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Archive for March, 2011

Legal Separation Agreements Should Be Carefully Drafted

posted by admin 10:00 AM
Tuesday, March 29, 2011

Some couples choose to live separately before actually getting divorced. The most common reason for this is to allow the couple to live apart while they decide if they actually want to get divorced. However, there are several financial reasons why a couple may choose to separate rather than divorce right away.

They include:

• The need to remain married in order to meet the 10-year requirement for social security benefits.

• The ability to continue receiving health insurance benefits under their husband’s plan.

• The potential tax benefits of filing their taxes jointly (see our article on the risks of filing jointly).

• Retaining certain military benefits.

If you decide that you are going to live apart, you should consider a Legal Separation Agreement. A legal separation agreement is a legally binding agreement between you and your husband that resolves issues like the division of assets and debt, alimony/spousal support, child support and visitation.

In some states, a legal separation is a necessary step to file for a divorce. In others, a legal separation is not recognized. It is important to get the advice of a divorce attorney in your state to determine if this is an option for you.

Some people remain separated for months or even years, so it is very important that you protect yourself upfront and have all the necessary issues settled and agreed to in writing. It is difficult to move on with your life without getting issues like who gets what assets and who is responsible for debts resolved. Having the legal separation in place will allow you to move forward.

Being legally separated does not mean that you must ultimately divorce, but it does allow you to get an accurate picture of what life would be like if you do divorce. Also, if you do divorce, the legal separation agreement will be used as the basis for your divorce settlement agreement. Therefore, it is important to bring in a divorce financial advisor, just as you would for a divorce, to ensure that you will have a financially secure future.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. 
If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are 
solely those of the author, who is not an attorney.
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Think Your Husband Is Fudging Numbers – Don’t Sign That Tax Return

posted by admin 10:00 AM
Tuesday, March 22, 2011

Most people find it hard to believe that Bernie Madoff’s wife, Ruth, had no knowledge of her husband’s Ponzi scheme.  After all, she was a major beneficiary of his crimes. Whether or not she knew, most people think she was somehow involved and, at the very least, turned a blind-eye to his fraud.

Even though your husband may not be running multi-million (or billion) dollar Ponzi schemes, you could still be in for big trouble if he is fudging numbers, not reporting income, or claiming fictitious deductions on your joint tax returns.  For example, if your husband owns a business or professional practice and the profit or loss from that business is declared on your personal tax returns as is usually the case with a sole proprietorship, partnership, limited partnership, LLC, or “S” Corporation and you are not privy to the finances of his business, you could be setting yourself up for a disaster. No matter how innocent or ignorant you may be of this type of activity, if you file jointly, you are equally responsible in the eyes of the I.R.S. and your state’s taxing authority. There is a very limited and hard-to-get I.R.S. and state exception called “Innocent Spouse Relief” but it is accepted in very few cases. See this New York Times article for more details: http://www.nytimes.com/2005/02/13/business/yourtaxes/13spou.html.

However, there is a way for you to avoid falling into this dangerous trap.  You could choose to file a separate tax return.

According to the I.R.S., you can either file jointly or separately if you are married. If you choose to file separately, one spouse cannot be held responsible for the unpaid taxes of the other.  However, it is important to note that even if you choose to file separately this year, you will still be responsible for the prior years that you filed together.

If you and your husband decide to file separately, you must both choose to either take the standard deductions or to itemize deductions.  It is not possible for just one of you to itemize deductions.  Additionally, filing separately can result in a bigger tax bill since you may not be able to take full advantage of certain benefits and deductions.  However, the bigger tax bill would be nothing compared to your legal and accounting expenses if the I.R.S. comes after you.

When going through a divorce, there are many complex issues to sort through when deciding whether you should file separately or jointly.  Remember, the I.R.S. does not care if you and your husband are divorced and, if warranted, they can still come after you for joint returns that were filed years before your divorce. If you suspect that your husband has engaged in any financial shenanigans, you should definitely speak with one of our Divorce Financial Strategists™ to determine what steps you should take to protect yourself.  It could save you years of stress and lots of money!

 

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

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I Have Been Ordered To Pay – How Long Will Alimony Last?

posted by admin 10:00 AM
Tuesday, March 15, 2011

When Mary and John married the plan was for Mary to work while John completed his doctorate in literature.  The idea was that John would eventually get a job in academia.  That never happened. John was unemployed during most of the marriage.

When Mary and John decided to end the marriage, Mary thought that they would split the marital assets and that would be it.  She was surprised to find that she was considered the primary breadwinner and that John was the “economically disadvantaged”  spouse who needed help getting back on his feet. She was ordered to pay alimony for three years.

According to the Federal Bureau of Labor Statistics, women are the primary breadwinners for one-third of all marriages.  This means that more and more husbands are the recipients of alimony (also known as spousal support or maintenance).

State laws differ, but generally speaking “economically disadvantaged” (dependent) spouses are granted temporary alimony / maintenance based on the length of their marriage and whether they have the ability to financially support themselves (For more details on how alimony is determined, click here - http://bedrockdivorce.com/blog/?p=44).

So this leaves a lot of women asking, “How long will alimony last?”

