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Equitable Division

Equitable Division – Should You Ask For The House?

Tuesday, January 20th, 2015

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In many divorces, a highly fought over issue is who will get to keep the marital home. In Georgia, the marital home is subject to equitable division. This means that it is included in the split of all marital property/assets. For this reason, if one spouse keeps the home, the other spouse will usually get other marital assets to make the split equitable. But while many divorcing spouses are quick to say they want to stay in the home, there are many things to consider before asking for it as part of equitable division:

  1. Can you afford to stay in the house? – This is by far the most important consideration. As part of a divorce, your household income will decrease, sometimes dramatically. While there may be alimony and/or child support involved, this income will only continue for a limited period of time (depending on the details of your case). Not only will you have to be able to make the mortgage payment, there are other costs associated with home ownership such as homeowners insurance, utilities, general upkeep and unexpected repairs. It would be beneficial to make a spreadsheet of your monthly income and expenses to see what you can afford, before fighting tooth and nail to get the house in court or mediation. Going from two household incomes to one, or from one household income to none/looking for a job is often a substantial change and something you must consider before assuming the responsibility of the marital home on your own.
  2. Can you transfer the mortgage into your name? – Even if you compare monthly income and expenses and decide you can afford to stay in the home, your mortgage lender may feel differently. When you and your spouse applied for your mortgage on the marital home, the bank was likely considering two incomes. If you remain in the marital home after the divorce, your Final Decree of Divorce will most likely require you to refinance the mortgage on the marital home to remove your ex from liability on a home in which he/she is no longer living. Unless you were the primary breadwinner in your family, it can be difficult to refinance with a lower income. This is something you should explore with the bank before asking for the marital home in the divorce because you do not want to be stuck unable to refinance and, thus, in contempt of your divorce decree.
  3. Does it make sense to stay in the house? – It is also prudent to just take a step back and ask yourself if staying in the house makes practical sense. Often, divorcing couples are so caught up in the divorce process and “getting everything” that they may end up with something they don’t even want. Will your ex have primary physical custody of the kids? If so, staying in a huge house may not be necessary. Will staying in the house prevent you from emotionally moving on with your life? If so, moving may make the most sense for you.

After carefully considering the above, as well as anything else you deem important, it is possible that neither party wants nor can afford to keep the marital home after the divorce. In that case, the home will be sold (subject to certain conditions in the divorce decree) and the proceeds divided equitably between the parties.

What Should We do with the 529 Plan?

Saturday, January 3rd, 2015

During divorce, 529 college savings accounts are often neglected because many divorcing parents assume that the asset belongs to their child. In fact, a 529 plan, although intended to benefit the child, is actually a marital asset that must be addressed during the divorce process. Addressing the ownership of a 529 college savings plan during divorce is important because the Participant, or the parent who is named as the owner or holder of the account, is the legal owner of the account, and may dispose of the accounts assets as he or she sees fit. Thus, if there is concern that the parent named as the participant may misuse the funds, there may be conflict concerning which parent should take ownership of the account. Below are several suggestions on how to address the issues concerning 529 plan and what safeguards may be instituted to ensure the 529 plan is used for its intended purpose.

  • Split the account. As mentioned above, 529 plans have just one owner. Although this is generally acceptable while a couple is married, when a couple divorces, allowing one parent to maintain control over a 529 plan, the non-account holding parent may have less of an incentive to contribute the account. However, if the account is split between divorcing parents, each parent will have a stake in their child’s education.
  • Freeze the account. Freezing a 529 plan has two main practical effects: 1) no more deposits may be made to the account, and 2) the money already in the account may only be used to fund the education of the designated child. Freezing a 529 account may be a workable solution for divorcing parents, because it prevents the participant parent from using plan assets for purposes other than funding the child’s college education, and it keeps the participant parent from using plan funds to fund the college education of a child from a new marriage.
  • Stipulate the use of 529 plan funds. Instead of splitting the plan, parents may also opt to stipulate or agree on how plan funds are to be used. Specifically, parents may include a clause in their Marital Settlement Agreement stating that 529 plan funds may only be used for their child’s college costs. Although such an agreement may not actually prevent one parent from abusing the plan funds, because the terms of Settlement Agreements are incorporated into Final Divorce Orders once divorces are finalized, if one parent does misuse 529 funds, the other parent may seek court intervention to enforce the Settlement Agreement.
  • Interested party statements. Most 529 plan have authorization forms that allow an “interested third-party” to receive regular statements and all notifications of changes to investments, sales, purchases and distributions from the account. In cases where the parents agree to allow one parent to maintain control over the 529 account, the other parent may keep track of how that parent is managing the account with interested party statements. Although this may not prevent abuse of account funds, the non-participant spouse will at least be aware of any abuse as soon as it occurs.
  • Specify successor owners. Upon divorce, the non-participant parent should be named as the successor participant. This is important, because if the participant-parent dies unexpectedly, the successor participant parent may immediately assumes ownership and control of the account.
  • Agree on future funding. Post-divorce, it is often unclear how ex-spouses will share their child’s college expenses. By outlining and agreeing on how much each parent will contribute to the plan post-divorce, questions concerning how parents will share college expenses will be resolved.

