184 - Best Practices for Dealing with Debt in a Divorce
Leh
Meriwether: Welcome,
everyone. I'm Leh Meriwether, and with me is Todd Orston. We are your co-hosts
for Divorce Team Radio, a show sponsored by the divorce and family law firm of
Meriwether & Tharp. Here you'll learn about divorce, family law, and from
time to time even tips on how to save your marriage if it's in the middle of a
crisis. If you want to read more about us, you can always check us out online
at atlantadivorceteam.com. Todd, we've got a good show today. We're going to be
talking about debt.
Todd Orston: Well, when you say it like
that, I'm intrigued.
Leh
Meriwether: So we're going to
be talking about how to deal with debt in a divorce. And nobody ever wants to
deal with debt. But a divorce, when you have a divorce going on, and there's debt,
it can become tricky. So Todd, why is dealing with debt in a divorce tricky?
Todd Orston: Well, there's a few
reasons. Number one is because you're dealing with a third party who's not
obligated to follow the divorce decree. So, I mean, I have conversations with
people weekly. I had a conversation yesterday, where somebody called, and they
were like, "Oh, my soon to be ex-spouse is going to take that debt."
And I said, "Okay, that's fine. What happens when they default?"
"Well, they'll be responsible." Okay, yeah, that sounds great. On
paper, it looks great. But the credit card company isn't going to stop from
going after you because the debt's in your name. So no matter what you put in,
we can put indemnification language in to try and make sure it's very clear the
debt is belonging to the other party, but the third party isn't obligated to do
anything different. If the debt's in your name, they're coming after you.
Todd Orston: The other thing is that you
only get one shot to get it right. And there are a lot of factors that go into
what getting it right means, okay? It's not like you can handle it in the
divorce, you have the order, and then you wake up a day, a week, a month, a
year later and go, "Oh, yeah, this doesn't work. Let's try and change this."
Once it's done, it's done. You have to think about things like your budget,
your income. If you're taking debt, I've had people say, "Oh, I'll take
that debt."
Todd Orston: And then, I look at the
budget, and I go, "Okay, that's fine. But that payment, that monthly
payment, at the very least, is going to be this. You also have child support,
and the house and a car and buppa, buppa, buh. How are you going to make that
payment?" "Oh, I'm not sure." "Okay, well, then we need to
think a little bit longer about this because I don't want you to agree to
something. You're stuck with it, and then you can't comply."
Leh
Meriwether: Right. And what
people don't realize, so we did away with what's called "Debtors'
prison" a long time ago. So debtors' prison, literally, mean, probably I
can't remember when we got rid of it, it's been a couple of hundred years, but-
Todd Orston: 97, 98. No, I'm kidding. I
don't ...
Leh
Meriwether: In years past ...
Todd Orston: Many, many years ago.
Leh
Meriwether: ... if you
couldn't pay your debts, you literally could be thrown in jail. But they did
away with that, and they created bankruptcy law and all that, so there's been a
huge evolution of the law. But if you agree to pay a debt in a settlement
agreement that a judge incorporates into his or her final order, now that
agreement is an order. And if you can't pay that debt, you could find yourself
on a contempt action and even find yourself thrown in jail for not complying
with a court order. So we only get one shot to do it right. And in some
respects, when you establish an agreement or you have an obligation to pay a
debt in a court order, now there is in effect a debtors' prison, because in
many situations, even in a divorce, you still can't bankrupt out of that debt.
That's another complication, that you can't bankrupt out of the debt.
Leh
Meriwether: So let's say
there's a dual name, or you have a debt that's got the husband and his wife's
name is on it. And in the divorce decree, it says, "Okay, the wife is
going to take on this debt." A year later, she files for divorce. And from
her perspective with this debtor, she's no [inaudible 00:04:38] when it comes
to the third party. A third party is someone who's not in the litigation. So
most of us having a divorce, it's the husband and the wife. All right? There's
no other parties. So this third party now can't come after the wife for the
debt, but still can come after the husband. And so they come after the husband
for the debt, and the husband or now ex husband turns around and pulls the wife
into that court case for contempt action.
Leh
Meriwether: So even though
she alleviated her obligation to the third party, the credit card company,
whatever it really is, she still has to cover the husband for what's called
"Indemnification." That's why it can be so tricky and why it's
important to get it right the first time. So we're going to talk about some of
the most common kinds of debts that we see in divorces and break down how do
you deal with it in the divorce. We can't address every scenario in this show,
but we're going to talk about common scenarios and common ways to deal with it.