In certain situations, it is possible that alimony / spousal support will be granted for a lifetime.  However, depending on the circumstances it is more likely that maintenance will be granted for a certain period of time.  Regardless, there are two situations where alimony will almost always terminate:

1.    If the receiving spouse remarries; or,
2.    If the paying or receiving spouse dies.

There are certain other circumstances that may be considered as grounds for terminating alimony such as if the receiving spouse is living with another person as if they were a married couple.  However, having alimony terminated in these situations may mean going back to court and more legal fees.

If you are a woman and the breadwinner of your family and are contemplating or facing divorce, contact one of our Divorce Financial Strategists™ who can guide you through the process so that you will have a better understanding of how much alimony, if any, you will need to pay and for how long .

All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

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Most couples who live together do not have any agreements in place that specify legal obligations or rights to one another.  They have the misguided idea that because they are not married they can simply walk away from each other without looking back.  However, this may not be the case.

When a couple decides to live together, they often create a household with many of the same financial obligations as a married couple. They may have mortgages, cars, furniture and other jointly owned assets that can be difficult to deal with in the event they end their relationship.

There is also an issue in regard to expectations.  For example, you may believe that all of your property will remain apart and separate from your companion’s, while he or she may believe “what’s mine is yours” and vice versa.

While it is true that there are no state imposed laws or obligations that regulates what happens at the end of cohabitation, it’s also true that you don’t have the legal protections afforded married couples. This means that you can divide property in any way you wish. However, the absence of legal guidelines often creates more conflict (and lawsuits). So in the end, the problems related to dividing assets are more difficult to resolve than married couples going through divorce.

If you choose to live with your partner, it is advisable to develop a cohabitation agreement which is a legal agreement reached between a couple who have chosen to live together without marriage.  The cohabitation agreement can detail property rights, financial obligations and how debts and assets will be handled should the union break down.  This agreement is much like a prenuptial agreement that will allow a couple to determine in advance how assets and liabilities will be divided should they divorce (in fact, a well written cohabitation agreement can be drafted in such a way that it automatically converts to a prenuptial agreement if, and when, the couple gets engaged).

If you are a woman in a pre-marital relationship and would like advice on how to protect your assets (including any businesses you may own) to avoid a future financial nightmare, please contact one of our Divorce Financial Strategists™. We will help you understand all of the complex issues involved and show you how to best protect yourself.

All content on this site/blog is for informational purposes only, and does not constitute legal advice. 
If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are 
solely those of the author, who is not an attorney.
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If you are getting divorced, you may be wondering how your future social security retirement benefits may be impacted by your divorce (especially if you are over 50). Since these benefits are based on the total amount of money you’ve earned in your lifetime, you may have a legitimate concern if you have earned less than your husband and/or you have not been in the workforce for as many years. The availability of these social security benefits could have a significant impact on your post-retirement lifestyle.

You should consult with one of our Divorce Financial Strategists™ to get advice about your specific situation, but here are some general rules to keep in mind.

The most important rule is that if your marriage lasted 10 years or more, the lower earning spouse (you) could be eligible for social security retirement benefits based on the record of your husband – the higher earning spouse. (FYI – Nationally, all marriages ending in divorce last an average of 9.8 years. That means a lot of women might be ineligible to collect social security retirement benefits based on their husband’s higher earnings because they failed to wait a few extra months until their marriage crossed the 10-year mark!)

In addition, there are four key qualifications you must meet to collect social security retirement benefits based on your ex-husband’s earnings:

• You must not have remarried

• You must be 62 or older

• The benefit you would collect is higher than what you would have collected based on your own earnings history

• Your ex-husband must be entitled to social security on his own

The maximum amount of your benefit would be the higher of your own work record or 50% of what your ex-husband’s benefit would be at your full retirement age. You can start taking the benefit at age 62, but any benefit amount you take before your full retirement age will be less than the full 50% of your ex-husband’s benefit. So, the bottom line is that, if possible, you should wait until your full retirement age before collecting.

It is important to note that the benefits you might collect using your ex-husband’s earnings does not in any way reduce the benefits that he will receive.

If you do remarry, you cannot collect on your ex-husband’s earnings unless your second marriage ends by death, divorce or annulment. However, if your second marriage also ends in divorce and the second marriage was also longer than 10 years, your benefit would be the larger of 1) the amount based on your own work record, b) 50% of your first ex-husband’s entitlement, or 3) 50% of your second ex-husband’s entitlement. In this case you get to choose and most choose the largest amount.

One other thing to keep in mind – if your ex-husband is not yet receiving his retirement benefits but does qualify, you must have been divorced from him for at least two years before you can begin collecting benefits based on his earnings.

If your ex-husband dies you are still able to receive retirement benefits based on his earnings. And, you do not give up the right to base your retirement benefits on your own earnings by doing this. This is important to keep in mind if you later remarry and make more than your second husband.

If you are going through a divorce or considering it, this is just one of the many financial issues you must sort through to plan for your retirement years. I recommend that you work with one of our Divorce Financial Strategists™ to make sure that the financial decisions you make during your divorce will enable you to maintain your lifestyle both today and far into the future.

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