage, paying off student loans, etc. If you are in this situation, consider the little-known secrets below from an attorney's perspective to help you save money on your divorce case.

Organize Your Documents for Your Attorney:
Often times, clients will just drop off a pile of documents that we have to sort through and try to make sense of. Keep in mind that your lawyer will never know your life as well as you do. So make it easier on your lawyer by providing him/her will a three ring binder with tab dividers and make a tab for each of your assets and their supporting documents. This will allow your lawyer to draft your declarations of disclosure much quicker and will reduce the amount of times your lawyer has to call you to get additional documents and information.

Don't Use Your Lawyer as a Therapist:
Sending lengthy emails to your lawyer about non-relevant legal matters or talking on the phone with your lawyer for hours about your situation will only serve to rack up your attorney fees. Unless it's truly relevant to your case, don't copy your lawyer on emails between you and your spouse. And think about getting a therapist to talk to instead of your lawyer. Chances are your therapist's hourly rate will cost much less than your lawyer's.

Email Your Lawyer Instead of Calling or Meeting in Person:
Most divorce lawyers charge an hourly rate. If you call your lawyer, he/she likely won't be available immediately and will instead need to schedule a phone call for a later time. Chances are that preparing for and taking the phone call will take more time than simply responding to an email. Same thing goes for meeting in person. If you just have a few simple questions that need to be answered, a quick email will likely take less time for your lawyer to review and respond rather than meeting with you in person.

Talk to Your Spouse:
It may seem impossible to talk to your spouse if you are amidst a heart-wrenching divorce. But if you can figure out a way to amicably talk to your spouse you will have a chance to settle smaller issues, like the division of household furniture or your frequent flyer miles, without accruing more attorney fees.

Separate Panic from a True Emergency:
Think about whether your situation truly warrants a phone call to your attorney. Perhaps a phone call to the police would better serve your interests. Or if it's 4:00 pm on a Friday and you know that your attorney won't be able to go to court or get ahold of opposing counsel, perhaps you should wait it out.

Choose Your Lawyer Wisely:
Choosing the right lawyer can make all the difference in your divorce case. You want to choose a lawyer who will see you as a valuable and important client at the firm. Hiring the biggest firm in town might cause you to get your case ignored if you don't fit or exceed their client profile. Also, keep in mind that a lawyer who practices exclusively in family law and is a certified family law specialist will likely have more knowledge about the divorce process than a lawyer who just does family law on the side.

Unless Truly Necessary, Avoid Changing Lawyers Mid-Divorce:
If you change lawyers mid-divorce, your new lawyer will have to charge you to review your file and try to catch up, which will likely cost you a considerable amount of money that could have been avoided by just sticking with your original lawyer.

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Statutes of Limitations between Spouses

July 16, 2014

statute-limitations-01.jpgPrior to marriage, it is not uncommon for people to incur debts or obligations to their significant others. For example, in a long term relationship a boyfriend might loan his girlfriend money for a down payment on a new car or money for car repairs. If the couple cohabitates, the couple might have an agreement that the girlfriend will pay all of the household expenses while her boyfriend attends school full time. In another common scenario, a couple agrees that one of the parties will lend the other money for tuition. Significant others can also incur debts to each other by one party providing professional services to the other such as legal or tax preparation assistance. As long as an agreement exists for repayment (either orally or in writing) and other contract requirements are met, the parties have entered into an enforceable contract.

What happens to a debt or obligation between significant others if the parties get married? During marriage all earnings, accumulations, and liabilities acquired by either party during marriage are community property. However, in general, all property (and liabilities) acquired prior to marriage is the separate property of the acquiring spouse. A pre-marriage debt owed by one spouse to the other is by default a separate property receivable for one spouse and a separate property obligation of the other. According to California statues and case law, a pre-marriage debt between spouses is not extinguished by marriage. This means that after separation, the lending spouse may collect the debt from his or her spouse.

statute-limitations-cash.jpgEven if a pre-marriage debt between spouses survives marriage, what happens if the marriage lasts longer than the statute of limitations on collections? In civil cases, a lender generally has a limited period of time to collect money owed to him or her from a debtor. Typically, statutes of limitations range from two to three years depending on the particular cause of action. Because a significant number of marriages last longer than two to three years, the statute of limitations on collection of a pre-marriage debt may expire before the parties seek a divorce. However, California courts have carved out specific rules regarding debts owed between people who get married. In California, the statute of limitations on debt collection is tolled (is put on pause) from the date a lender and debtor get married through the date of separation.

There is an important distinction in this area of law between couples who are married and couples who merely cohabitate. Because California does not recognize any form of common law marriage, couples must legally marry to toll any pending statutes of limitations on debt collections. If a couple cohabitates, all standard statute of limitations will still apply.