Todd Orston: Let's start with credit
cards. I mean, that's a type of debt everybody, most everybody, at one point in
time or another has to deal with. And again, I mean, a credit card debt, it's
pretty simple. I use the credit card, I incur the debt, I owe the money. So how
am I going to now deal with that situation? Let's say you have amassed a
sizable amount of credit card debt, and now you're going into a divorce. What
are some of the things you should be thinking about?
Leh
Meriwether: Yeah, so one of
the things that we try to look at, because the best thing you can do when you
get a divorce, apart from the children, so we're separate carving up the children
for a moment, we like to have everything just clean, try to avoid any sort of
thing that keeps the two of you together, financially speaking. And one of the
things we may look at is other assets to pay off this debt because you may need
to take care of those things. So maybe one of the things we look at is when the
house is sold, because that's often the largest equity out there, the largest
component of a marital estate is the equity in a home, so the home gets put on
the market for sale, it pays off all the credit cards, regardless of who name
they are in. And then the party split whatever's left after that, by whatever
ratio they decide or judge orders.
Leh
Meriwether: So if you can set
it up like that, that's very beneficial because then you don't have to worry
about someone else not paying their credit card. Of course, perhaps the husband
has a $10,000 credit card, and the wife has a $10,000 credit card. That's easy,
they each take their own debt because if the wife bankrupts on it later, that's
not going to impact the husband's credit score or anything like that, and
that's something that people need to understand. If you have an agreement that
says that, let's say, the husband is going to take ... He says, "I'm going
to pay the wife's credit card, make wife's credit card payments," and he
doesn't, or he's constantly late, but she can go after him for contempt, the
judge can hold him in contempt, but the judge can't fix her credit score. Her
credit score is still going to be ruined because he was not timely making the
payments. So that's why you should try to address it, so that you do not have
that sudden scenario where someone is paying someone else's debt.
Todd Orston: Yeah. And another factor
you need to be thinking about is, I mean, we're sort of assuming that the
expenditures in question were reasonable. Obviously, we're not trying to say
you just take all the debts, split it right down the middle. That may be what
ends up happening, but there are so many other factors. If one party makes all the
money, meaning if they are the breadwinner, and the other party not only is
unemployed, but maybe their job potential, their income potential is somewhat
limited, well, then a 50/50 split may not be reasonable. So you have to look to
see what is going to be a reasonable division of that debt. And then, digging a
little bit deeper.
Todd Orston: To use your example, let's
say each party has $10,000 in credit card debt, with cards in their own name.
All right, that's fine. But if mom used $10,000 for stuff for the family,
clothes for the kids, food, and dad went to the club, all right, well, then
that may be a different argument, where maybe, "Hey, wait, hold on one
second, why am I walking away with $10,000 in debt? This 10,000 was for the
family, and your 10,000, I don't know, went to bubbles, I don't know who
..." This goes back to, you have one chance to get it right. So yes,
sometimes it gets tricky because we do sometimes have to dig in and figure out
why the money was spent, meaning why the debt was incurred, in order to come up
with a solution that makes sense, that's fair to the parties.
Leh
Meriwether: Yeah. And I know
this issue is actually dear to me because my wife, when she went through ...
I'm her second husband, but her first husband was obligated to pay a lot of
bills, and he didn't. And her lawyer never advised her that this settlement
agreement does not control the credit card companies, and it dramatically
impacted her credit score. But on the positive side, she found places to do
what's called "Manual underwriting." And they would see that, well,
this credit card, she wasn't obligated, under the settlement agreement wasn't
obligated to pay it, and they were able to give her great rates despite the
damage to her credit card because she had a very explicit settlement agreement.
When we come back, we're going to continue to break down the different kinds of
debts and how to deal with them in a divorce.
Leh
Meriwether: I just wanted to
let you know that if you ever wanted to listen to the show live, you can listen
at 1:00 AM on Monday mornings on WSB. So you can always check us out there as
well.
Todd Orston: Better than counting sheep,
I guess, right?
Leh
Meriwether: That's right.
Todd Orston: You can turn on the show,
and we'll help you fall asleep.
Leh
Meriwether: There you go.
Todd Orston: I'll talk very softly.
