Not All Assets are Equal
When you decide which assets you and your spouse will each take, you should be aware that not all assets are valued equal by the court.\ One of you may end-up with a huge tax bill when you assess the assets: for example, you could end-up paying capital gain taxes upon the sale of your home or your investment assets. Or, if you dip into your retirement accounts, you may end-up paying income tax and a penalty.
Some other assets may end-up being a money pit. Your primary residence, vacation home or rental properties could cost you a significant amount of money to maintain. Frequently, the primary benefit of a rental property is not necessarily cash flow, but the tax losses that are generated. If you are in a low tax bracket, then these losses may not benefit you to the extent that another investment would. Your expenses may actually increase. For example, if your spouse used to make all repairs, mow the lawn, and maintain the property, but now you have to hire somebody to do it all, then your expenses will increase. Would you be better off liquidating these properties and investing the proceeds in something that would increase your cash flow instead of creating a financial drain?
Beyond analyzing each asset, you should also be aware that you could go broke during property division if you insist on fighting over every last item. During one client’s divorce, the opponent had purchased a set of leather desk accessories that came with a wastepaper basket. Each of them wanted that wastepaper basket and insisted that the set would be incomplete without it, so both parties (including our client) ended up fighting over it. After spending in excess of $5,000 in attorney’s fees, one person got the basket and the other got the accessory set.
This illustrates how ridiculous things can sometimes get. Emotions get high and some people will fight forever over trivial items. Sometimes, they’re more concerned with making sure their ex-spouse doesn’t get something than with actually getting it themselves.
Remember this: Nobody gets everything they want in a divorce settlement. You will have to give up some possessions you really like, so prepare for this by creating lists of “Must have,” “Would like to have,” and “Willing to let go.” Don’t tell your ex that you don’t want the items on that third list; instead gracefully offer to negotiate them for other items that you may really want.
What to Do About the House
If you have children, the spouse who has the children usually remains in the house with the children, unless you and your spouse can’t afford it. If there are no children, you and your spouse can work together to decide what to do with the house. The easiest solution is to sell the house and divide the proceeds. However, one of you may be more attached to the house than the other. In this case, you will need to have it appraised. You might each hire a real estate appraiser to value the house and then take the average of the two values. If you both trust and like the same person, you might decide to save money and only hire one appraiser.
Your current equity in the marital home is usually stated on your monthly mortgage bill. Or, you can calculate the equity by subtracting the mortgage from its assessed value. What’s left, the equity, is what you will negotiate with your spouse if one of you decides to keep the house.
If you are considering selling the house, review the following considerations before placing your house on the market:
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Will you or your spouse be able to find comparable or sufficient housing at a lower monthly cost? Might you be better off paying a higher monthly mortgage than a slightly lower rent when, all things considered, you can deduct mortgage interest?
Suppose that you’ve decided to hold on to the house until your youngest child becomes 19 and goes out on their own – either working or in school. Here are some arrangements that have worked between two divorcing spouses in a situation like yours:
You must put everything in writing. Ask a lawyer how to make the agreement legally binding. Even though it may seem like not such a big deal now, it could be years down the road when the agreement isn’t so fresh in everyone’s minds. It’s important that you not leave any stone unturned. You two may be spouses now, but following your divorce, you have nothing more than a business arrangement.
Dividing Property & Debt
If you and your spouse are going to try to divide property and debt yourselves, here are some steps to get you started:
Dividing Property
Here are the steps for dividing property:
1. List your belongings. Working together, make a list of all the items that you own jointly that need to be divided.
2. Value the property. Try to agree on the value of anything worth more than $100. If there is a house, a business, or anything that is difficult to value, get an opinion from an outside source.
3. Decide the logical owner. Now go through your main list, item by item, and decide whether there is some good reason to have each piece of property go to one or the other of you. Start with the biggest item and see how far you get. If the “who gets what?” task gets too difficult, consider some of the following methods:
- Entertain bids. On items of substantial value – a house, a business, an expensive car – have each spouse submit a sealed bid; when the bids are opened, the highest bidder gets the item.
Some property requires expert analysis. For example, personal injury awards often create tension. One party might suggest that the portion of the award that is attributed to wage loss or diminishing of affection should be divided; on the other hand, if the award is based upon pain and suffering, a good argument can be made that the award should not be shared.
Dividing Debt
Dividing debt is even less fun than dividing property because neither spouse wants it. You should divide both assets and debt at the same time, because there is some debt that might go along with the asset. For example, if one party takes a car that has a loan associated with it, the two ought to be considered a pair.
Other debts such as credit cards can be divided in half, or you can apportion them based on your different incomes.
