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Equitable Division

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.

The Four Parts of Georgia Divorce: Equitable Division

Thursday, March 27th, 2014

As discussed in our original post entitled “The Four Parts of Georgia Divorce,” Georgia is an equitable distribution state. This means that upon divorce, a couple’s marital property is not divided equally or 50/50, but marital property is divided equitably or fairly upon divorce. O.C.G.A. § 19-5-13 and Fuller v. Fuller, 621 S.E.2d 419 (Ga. 2005). Not only are marital property and assets divided equitably upon divorce, but marital debts and obligations are divided equitably upon divorce as well.

Only marital assets and debts are subject to equitable division upon divorce. An asset or a debt is deemed marital if it was acquired by the parties during the marriage. If an asset or debt is deemed marital, it is subject to division regardless of whose name the property is listed in. Stokes v. Stokes, 246 Ga. 765 (1980).  Essentially, all property acquired during the marriage, like cars, homes, business and furnishings are marital property, unless some exception applies. Alternatively, a spouse’s separate property is not subject to equitable division. Separate property is generally defined as property acquired by one spouse prior to the marriage or property acquired by on spouse by gift, inheritance, bequest or devise, even though during the marriage, remains that spouse’s separate property. Payson v. Payson, 274 Ga. 231 (2001) and Bailey v. Bailey, 250 Ga. 15 (1982).

There is no set formula or calculation used to divide marital property in Georgia. Thus, Georgia judges and juries rely on certain factors and factual determinations in order to determine how the parties’ marital property should be divided. To divide marital property, a Georgia court or jury may consider the following:

  • Each parties 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.

In addition to the above mentioned factors, Georgia courts may also consider whether the couple’s separation was caused by the misconduct of one of the spouses (for example, if one spouse commits adultery is willfully abandons the other spouse). If so, the judge or jury may rely on this information when determining how the parties’ marital property should be divided. In fact, the portion of marital property awarded to the guilty spouse may be negatively affected by his or her misconduct.


Uncovering Undisclosed Assets Using Your Spouse’s Tax Returns

Wednesday, March 19th, 2014

One of the biggest fears most often held by those going through divorce in Georgia is that their spouse will actively hide or fail to disclose any separate or marital assets and income that should be considered in determining issues such as equitable division, alimony or child support. In Georgia, when a divorce action is initiated, each party is required to complete a Domestic Relations Financial Affidavit (DRFA). Once complete this affidavit must be filed with the court and served on the opposing party. The purpose of this affidavit is to ensure that each party and the court are fully apprised of the assets and income of both spouses.

Additionally, in Fulton County, each party is mandated to respond to Fulton County Mandatory Discovery. Fulton County Mandatory Discovery requires each party to respond to a series of questions concerning income, employment and other issues and also requires each party to produce certain documentation such as paystubs, tax returns and bank records.

Although, in theory, the above mentioned tools would ensure that each party is made fully aware of the other parties’ financial circumstances, it is unfortunately common for individuals to fail to disclose certain sources of income in an effort to reduce their potential child support or alimony liability or to hide assets that would otherwise be subject to equitable division. One option to uncover hidden assets or undisclosed income would be to engage a private investigator or forensic accountant. However, engaging the services of these experts may significantly increase the cost associated with the divorce process.

Although seeking the expertise of a forensic account or other experts may ultimately be necessary, especially in high asset divorce matters, reviewing tax returns is one of the best starting places to determine whether a spouse may be hiding assets. This is so because a spouse who has concerns that their husband or wife has failed to disclose all assets and sources of income may obtain very useful information from the schedules that are often submitted with jointly filed federal tax returns.

Schedule B – Schedule B requires the taxpayer to list the names of names of mutual funds, brokerage companies, banks and other sources of dividends and interest. Additionally, Schedule B also requires the taxpayer to answer questions about the existence of banks and financial accounts in foreign countries or foreign trust transactions. Although individuals whose interest or dividend income is less than $1,500 are not required to complete a Schedule B or list the names of the financial institution where the investment is held, that individual must still report the amount of such income on Form 1040. Even this information may be useful because it shows that individual owns assets that generate investment income. This starting point may then in turn be the basis for serving discovery requests requiring that party to provide more information concerning the source of that investment income.

Schedule D – Schedule D requires the disclosure of capital gains and losses from the sale of fund shares, individual stocks and other assets. Thus, if one spouse reports capital gains and/or losses in Schedule D, this shows that he or she once owned the assets that were sold, and may likely own more.

Schedule E – Schedule E discloses income and/or losses from rental real estate (including the type and location), royalties, partnerships and S corporations, and trusts and estates. Schedule E may be of most import to those who wish to uncover rental property owned by their estranged spouse and the income that spouse is receiving from such income. Schedule E is extremely helpful in this regard because it not only lists the income from rental real estate but also lists the type and location of the property from which the income is derived.