Leh
Meriwether: Welcome back,
everyone. I'm Leh, and with me is Todd. We are your co-hosts for Divorce Team
Radio, a show sponsored by the divorce and family law firm of Meriwether &
Tharp. If you want to read more about us you can always check us out online at
atlantadivorceteam.com, and if you want to read a transcript of this show or
read a transcript of the other shows or listen to other shows, you can always
go to divorceteamradio.com, which is our website that has the show or anywhere
you get your pods. That's what I heard the cool kids are calling it now,
podcast.
Todd Orston: Wow, the pods. Yeah. I
thought a pod was one of those temporary storage units when you're doing
construction at your house. Isn't that?
Leh
Meriwether: It's podcast now,
it's a short.
Todd Orston: Oh, okay. Got it.
Leh
Meriwether: Everything's
short now.
Todd Orston: All right.
Leh
Meriwether: Okay. So today
we're talking about dealing with debt in the divorce because it can be tricky.
And if it's not done right, you only get one chance to get it done right, and
if not, then there's often bad consequences. We gave some examples of them the
last segment. So we're going to continue to break down some of the most common
debt scenarios we see. So we talked about credit cards. Did we cover all that
on credit cards, Todd? Do you think we got everything? Or the high points, I
should say.
Todd Orston: I mean, I did.
Leh
Meriwether: All right. Let's
talk about something that's similar to credit cards. It's store credit, and you
see things like rooms to go, and you often see them with furniture stores, you
see some sort of store credit relating to that store, so people buy furniture
for their house, and they have all the furniture. I see this happen with some
level of frequency, where one person wants to take all the furniture in the
house, but there's a $10,000 outstanding debt relating to that furniture, and
they're like, "Oh, no, you can take the debt, while I take the
furniture." There's like, "What? That doesn't seem fair."
Todd Orston: Yeah. I mean, look, it
comes down to a basic premise, and we touched on this already, but the basic
premise being you really want to have a clean break. And so if we're talking about
a couch and a $5,000 debt, then if somebody is walking away with the couch, in
a perfect world, they are walking away with the debt. But when you have a
situation where, let's say, one party is the breadwinner and all the credit
cards happen to be in their name and they bought the TV and the couch and the
kitchen stuff and everything, well, obviously, it may not work out that you're
just willing to say, "Okay, well, I guess you're going to get the couch
and the TV and all the furniture and everything simply because the debt's in
your name."
Todd Orston: But you need to think of it
in terms of, okay, but that means that, let's say, one party is saying,
"Okay, you can keep this couch, but I have the debt." And if you're
going to say, "But you're going to be responsible for the debt," goes
back to your point of what if they don't? What if they fail to comply? You can
file contempts, you can do all of that, but you still have to file a contempt,
you still have to deal with the creditor who's going to be knocking on your
door.
Leh
Meriwether: So first off, a
way to avoid damaging your credit. So let's say the husband's going to be
responsible for the debt, to pay the debt, even though it's in the wife's name.
Well, so how you do that is the wife writes, you write it in the agreement, the
husband pays the wife on a monthly basis the minimum payment, or whatever, pays
the wife a payment of X. And then, the wife's responsible for making that
payment to the credit card comp or the store credit. And so that way, if the
check doesn't come in the wife, the wife can still make the payment, so her
credit get doesn't get damaged, but then can subsequently go after him for
contempt, because that's one way to preserve your credit score. You're still
responsible for what's in your name, but the cash comes from the other party.
So that's a mechanism to help protect you, but you still have to chase after
him for the money.
Leh
Meriwether: Now, like I said
earlier, another option is to liquidate an asset of the marriage to wipe out
these kinds of debts, to get, like you said, Todd, a clean slate, financially
speaking. Often it's the real estate that does it. There are situations where
we have done this. So I had a case, for example, unfortunately the parties had
like a $100,000 in unsecured debt. It was very unfortunate. Now what was odd is
that they had done a great job of maximizing their 401(k)s. So they had 100
grand in debt over here, they had $400,000 and their 401(k). And in a divorce,
you can actually liquidate.
Leh Meriwether: Let's say the husband had 400,000.
So the way we crafted it was we had an accountant do some math, we figured out
what the wife's income was probably going to be the following year or that
year, sorry, and the husband transferred $100,000, and then grossed it up to,
it may have been like 130 or 140 over to the wife. And so the wife actually
netted 100 grand after income taxes because they have to pull that out. There
is no tax penalty. If it's a 401(k) liquidation incident to a divorce, and
again this is based on law in 2020, there's no 10% tax penalty, but she still
had to pay income taxes. She took that, she netted 100 grand, and she turned
around with that 100 grand, paid off all the debt.