Determine what to do with any excess. One issue that is often overlooked is what to do with any money left over in the account once the child has completed his or her education. This may be the case because parent often assume that any funds in the account will be completely exhausted funding college expenses. But, what if money is left over? Marital Settlement Agreements should address how the parents will share or use any excess. Some options include using any excess to fund a sibling’s education or using the excess to fund a parent’s return to school.

How to Mitigate Litigation Costs in High Asset Divorce

Sunday, December 14th, 2014

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More money more problems. Although this adage is not commonly used in the context of divorce, it may ring very true in certain situations. In fact, a brief look at media coverage of high profile divorce cases proves this point. Let’s take Tiger Woods’ divorce as an example. Just like any divorce, Tiger Woods’ divorce involved four basic elements: property division, child support, child custody and alimony. However, instead of costing $25,000 to $30,000 to finalize, the cost of his divorce is estimated at $100 million. Why? The most likely possibility is that a couple’s personal assets are directly related to the legal fees and costs of divorce. Put differently, the wealthier an individual or couple is, the more they will likely pay for a divorce.

Fortunately, there are steps that may be taken by parties to high asset divorces to mitigate or limit the costs of divorce.

  • Hire a divorce attorney with experience handling high asset divorce matters. Just like you wouldn’t hire a contractor with no experience constructing a multilevel office building to build a skyscraper, it is not advisable to engage the services of a divorce attorney who is not familiar with the intricacies associated with dividing complex assets during divorce. Experience matters, and an experienced attorney will be more efficient and more effective, and efficiency and effectiveness often saves money.
  • Ask questions. After hiring an experienced divorce attorney, don’t be afraid to ask questions and be involved with the divorce process. After all, you know more about your marriage and assets than you attorney ever will. Thus, it is important to not only provide your attorney with complete and accurate details concerning your marriage, but also to ask questions of your attorney to ensure that you and she are on the same page.
  • Don’t let emotions cloud your judgment. Don’t make decisions when you are angry or when your judgment is otherwise clouded by emotion. Most often, decisions made in anger end up resulting in unnecessary litigation, which in turn increases litigation costs.
  • Engage the help of other divorce professionals. Accountants, estate planners, investment planners, and real estate agents, are all professional that may aid your divorce attorney to craft the best settlement or litigation strategy for you. Although hiring additional professionals may seem counter intuitive when trying to mitigate costs, the assistance of other professionals may reduce the time your divorce attorney has to devote to researching issues tangential to the divorce, which in turn reduces attorney’s fees.
  • Weigh costs versus benefits. When deciding on a litigation strategy, always ask yourself and your divorce attorney: “What are the costs associated with this strategy and what are the benefits.” For example, if it will cost $5,000 in attorney’s fees and other court costs to seek an additional $1,000 in asset distribution, seeking the additional assets is simply economically unfeasible. Don’t let your emotions or your desire to “win” overshadow the economic realities associated with divorce.

There is no doubt that divorce is expensive, but as outlined above there are steps that may be taken to mitigate litigation costs in high asset divorce. For more information concerning the special concerns attendant to high asset divorce, and what steps can be taken to mitigate litigation costs, speak to one of our Georgia asset division experts at Meriwether & Tharp.

Can You Be Held Responsible for Your Dead Ex-Spouse’s Debt?

Tuesday, September 16th, 2014

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One of the primary issues divorcing couples must work out is property division.  This includes both assets and debts. In both equitable division states (such as Georgia) and community property states, a final divorce decree will outline exactly how marital property is to be divided and how marital debts are to be allocated.  Community property states will divide all marital property and debts equally, but the divorce decree will still specify how it will be equally divided.