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Securing Spousal Support with Life Insurance

July 10, 2014

spousal-support-insurance.jpgSpousal support is typically a contentious aspect of many divorces here in San Diego. Many divorcing couples spend a lot of time litigating the amount of spousal support to be paid by one party to the other. However, once the parties have settled or the Court makes a decision regarding the amount of spousal support, the party receiving the spousal support should also consider securing future payment of spousal support through a life insurance policy.

California Family Code Section 4360 specifically gives the family law court authority to order the supporting spouse to maintain life insurance on his/her life for the benefit of the supported spouse. The purposes of the life insurance is to ensure that the supported spouse will not be left without means of support in the event that the spousal support is terminated by the death of the party who has a continuing obligation to pay spousal support.

If you are the supporting spouse, you likely won't want to be ordered to purchase and maintain life insurance for the benefit of your ex-spouse because then your ex-spouse will essentially "benefit" from your death. This can be a very unsettling feeling, especially in high conflict divorces where the supporting spouse is already bitter about paying spousal support.

spousal-support-check.jpgThe amount of insurance provided pursuant to Family Code Section 4360 should relate to the actual amount of the spousal support obligation the supporting party was ordered to pay and the length of said obligation. A present value calculation as well as any potential tax savings (as a result of receiving the life insurance proceeds instead of taxable spousal support) should be considered in determining the level of life insurance to be maintained.

If you are the supported spouse, then it would behoove you to stress to the court that you want your ex-spouse to be ordered to maintain life insurance for your benefit. You will also want to make sure that the policy benefits are adequate and to that you are listed as the beneficiary of the policy so that you receive payment in the event of your ex-spouse passing away. Securing spousal support with life insurance may be very necessary for you to maintain your lifestyle or be able to support your children when your ex passes away.

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Agreements Regarding Payment of College Expenses in Divorce Judgments

July 9, 2014

college-expenses.jpgIn a divorce where the parties are fortunate enough to have the funds to pay for their children's college expenses, paying for college can be a major issue of discussion throughout the case. One parent may even give in on other issues to secure an agreement from the other side to pay for tuition for college for the parties' children. However, San Diego family law attorneys have struggled with the enforceability of provisions in Divorce Judgments reached by agreement of the parties. In a recent California Court of Appeal case, the Court clarified the limits of agreements for one or both parties to pay for college expenses.

In Drescher v. Gross, the parties entered into a Marital Settlement Agreement ("MSA") in which they agreed to equally share their three children's future college expenses. The college provision contained limitations on what schools the parties would pay for and which expenses were covered by the agreement. At the time the parties executed the MSA they were both employed as attorneys and earning six-figure incomes. Ten years later, the parties both requested modification of various support provisions, including the college expenses provision. At the time of the post-judgment requests, Husband earned more than $400,000 per year and Wife had become permanently disabled and was unable to work.

college-expenses-dollars.jpgAt the trial court level, the judge enforced the college expense provision of the parties' agreement and agreed with Husband that the parties should share equally the college expenses regardless of their current respective incomes. The trial court determined that it did not have jurisdiction to modify a contractual obligation entered into freely by both parties. On appeal, the Court of Appeal disagreed. The Court of Appeal granted Wife's request to modify the college expense provision based on a material change in the parties' financial circumstances. The Court of Appeal analogized the college expense provision to general support provisions which are modifiable unless the parties state otherwise.

Based on the outcome of this recent case, moving forward in divorce cases, the parties' MSA must specifically state that a college expenses provision is non-modifiable if they intend to restrict the court's ability to modify such a provision. Although family law attorneys dispute the wisdom of this decision, everyone can agree that clarity is always a plus when it comes to drafting and enforcing agreements in the family law arena.

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What Can I Do if My Spouse Lies About His or Her Income?

May 27, 2014

hidden-income.jpgIt is a common fear in family law cases that one spouse will lie about his or her income in order to avoid a high child support or spousal support order. This can become a serious concern if the spouse is self-employed or a business owner who can manipulate evidence regarding his or her income. Especially in the case of a long-term marriage, the parties believe they can make a good approximation regarding the income of their former spouse. Often, spouses are shocked when they receive a copy of the income and expense information form prepared by the other party. Although there may be a disconnect between what you believe your spouse earns and what your spouse is telling the court he or she earns, it is important to do your due diligence and investigate your suspicions before making accusations to the court.