Leh
Meriwether: So they walked
away debt free, they didn't have to fight about it later. So we had to craft it
very specifically, so she didn't just run away with the 100 grand. But, I mean,
apart from them spending a lot of money, they were somewhat fiscally
responsible, and they could be trusted to use that money to pay off all the
bills. And that's what we did, and it worked out well.
Todd Orston: Yeah, and this is where you
need to understand what your budget looks like, you need to understand what
your capabilities are. But that clean slate argument, the last thing you want
is to not give all these things thought and strategically come up with a plan
that is actually going to work with you because I can't tell you how many times
we've seen people where they don't give it much thought, and they just say,
"Okay, I just want to get out," and they sign on something, and a
month, six months, a year later, they're calling back saying, "Oh my gosh,
I'm behind on my payments, a medical bill popped up in my car, I got into an
accident, and I had to pay that, so I'm not able to pay this and this and
that."
Todd Orston: Life happens, and so when
you're thinking about debt, that's where I'm saying, it's not as simple as,
"Okay, well, let's just do X," right? You need to think is X
something you can actually do. And if life happens, not even the major stuff,
but if just basic life happens, if you're that close, if you're teetering on
that financial edge, so that one thing happens, and the next thing you know
you're not making payments, well, you could find yourself in a contempt
situation.
Todd Orston: And while I will say judges
lean heavily away from jail in these contempt situations, it also just depends
on the facts. If you're going on eight trips a year and you fail to make the
$300 payment for some credit card, then I can tell you right now the judge may
very well think about jail. If on the other hand, life happened and you can
show your budget and, "Judge, I ran out of money and I prioritized other
things, I'm so sorry," I think jail is a last, last, last resort. But it's
still something you definitely have to be concerned about.
Leh
Meriwether: And sometimes
what you'll do is you'll see the judge say, "Well, let me ask you this.
How much is in your 401(k)? Oh, enough to pay off this bill entirely? Okay.
Well, guess what? We're going to reset this contempt hearing for two months
from now, and because what I'm hearing is you have the ability to pay, you're
just going to have to get access to your 401(k), whether it's a loan ... I
can't tell you that you have to borrow money from your 401(k), I can't tell you
that you have to liquidate your 401(k), because that would be violating the
agreement."
Leh
Meriwether: The judge can't
get creative here, the judge can just say, "I'm hearing you have the
ability to pay. You may not have the cash flow to pay, but you have the assets
to pay. We're going to reset it in two months from now to see if you come into
compliance. And then, if you didn't liquidate something or sell something, and
I'm not talking about the car you need for work, but if you have other assets,
like a boat and a motorcycle that you're not using on a regular basis, you may
have to sell those things."
Todd Orston: Well, the standard in a
contempt, for lack of a better way of putting it, you have to show to the court
that you have looked anywhere and everywhere, under every stone, for the money
in order to comply. You have to look at credit cards, other cards, you have to
look at bank, you have to look at friends and family and loans. You can't just
go in and say, "Couldn't do it, sorry, high fives, see you next
month." The court's going to be like, "Okay, that's not good enough.
You have to show you've done everything you can to comply with that court's
order, and if you fail to do that, the court will likely hold you in contempt,
at which point, whatever the sanctions are, they are."
Todd Orston: I mean, like I said, jail
is usually something courts lean away from, but if it's that blatantly wrong,
meaning if you clearly just snubbed your nose at the court and the court order,
the court might get a little testy and say, "Well, what? Listen, I'm going
to ... an all-expense paid trip, no debt, you're not going to incur any debt at
the jail, all right? Meals, everything covered, I promise, it's going to be
great. We'll see you in a month."
Leh
Meriwether: And then next
[crosstalk 00:22:03], we're going to talk about auto loans, taxes, business
loans, and real estate.
Todd Orston: Hey, everyone, you're
listening to our podcast, but you have alternatives, you have choices. You can
listen to us live also at 1:00 AM on Monday morning on WSB.