While a final divorce decree will protect you in court if your spouse is not making payments on a joint debt for which the divorce decree made him responsible, the creditor itself will not be appeased by the court order.  This is because the divorce decree is between you and your ex-spouse – the creditors do not sign off, nor are they a party to the agreement so they are not required to abide by it.  Thus, if your ex-spouse dies before he/she has fully satisfied a debt in both your names, the creditors are likely to come after you.   A dead ex-spouse’s debt can become your problem, by Jeanne Sahadi, money.cnn.com, June 25, 2014.

For example, consider a situation wherein you and your ex had a joint credit card for which he was responsible post-divorce, but he dies before he has paid it all off.  In that case, the credit card company will likely come after you for payment because your name is on the card as well.  If you don’t pay it, it could be detrimental to your credit.  You could try filing a claim against his estate, but this takes time so you will likely be forced to pay it in the interim so you don’t damage your credit.

There are a couple things you could try to do to lessen your risk:

  1. Request that your settlement agreement/divorce decree have a clause requiring the party responsible for the debt post-divorce to refinance the debt to remove the other spouse’s name.  Houses and cars can be refinanced. If your ex will not be able to qualify to refinance into his own name, consider taking on the debt yourself along with some additional assets to balance it out.  That way, payment of the debt will be in your control.  Not all debt can be refinanced this way but it is worth a try.
  2. Estate planning attorney Geoff Germane of Kirton McConkie suggests that, at the time of your divorce, “you could try to enter into what’s called a ‘novation’ or ‘accord and satisfaction’ with the creditor to erase your further liability for the debt.  This is essentially an agreement with the creditor that you are no longer responsible for the debt.

Though neither of these options is foolproof, they are certainly worth a try to reduce your risk of being later help responsible for a debt from which you assumed you were already safe.

Is Life Insurance Marital or Separate Property?

Tuesday, August 19th, 2014

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In the case of Frankie Valli v. Randy Valli, the California Supreme Court answered the above stated question: life insurance is marital property (community property according to California law) if purchased with marital funds.

This issue was presented to the Supreme Court of California after Randy Valli appealed the trial court’s ruling in her divorce from Frankie Valli, lead singer of the critically acclaimed singing group the Four Seasons. Specifically, the issue on appeal was the trial court’s ruling regarding a $3.75 million life insurance policy purchased by the singer for the benefit of his wife. During the divorce proceeding, Randy Valli argued that she should retain the insurance policy as her own separate property because the policy named her as the sole owner and beneficiary. The trial court disagreed and held that the policy was community property because it was acquired during the marriage with funds from the couple’s joint bank account. The trial court went on to divided the policy between the spouses by awarding the policy to Frankie Valli and ordering him to buy out his wife’s half at its cash value, $182,500.

Randy Valli appealed the trial court’s decision, and the California Court of Appeals agreed with her argument. The appellate court reversed the lower court’s decision and held that the policy was Randy’s solely, because the policy was in her name alone. Frankie then sought redress from the Supreme Court of California, and in its May 15, 2014 opinion on the matter, the Supreme Court sided with Frankie and the trial court holding: “[…] we agree with the trial court’s characterization of the insurance police as community property.”

Although this matter was decided according to California law, which is distinct from Georgia divorce law in that Georgia is an equitable distribution state, not a community property state, it would not be surprising for a Georgia court to come to a similar conclusion based on similar facts. According to Georgia law, marital property is subject to equitable distribution between the spouses upon divorce. Property, whether real property, personal property, assets or income, is deemed marital if it was acquired by the spouses during the course of the marriage. Moore v. Moore, 249 Ga. 27 (1982). Thus, in a case similar to the Valli divorce, a Georgia court would likely find that a life insurance policy purchased during the marriage with funds from a couple’s joint bank account was marital property subject to division, regardless of which spouse was listed as the owner or beneficiary.

Professional Degrees are Not Subject to Division in Georgia Divorce

Sunday, August 17th, 2014

 

Obtaining a professional degree, such as a law degree, medical degree or a degree in accounting or business is an investment of both time and money. Like many other investments, professional degrees tend to benefit those who have invested the time and money to earn one in the form of better career opportunities and enhanced earning capacity. With that being said, if professional degrees may be viewed as investments, similar to investment accounts or investment property, the question may arise: “Are professional degrees subject to equitable division during divorce?”