When considering debt, be sure to consider mortgages, unpaid rent on leases, student loans, credit lines, loans, unpaid household bills and any healthcare costs.
When thinking about real estate, you need to be aware of the legal constraints. If you both have your names on a lease, and only one of you will be staying there, you should consider a new lease with only one of you having the liability. If you live in a home that you two own jointly, file a “quit claim” deed transferring ownership to one partner. There are issues relating to both of you having your names on a mortgage and those issues ought to be discussed with your attorney.
Remember that dividing up property and debt is all about negotiation. There are rules in the give-and-take world and nobody should expect to get everything that he or she wants.
Understanding Alimony
Case law in Massachusetts makes the first look of alimony law simple: it is based on the need of the payee spouse and the ability of the payor spouse to meet that need. Clearly, the first thing that lawyers will do is analyze each party’s financial statement.
For instance, earning capacity of a payor spouse will be analyzed to determine whether he or she is under-employed. Our attorneys, for example, will often retain a vocational expert to come into court and testify as to the spouse’s true earning capacity.
Another helpful method to establish need would be to view one party’s lifestyle by gathering facts about the types of trips taken during the marriage, introducing pictures of homes, cars, vacation sites, and other trappings of a certain lifestyle. If more alimony is needed post-divorce, the lawyer would likely compare the post-divorce lifestyle to that which was introduced into evidence from the years of the parties’ marriage.
In making a case for alimony, or in defending against a claim for the same, the court has broad discretion as to what kind, what duration and what amount is to be ordered. Here are some hot tips to discuss with your lawyer:
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Let the facts help you: learn what the payee spouse’s actual needs are and, if the payor is on the other side, consider
imputing income to them!
Retirement Issues
When you divorce, you need to do long-term thinking about many subjects. One of them is retirement. Since you will not be able to revisit this issues again (property division is a one-time event and is rarely modified absent fraud), you want to come up with a viable solution early-on.
Retirement Plans
If you have your own retirement account, you want to make sure that it is fully funded, as you will not have your spouse’s income or retirement fund to use for expenses. Additionally, you want to be sure that you and your spouse split your retirement resources equitably.
In some case, this may mean that you both keep your own retirement accounts. In other cases, this may entitle you to a portion of your spouse’s retirement monies. In short, your retirement account and your spouse’s account can be considered marital assets and can be divided if necessary in the divorce settlement.
In fact, the Social Security Administration recognizes a spouse’s right to an ex-spouse’s Social Security benefits after 10 or more years of marriage.
There are a number of different types of retirement plans, and new ones are added regularly. For the purposes of this article, just understand that retirement plans fall into two main categories: qualified and non-qualified.
Qualified Plans: Qualified plans are simply employer-sponsored plans that meet certain IRS requirements so that the employer can deduct contributions.
You do not pay tax on the money until you actually take it out after retirement. The idea is that your tax rate in retirement will be lower. For this tax-free status, qualified plans must abide by IRS and other governmental rules. In addition, there is a limit to how much you are allowed to put into your account each year.
Non-Qualified Plans: Plans that are not qualified by the government are not tax-deductible. However, these kinds of plans can be used effectively as additional retirement plans by employees. Companies can offer them to their top managers and individuals can buy them to increase their incomes at retirement.
Social Security
In addition to any employer-sponsored retirement plan or individual retirement plan, you will want to look at any money you will be paid at retirement from the Social Security Administration.
Every year the Administration sends out a statement to all wage-earners. The statement explains how much you would get if you started collecting at 62 years old, at full retirement and at age 70. In addition, this statement includes how much you might get from disability benefits and how much dependent survivors would get if you died.
Both you and your spouse may have some entitlement to each other’s benefits. Talk to your lawyer about how to proceed.
Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order or QDRO is a judgment, decree or order that makes it possible to divide your or your spouse’s retirement accounts.
This order creates or recognizes the existence of an alternate payee’s right to receive, or assigns to an alternate payee the right to receive, all or a portion of the benefits payable with respect to a participant under a pension plan, and that includes certain information and meets certain other requirements.
Make sure that your QDRO provides for survivor’s benefits in the case that your ex-spouse dies before you do. You don’t want to miss out on money owed to you because you forgot that small detail.
If you are contemplating divorce or are currently involved in the process, undoubtedly you fear failure and the unknown. You are not alone. If you don’t know where to start or what to do, contact us.
Throughout Western Massachusetts, our divorce lawyers and family law attorneys zealously represent clients in Hampden, Hampton, Franklin and Berkshire counties.
If you anticipate a court appearance in Springfield, Northampton, Greenfield or Pittsfield, call (800) 910-DIVORCE or contact us for a no-obligation consultation.