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Meriwether: If you're
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Leh
Meriwether: Welcome back,
everyone. This is Leh and Todd. We are your co-hosts for Divorce Team Radio, a
show sponsored by the divorce and family law firm of Meriwether & Tharp. If
you want to read more about us, you can always check us out online at
atlantadivorceteam.com, and you can get transcripts of this show and prior
shows at divorceteamradio.com. Well, today, we are talking about the exciting
subject of how to deal with debt in a divorce. Actually, it's not that
exciting. But if you don't pay attention and spend the time to deal with it
properly-
Todd Orston: Oh, things get exciting
then.
Leh
Meriwether: ... they will get
very ... Yeah, not in a good way.
Todd Orston: Not in a good way.
Leh
Meriwether: But they'll be
very exciting. All right, so let's talk about ... One of the inspirations for
the show was some debt questions that we had received. So we've been talking
about other things, a number of different things. So now we're going to talk
about auto loans because that can be a tricky thing as well. Just like with the
credit cards, we've seen one of the worst things you can get on your credit
score is a repossession. Not only that, but you can be sued. I'll be real quick
here. So let's say that you cosigned on a car, you're the husband, you cosigned
on a car for your wife, and your wife keeps the car, she's supposed to make the
payments, but she doesn't.
Leh
Meriwether: The car gets
repossessed, they go and they sell it at an auction, and then whatever the
deficiency is, so if you owe 10 grand, they sell it for five grand, they can
sue you, we mean the husband, for $5,000. And they have the dispossesory, I
mean the repossession, on your credit score, and that's devastating. Now you
can implead her and bring a contempt action against her, but if she couldn't
make the payment, it's going to be hard to get the money from her. So they have
to be properly addressed in your divorce decree as well.
Todd Orston: Yeah. Let me go into a
little more detail on that, when you say it has to be properly addressed, and
this really applies to any type of debt, but especially any debt where one
party is keeping the asset, and the other party has the debt in their name. The
issue is you need to be very careful, and this is where the language, the terms
that go into an agreement, where it gets a little tricky. It's all about the
terms, it's all about how are you going to deal with a failure to comply. Where
people get into trouble is where they just say, "Oh, okay, well, you're
responsible for that debt and making those payments," and you think that's
good enough. Right? It's not.
Leh
Meriwether: Mm-hmm
(affirmative).
Todd Orston: You need to be able to say,
okay, let's use your car example. You're keeping the car, the debt's in my
name, you're going to be responsible for, meaning the person keeping the car,
you're responsible for that debt. Now all of a sudden, you find out that
they're not making those payments, and it's going to start dinging and
potentially wreck your credit. So what do you do? You can file a contempt. But
you didn't have any language in there as to what I call the "What
if." Okay, you are responsible for this debt. But what if you fail to
comply? Well, if you miss X number of payments, and that could be one, if you
miss one payment, this is what's going to happen. What if this happens? Well,
then this is what's going to happen. And it could be, "You sometimes, not
sometimes," I want to be as clear with that plan as possible.
Todd Orston: "So you're keeping
that car, and the debt's in my name, fine. I don't like it, I want a clean
slate, but nonetheless the debt can stay in my name, and you'll make those
payments. But, but, but, but, if you fail to make one payment, if you are late
one time, how about the car will transfer back to me, I will get immediate
possession of that car, at which point I can turn around, I can sell it, I can
do whatever I want with it. And by the way, if there are any proceeds from the
sale, if I'm actually going to benefit, I'm going to get to keep those."
Todd Orston: So now what have you done?
You've explained to the court you're not looking for the court to come up with
a sanction. The court's going to be limited in what it can do. You are spelling
out, "Hey, this is what's going to happen." The same thing goes for
real estate, and we'll go into that more later. But you need to be so clear,
"This is what happens. I get the car back, I can do what I want, I can
sell it, I can do whatever, keep the money." The same thing goes for a
house. And I know, like I said, we're going to talk about that. But you need to
be very, very explicit in what the sanction you want and what the sanction will
be by agreement, because then that limits ...
Todd Orston: Then, at that point, if
you're in front of a judge on a contempt, the judge is going to look at the
other party and go, "All right, I'm holding you in contempt. And by the
way, you need to turn that car over immediately." Then it's a much easier
job. The judge isn't trying to decide, "Well, how are we going to get this
paid?" Now the judge is saying, "All right, you failed and refused to
pay, and you failed and refused to turn the car over. All right, well, I'm
holding you in contempt, and you have 12 hours to turn that car back over to
the other party. And if not, there's going to be a compliance hearing, and I'm
going to put somebody in jail."