In some states, the answer to the above question is an affirmative one. Professional degrees are viewed just like other forms of investment property and are subject to division upon divorce if deemed marital. However, Georgia is not one of those states. In Georgia, professional degrees are not subject to equitable division upon divorce. In a case specifically addressing this issue, the Supreme Court of Georgia held that professional degrees, such as medical degrees, were not subject to equitable division because “[t]heir value is too speculative to calculate, being simply the possibility of enhanced earnings they provide. That potential may never be realized for any number of reasons. [Professional degrees] have no exchange value or transferrable value on an open market, are personal to [the holder], terminate on his death, and cannot be assigned, sold, transferred or pledged.” Lowery v. Lowery, 262 Ga. 20 (1992).

Although a professional degree (or its value) may not be divisible upon divorce, it may impact an alimony determination. For example, if one spouse earned a professional degree during the course of the marriage, and the other spouse’s contributions to the marriage aided the degree seeking spouse in obtaining the degree, that spouse may be compensated for his or her contribution via alimony. Id. at 20 n.1.

 

Recognizing Rare Types of Divisible Property in Georgia Divorce

Saturday, August 16th, 2014

There are four main aspects of divorce in Georgia: child support, child custody, alimony and equitable distribution. In many divorce matters, equitable distribution, or the division of marital property upon divorce, is one of the most complex aspects of Georgia divorce. Equitable division is so complex, because before marital property may be fairly divided between spouses, potentially divisible property must first be identified, classified as either marital or separate, and valued.  Generally, couples find it easy to identify potentially divisible marital property, because such property often includes property such as: the marital home, vehicles, home goods and other real and personal property acquired during the marriage or with marital funds. However, homes and cars are not the extent of property that may be divided between divorcing spouses. There is a vast array of property, both tangible and intangible, that may be subject to equitable division during a Georgia divorce. Listed below are some types of property that may not be readily recognized as marital property subject to equitable distribution. This list is not exhaustive. Thus, if you are considering divorce and have questions regarding how your assets should be divided upon divorce, it is absolutely essential for you to consult with an Atlanta divorce attorney with the knowledge and skills necessary to identify potentially divisible marital property to ensure a fair divorce settlement.

 

Stocks and bonds

Mutual funds

Certificates of deposit

Money market accounts

Annuities

Life insurance policy cash values

Trusts

Security Deposits

Future Interests (Remainders)

Oil, Gas, and Mineral Interests

Intellectual Property, such as patents, copyrights, and contracts for royalties

Promissory Notes

Personal Injury awards for compensatory damages

Workers’ Compensation Awards

Pets

Business interests

Vacation clubs/Timeshares

Frequent flyer miles

Hotel Points

Season Tickets

Club memberships

 

 

Do Non-Economic Contributions Matter in Georgia Equitable Division Cases?

Wednesday, July 30th, 2014

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Georgia law does not provide a formula when it comes to equitably dividing marital property upon divorce. Alternatively, Georgia law gives judges and juries discretion to determine what is a fair or equitable division of a couple’s marital property. In deciding equitable division cases, judges and juries rely on certain factors outlined in Georgia case law to determine how a couple’s property should be divided. These factors include, among others:

  • Each party’s contribution to the acquisition and maintenance of the marital property;
  • The purpose and intent of the parties regarding the ownership of the property;
  • The separate estate or non-marital property of each of the parties;
  • The length of the marriage;
  • Any prior marriage of either party; and,
  • The service contributed by each spouse to the family unit.

Stokes v. Stokes, 246 Ga. 765 (1980); See also Rooks v. Rooks, 252 Ga. 11 (1984) (concurring opinion)( “Stokes simply recognized that a spouse’s non-economic contributions to a marriage might be reflected in an ‘equitable division’ of property, notwithstanding the incidence of legal ownership,[…]”).

Thus, the question posed above can be answered in the affirmative. Yes, non-economic contributions, such as the service contributed by spouses to the family unit, do indeed matter in Georgia equitable division cases.

Impact of 401(k) Loans on Equitable Division in Georgia Divorce

Tuesday, June 3rd, 2014

Georgia is an equitable distribution or equitable division state, not a community property state. This means that upon divorce a couple’s marital property is divided equitable or fairly between the parties. Marital property does not simply include marital assets, such as the marital house, cars and bank accounts, but marital property also includes marital debts, like credit card debt and home loans.  With that being said, determining how to divide an account that may be simultaneously seen as both an asset and a debt may be extremely difficult.