Post-Divorce Financial Planning for Divorcées 50 and Over

Tuesday, March 18th, 2014

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Divorce is scary, emotional and stressful at any age, especially after a long-term marriage. After years of creating a life together, going through the process of unravelling that life, and creating a new life independent of your spouse can be terrifying, especially if you have reached or are near retirement age.

There are new issues and complexities that come along with reaching retirement age. These issues include determining when to retire from employment, whether to draw social security early or wait, and determining exactly how much monthly income will be necessary to live comfortably through retirement. In the event of divorce, on top of all of these concerns is the fact that the home you built with your spouse will soon be divided and the fact that the spouse you believed would be there with you during this pivotal time in life will no longer be there.

Once the divorce is finalized, and reality sets in that it takes more money to operate two households than it takes to operate household, many divorcées over 50 wonder: “What next?” “How do I rebuild?” Below are just are few points to consider when constructing your post-divorce financial plan. For assistance in implementing the following points and suggestions, seek the guidance of a qualified account or financial professional.

  • Consider starting a new or second career
  • Postpone retirement for one or two years to confirm financial circumstances
  • In lieu of retiring completely, consider a “phase-out” retirement – working on a scaled back basis for a while before retiring completely
  • Focus more contributions toward retirement funds in lieu of college or other funds
  • Create a budget to help assess spending habits and control unnecessary spending
  • Increase savings
  • Pay off debts, including mortgage debt, as soon as possible – this will reduce liabilities going forward
  • Consider selling the marital home and opting for a smaller more affordable home


Unlike Child Support or Alimony, Equitable Division Awards Are Not Modifiable

Wednesday, February 26th, 2014

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There are certain aspects of the court’s order that either spouse or co-parent may modify under the correct circumstances in a divorce, such as child support, parenting time or visitation, child custody and alimony. However, unlike child support or alimony, equitable distribution awards are generally not modifiable in Georgia under any circumstances. Holler v. Holler, 257 Ga. 27 (1987). See also Herbert v. Huggins, 231 Ga. 489 (1973).

But, as with several other aspects of family law in Georgia, there are some limited exceptions to the rule regarding the modification of property division in Georgia. According to the Official Code of Georgia, there are a few ways in which a party may seek a modification of his or her divorce decree with regard to property division: 1) Request that the presiding judge revoke or modify his or her decision; 2) Seek an appeal of the final judgment; or 3) File a motion to set aside the divorce judgment.  See O.C.G.A. §9-11-60(h); O.C.G.A. §5-6-35 et seq. Keep in mind though that although the above listed methods may have the practical effect of modifying the court’s decision concerning equitable distribution, these exceptions to the general rule that modification of equable distribution is not allowable are rarely ever granted, and parties who seek to take advantage of these exceptions are very rarely successful.

However, like in most cases, there are very limited exceptions to this rule of law prohibiting the modification of the equitable division of a couple’s marital property. There are three ways that a party may potentially seek the modification of his or her divorce decree concerning equitable division. These methods include, seeking an appeal of the final judgment or filing a motion to set aside the divorce judgment.

What happens to the marital home after a divorce?

Monday, February 17th, 2014

In Georgia, marital assets are subject to equitable division in a divorce action. The martial home is an asset subject to equitable division, but deciding who will retain the home after the divorce is often not as simple as deciding how to divide a bank account or furniture.

Sometimes, neither party wants to keep the house. In that case, the house should be sold with the proceeds divided equitably between the parties. This may be easier said than done, as the parties must agree upon a list price, use of an agent and final sale price, but the end result will be the same. In addition, if the house is going to be sold, the parties must agree upon who will live in the house until it sells and who will pay the associated bills such as mortgage, insurance and utilities.

If one party wants to keep the house, he/she must determine whether he/she can afford to do so. This determination includes the ability to pay the mortgage, insurance and associated bills on his/her own, as well as the ability to buy out the other party. If the party cannot afford to keep the house, regardless of his/her desire to do so, it must be sold. (See above.)

If the party desiring to keep the house can afford to do so, the parties must then agree on the value of the home so that the party keeping the house can buy out the other party. The best way to determine value is by obtaining a professional appraisal on the house. The parties may agree on an appraiser, or each may obtain their own appraisal. If the parties still cannot agree on the house value after obtaining an appraisal, the court will have to take up the issue at the divorce trial.

See here for a flowchart illustrating this process. Every case is different so, if dividing a marital home is an issue in your divorce action, I recommend consulting with an experienced divorce attorney for advice on the most effective way to do so in your specific case.