Leh
Meriwether: Yep. In Georgia,
they [inaudible 00:28:18] these things called "Floyd orders," or at
least at the time we are recording this in 2020, where the court can say,
"If you do not turn over the keys in 12 hours, you need to report to the
jail." The point is, you need to address what happens when they fail to
make the payment, and you need to address it with a time limit. If they fail to
make it, if they're more than 10 days late on the payment, they have to turn
the car over to you within five days. And so you have to be specific. You can't
just say they have to turn the car over, no, within five days. And then, you
can do whatever you want with it. So create that mechanism, so after five days
then you can file your contempt. Okay.
Leh
Meriwether: So here is a
question actually on the issue of auto loans that we've gotten: how can I get
the loan transferred to my name? To help my husband's credits grow, I deposited
$2,000, and the car is in his name now, and we're getting a divorce, and I've
been paying the loan. How can I get the car transferred to my name? Now the
problem is most of these places aren't going to just say, "Oh, we'll just
transfer the loan to you." What you have to do is you need to go to your
bank or credit union and refinance the car.
Todd Orston: It's a refinance.
Leh
Meriwether: That's the only
way to do it, you have to refinance it-
Todd Orston: [crosstalk 00:29:46]-
Leh
Meriwether: They won't just
transfer it.
Todd Orston: Right. It's similar to a
house. Look, why would a bank want to do that? Oftentimes banks are like,
"No, no, no, I've already got somebody on the hook." And it might
even be, if they're looking and the person who's on the hook right now is the
breadwinner in the family and the person who is not the breadwinner goes in and
goes, "Oh, just transfer it over to me," if I were a bank, I'd be
like, "Why would I do that? Right now I've got the person who actually has
income, who qualified for the loan, and now you're telling me you want me to
take them off and make you, who is less financially stable, responsible?"
That means that the bank can only go after that person. I can tell you right
now, if I'm the bank, I'm not doing that. So you have to go qualify for your
own loan, and then transfer that debt over to you.
Leh
Meriwether: All right. I'm
going to mention taxes because a lot of times we see taxes in a divorce, a
debt, a tax debt. Now we're really not going to spend any time, except to say
this, the IRS does not mess around, they can garnish your wages without a
hearing, they can put a lien on your house without a hearing, they can seize
your bank account without a hearing. All these other mechanisms, there's
usually a lawsuit, a process that these companies have to follow, not when it
comes to taxes. I mean, they're still going to take steps before they do that,
you're going to have plenty of notice. Our strong advice is whenever there's
debt for taxes involved in a divorce, that, depending on its nature and
depending on a number of other factors, if he can't pay it off by liquidating
an asset or liquidating part of 401(k) or whatever it may be to pay it off, you
need to go talk to a lawyer.
Leh
Meriwether: We had a whole
episode talking about taxes back at Episode 133, if you want to go back and
listen to that, it was with tax attorney Jason Wiggam. And the thing is, the
IRS, when you do it right, they actually can be pretty nice, I mean, all things
considered. There's a lot of protections out there, especially if you're an
innocent spouse. But if you just ignore the problem or don't address it
properly, it can get really bad. And the worst thing to do is to go to make
your mortgage payment and the cheque bounces because the IRS garnished your
account, because a debt wasn't paid. So I don't want to go into any more detail
because we took a whole episode just to talk about taxes and debt and tax liens
and stuff.
Todd Orston: My only comment is, it's
not the kind of issue you want to wait until after the divorce is finalized to
figure out, absolutely, because then your ability to look to the court for
assistance is gone. All right?
Leh
Meriwether: Mm-hmm
(affirmative).
Todd Orston: And if you're in one of
those situations where we've heard it too many times, "Oh, my spouse
hasn't filed taxes in five years," well, red flag. And at the very least,
you need to have an accountant looking at all of that information to make some
decisions for you or help you make decisions, rather, as to what needs to be
done, what needs to be filed, because you don't want to say, "I don't
really know what I'm going to do," and then all of a sudden you're filing
or the two of you are filing for all those years you were together, the tax
returns, and you find out that you're sitting on a tremendous amount of debt
with no court direction, by agreement or order, as to how that debt's going to
be paid. So please, please, please.
Leh
Meriwether: When we come
back, we're going to talk about business loans and real estate mortgages.