When it comes to dividing 401(k) or other qualified retirement accounts that have outstanding loans against them, many parties are tempted to simply ignore the loan and proceed to divide or retain the retirement account as if there was no outstanding debt associated with it. This is a mistake. Failing to understand the impact of 401(k) loans on equitable division may result in both parties, especially the employee-spouse, suffering unintended financial hardship due to this mistake. For example:

Wife and Husband seek a divorce. The assets the couple must divide include a 401(k) held in Wife’s name. Wife has contributed $50,000 to the retirement account, but there is currently a $20,000 loan against the account. In the divorce, Husband and Wife agree to equally divide the retirement account. Upon their divorce, they have a QDRO prepared that reflects this agreement. The loan is not accounted for. Husband receives his $25,000 portion. However, Wife is only left with $5,000. Since the outstanding loan was not addressed, Wife is only left with the value of the retirement account, minus the loan. Additionally, she must ensure the loan is repaid to avoid penalties.

Although many couples intentionally choose to have one spouse bear the entire burden of a 401(k) loan, this is not the only option. In fact, there are several ways a property settlement could be structured to ensure both parties bear some responsibility for the outstanding loan, especially if the loan was used for the benefit of both spouses.

Using the above example, if the property agreement and QDRO addressed the loan, Husband’s portion could have been reduced by $10,000, making him accountable for half of the outstanding loan, instead of leaving Wife to bear the entire burden of the loan herself. Because there are some many intricacies associated with Georgia divorce and equitable division, it is absolutely necessary to engage the services of an experienced Atlanta divorce team who understand the complexities of Georgia property division and who have the financial know how to ensure a fair property division in divorce.

 

Who Should Keep the Marital Home Post-Divorce?

Wednesday, April 16th, 2014

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Unfortunately, there isn’t a“right” answer to the question of who should keep the marital home upon divorce. In fact, depending on the details of the particular case, it may be more advantageous for neither spouse to retain the marital home, but to instead sell the home and split the proceeds. Below is a list of factors that each spouse should consider before a decision is made regarding whether the home should be retained by one spouse post-divorce, and if so, by whom.

Does either spouse want the marital home? If neither spouse wishes to retain the marital home post-divorce, the best options are likely to sell the marital home or to seek to rent the marital home to a third party if selling the home will not yield a profit. Alternatively, if both spouses want to retain the marital home after divorce, extensive negotiation may be necessary to determine which spouse should retain the marital home. In the event the parties are not able to resolve the issue of who will retain the spouse, it may necessary to proceed to trial in order for a judge to make this determination. Situations where only one spouse wants to keep the home are generally the least difficult. In such situations, it is generally only necessary for the parties to determine how the other marital assets will be apportioned in order offset the value received by the party retaining the home.

Can either spouse afford the mortgage payments post-divorce? In determining which spouse should retain the marital home post-divorce another issue that should be considered is which spouse will be able to afford mortgage payments post-divorce. If the spouse who seeks to keep the home will not be able to handle the home’s mortgage, other alternatives should be considered such as selling the home or awarding it to the other spouse.

Can the spouse who wishes to retain the home able to refinance the mortgage into their name solely? In addition to being able to afford the mortgage payment, the spouse who wishes to retain the marital home post-divorce must also have the ability to refinance the home mortgage into his or her name solely. Often couple’s obtain home mortgages jointly, meaning that both spouses are jointly liable for the mortgage. Divorce does not sever this joint liability, thus if the spouse who retains the home fails to make timely payments the other spouse’s credit may suffer if the mortgage is not refinanced.

Are there any second mortgages or HELOCs? If there are second mortgages or home equity lines of credit that have been taken out against the marital home, not only must it be determined who will retain the home itself, but it must also be determined how the debt against the home will be apportioned. Often, the spouse who gives up the marital home will resist accepting any liability for the debt associated with it. Thus, the spouse who wishes to retain the marital residence must also be prepared to potentially take on all liabilities associated with the home as well.

Is there agreement regarding the home’s value? This is often a sticking point between spouses who have otherwise reached a decision concerning the disposition of the marital home post-divorce. Even if the home is not going to be sold, the value attributed to the home is important because it directly impacts the analysis that must be conducted to ensure that the marital assets are divided equitably.

If the home is sold, how will the proceeds be divided? Will the home sale proceeds be divided equally or will one spouse receive a greater of the proceeds? If the parties agree to sell the home, not only must the division of home sale proceeds be determined, but the home sale price must be agreed upon and a determination regarding how the costs associated with the sale will be apportioned must be made as well.