The first thing you can do to find out if your spouse is really lying about his or her income is to conduct formal and informal discovery regarding your claim. Informally, you can begin gathering documents which can provide you and your attorney with a snap shot of the monthly family spending. Review bank statements and credit card statements for information regarding how much money your family spends each month to maintain your current lifestyle. Once you have gathered documents which can provide you with information regarding your monthly family expenditures, you and your attorney can compare that information to the gross income your spouse is claiming he or she earns. In addition, you can gather joint tax returns and financial documents for previous years from your CPA or through your online tax service. It is helpful to compare prior tax returns with your spouse's current claims regarding his or her income.

hidden-income-puzzle.jpgFormally, your attorney can propound demands for production of specific documents and requests for specific information. If you do not believe your spouse will be truthful, even under oath, your attorney can subpoena various entities which have relevant documents in its possession. If you determine that your spouse's statements regarding his or her income are inconsistent with the evidence which has been acquired, you may have a cause of action against your spouse for breach of fiduciary duty. San Diego family courts impose a strict duty on spouses to disclose all material facts and information regarding income, expenses, assets and debts. If one spouse is not truthful with the other party and/or with the court he or she may face serious financial or criminal penalties.

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Tax Deductibility of Lump Sum Spousal Support Payment

May 19, 2014

alimony-spousal-support.jpgIn California divorce cases parties often overlook the tax treatment of their proposed actions when negotiating settlement agreements. A husband might say, "I will pay you more spousal support than child support because our child is turning eighteen (18) soon and child support will terminate." A wife might say, "I will pay you $100,000.00 if you just waive your right to spousal support." In order to compromise an attorney might propose, "Let's start with a high spousal support amount for the first year and step the amount down as time goes on." However, family law litigants should think carefully about these proposals because they all contain hidden tax consequences.

In a recent post-judgment modification case, Alice requested an increase in the amount of monthly spousal support she received from her former husband, John. The parties reached an out of court settlement and John agreed to pay Alice a lump sum payment of $350,000 in exchange for her agreement to waive any future right to spousal support. After the parties formalized their agreement, John paid Alice $350,000. As John was used to deducting his monthly spousal support payments on his tax returns, he deducted the $350,000 spousal support payment on his return the following year. The IRS disallowed all but one month's worth of spousal support as a deduction for John. On appeal, the tax court held that a lump sum settlement of future spousal support was non-deductible because the obligation to make the payment would not have expired in the event of Alice's death.

Generally, Congress draws a clear line between child support, spousal support, and property settlements in order to ensure that parties can only deduct payment of spousal support. Further, Congress has structured the law to ensure parties cannot structure property settlements that are disguised as spousal support. As is evident in this dramatic example, the ability to deduct $350,000 of spousal support versus being barred from such a deduction results in a radically different amount of money paid out-of-pocket. On the other side of this case, Alice received $350,000 in non-taxable spousal support which otherwise would have been taxed to her at her normal rate. Alice received substantially more net income than she otherwise would have.

alimony.jpgIn sum, taxation and family law is a complicated crossover of two different areas of law. Your property and support agreements may involve serious tax implications and therefore, it is always advisable to consult with a knowledgeable family law attorney regarding your divorce issues.

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Bankruptcy and Divorce in California

May 13, 2014

beach fence.jpgIn every California divorce proceeding, both parties must take a good hard look at their joint and individual finances. This is because, at the outset of the divorce process, both parties are required to provide an exhaustive list of all assets, debts, income and expenses. This aids in the division of property and determination of support. However, sometimes once all the facts are laid out in black and white for the parties, they realize that they have much more debt than they originally thought. If the parties' financial situation is dire enough, one or both parties may file bankruptcy.

If you are going through a divorce and are considering filing bankruptcy it is important to discuss this decision with both a bankruptcy attorney and a certified family law specialist. Together, these professionals should be able to give you all of the information necessary to make the decision regarding whether to file for bankruptcy or not. If you decide you would like to file for bankruptcy, you should consider the timing of your filing and the effect it will have on your divorce case.

Once a party to a divorce action files bankruptcy, the bankruptcy case operates as a stay to all proceedings regarding the division of community property that is the property of the bankruptcy estate. The stay does not operate to prevent proceedings to collect, modify or enforce child and/or spousal support payments against current income. Further, the divorce proceeding itself is not stayed. However, a dissolution proceeding cannot be completed until all property is divided. If property division is stayed pursuant to an ongoing bankruptcy case, the resolution of the divorce case will likewise be stayed.

If a divorce judgment is entered in violation of a bankruptcy imposed stay of proceedings, the divorce judgment is still valid. However, the divorce judgment will have no legally binding effect on the bankruptcy case. The divorce judgment is effective and binding as between the parties but has no legal effect on the bankruptcy authorities. The bankruptcy court does have the option to deflect jurisdiction to the family court to establish the character or title to property held in the debtor's estate. Unless and until the bankruptcy court deflects such jurisdiction to the family court, the property of the estate will be controlled by the bankruptcy court. In the context of a post-judgment motion or case where the parties to a family law matter were never married, filing bankruptcy does not stay a request to establish or modify child or spousal support.

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