Leh
Meriwether: I just wanted to
let you know that if you ever wanted to listen to the show live, you can listen
at 1:00 AM on Monday mornings on WSB, so you can always check us out there as
well.
Todd Orston: Better than counting sheep,
I guess, right?
Leh
Meriwether: That's right.
Todd Orston: You can turn on the show,
and we'll help you fall asleep.
Leh
Meriwether: There you go.
Todd Orston: I'll talk very softly.
Leh
Meriwether: Welcome back,
everyone. This is Leh and Todd. We are your co-hosts for Divorce Team Radio, a
show sponsored by the divorce and family law firm of Meriwether & Tharp. If
you want to read more about us, you can always check us out online at
atlantadivorceteam.com, and if you want to read transcripts of this show and
prior shows or listen to prior shows, you can always go to divorce
teamradio.com or listen to wherever you get your pods. Trying to be cool here.
Todd Orston: It's not working.
Leh
Meriwether: It's not working.
I give up on the cool factor. All right, today we're talking about something
that's not really cool, dealing with debt in a divorce. And it gets really bad
if you don't deal with it correctly. So now we're down to two other types of
debts that we see. We're going to touch on business loans, but we're going to
spend most of the time on real estate because that's probably the most common
area where people get in trouble. For business loans, I just want to say that
most of the time the business loan is tied up with the business, but there are
certain situations where personal guarantees have been given. So perhaps the
husband owns it, and he's done a personal guarantee, maybe the wife, sometimes
the wife is required to do the personal guarantee, especially when you see an
SBA loan.
Leh Meriwether: That can get very complicated, so
you want to bring in a lawyer who's familiar with this area, you may need to
bring in your banker, you may need to refinance that loan or see if it can be
paid off because at the end of the day the SBA, when you do that, they put all
kinds of protections in place for them, for the bank, Small Business
Administration, that's SBA loan. That can complicate things because, kind of
like with taxes, they can come in and do certain things to collect that debt,
regardless of what the divorce decree says. I mention it, just so that you are
aware that you need to look at the loans inside that business, only to see to
the extent there may be some guarantees that may attach to the house, for
instance. Apart from that, they should stay with the business, but you've got
to double check the personal guarantees. Okay, real estate.
Todd Orston: Yeah. Well, before we get
into real estate, I just want to also impress upon listeners, especially if you
are not the person walking away with a business, sometimes it's easy to say,
"Oh, no, no, I don't want the business, you keep the business." And
then, you don't ask the right questions. And so, please, please, please, if
you're going through this process and your spouse is the one that is walking
away with a business, you must ask the right questions to determine whether or
not any of the assets you're walking away with are vulnerable to any kind of
creditor claim that could be made, because let's say the house was used as
collateral.
Todd Orston: So please, it's a very
infrequent situation, but I can tell you it is one of the situations where I
usually say, "Absolutely, if that's even a potential, you need an
attorney, and you may need not just a divorce attorney, but you may need
someone who is well versed in business law to be able to really dissect all of
the finances of the business to figure out if the personal assets are somehow
used as collateral and tied to it."
Leh
Meriwether: Yeah. And
sometimes, it could be as simple as a car, that maybe there's what's called a
"UCC Lien," Uniform Commercial Code Lien on that car. We need to save
the rest of the time for real estate, but that was a great point, Todd-
Todd Orston: That's right.
Leh
Meriwether: ... that even if
you're not the one taking the business, just double check that the debts and
the business don't have any other sort of liens you may not be aware of that
could impact the property you're taking. Okay, real estate. Todd, I mean,
probably if we were to just boil this down to how to deal with a mortgage and a
real estate, what are the three most common scenarios to effectively deal with
this?
Todd Orston: So usually I tell people,
dealing with a traditional husband-wife situation, then husband gets it and
pays some amount of money to the other party for their share of the equity in
the asset, wife gets it and pays the husband his share, or you sell it and
basically whatever the proceeds or debt is, it'll be equitably divided. So
those are really your three options. But that's not really where the sticking
point is. I mean, coming up with, "What are we going to do with the
house," that's pretty simple, wife gets it, husband gets it, or it's sold.
But the problem is, when you deal with the issue of, "If I'm not getting
it, then if the debt's in my name and there are still some ongoing obligations
by the other party, what happens if they fail to comply?" This is what I
was talking about, what we were talking about earlier.
Todd Orston: So what happens if, let's
say, there's a house in joint names, it needs to be refinanced, and basically
then all of a sudden, let's say six months to refi, and six months goes by, and
it hasn't been refied. What do you do? Too many people, unfortunately, they
just, the language is, "You have six months to refi," and they think
they're done. That's where they make a mistake. You need strong language to
deal with the what if, to deal with, "Okay, you failed to do it, now this
is what's going to happen," because if you leave it up to a judge in the
context of contempt, the judge is going to be limited in what they can do.
Leh
Meriwether: The courts are
limited by the language of the agreement, they can't insert new language.
Todd Orston: That's right. So look, for
instance, for a house, saying you have six months to refinance, there's nothing
unreasonable about that. But what happens if it doesn't happen? Well, all
right, how about you have six months to refinance, if at that point it has not
refinanced, possession and use of the home will transfer to the other party?
How about, at that point, that party has the right to list it with a listing
agent of their choice, set the listing price and potentially even keep any and
all proceeds from the sale? You want to talk about lighting a fire under the
other party to get it done by that date specific? That's the kind of thing you
need to do.
Todd Orston: And there are other
options, but the point is there are too many situations where the other party,
that's in the house, they become complacent. And then, if you don't have the
right language and you stand in front of a judge, and it's like, "They
needed to refi," and the judge looks at the other party and goes,
"Did you try and refi?" "Oh, yeah." "Well, okay, we're
done here." I mean, at that point, the court's like, "Well, not in
contempt. Show me some of your efforts." "Well, here's this
application and this application and this application and my credit. I just
can't do it." "Well, okay." Judge is going to be like, "My
hands are tied, what am I supposed to do?" If you have the right language
in there, then the court can start to enforce those additional terms.
Leh
Meriwether: Right. I've
literally had that happen before, where the person was given six months to
refinance, and if they didn't, they had 30 days to put it on the market for
sale. So the six months went by, he didn't even try, 30 days went by, not on
the market. She sent an email saying, "Hey, you need to put this on the
market for sale," he ignored her. We sent a very nice letter, "Put
this on the market for sale," he ignored our letter. And the next letter,
the next thing came from the sheriff's department knocking on his door. We had
a hearing in front of the judge, and judge almost threw him in jail for not
putting it on the market for sale. And so we said, "Judge, we want to get
this thing sold. Can you do a compliance hearing in 30 days? And he's got 30
days to get [inaudible 00:42:20], and if we come back, if it's not on the
market, throw him in jail."
Leh
Meriwether: And the judge is
like, "Sir, you're very lucky because I'm entitled. She wrote you, her
lawyer wrote you, you ignored everything. I'm inclined to throwing you in jail
right now." And so she gave him the speech and, "Oh, by the way,
here's your attorney. How much do you want attorney's fees?" "1,500,
Your Honor." "Sir, you've got to pay him 1,500 in 30 days. When we
come back in 30 days, if you haven't paid it, you're going to jail." I
mean, she was that strong with it. And it went on the market, it got sold, she
got her money back. But if that language, that very tight language, had not
been in the agreement, we wouldn't have been able to do that.
Todd Orston: An agreement is only as
good as the terms in the agreement.
Leh
Meriwether: Right.
Todd Orston: So if you don't put the
right terms in, then you'll find yourself stuck. And I've had situations where
a house is "On the market" for years, the other party is "Trying
to sell the house for years," and the other party is sitting there with
this on their credit, which is then affecting their ability to buy their own
home and cars and whatever other things they want, that they need credit for,
and they're like, "Well, what do I do?" And it's like, "Well,
there's not much you can do because they have 15 applications they made to banks.
Now, whether they really tried, they've submitted applications. So if we file a
contempt, we're going to go in front of the judge, and they're going to say, 'I
made an effort, I'm making an effort.' And at that point, the court may not be
able to hold them in contempt, so it's going to come down to what additional
terms you have in there."
Leh
Meriwether: I'd leave this
last because we only have a few seconds left. I'd leave this last thing, don't
quit claim your interest in the house until the house is refinanced out of your
name. And the reason is I had a case where the husband was killed in a car
wreck, so he literally couldn't refinance it. But then, it went into a probate
because there was no will and nobody was paying the mortgage, and so it was
impacting her. But unfortunately, she had quit claimed it. Had she not quit
claimed it, she would become the instant owner and could have put it on the
market for sale. And unfortunately, we're out of time, everyone. Thanks so much
for listening.