How to get your fair share in a divorce.Divorce is never an easy subject, but aside from the emotional trauma and the child custody The care, control, and maintenance of a child, which a court may award to one of the parents following a Divorce or separation proceeding. Under most circumstances, state laws provide that biological parents make all decisions that are involved in rearing their issues, divorce law boils down to two main issues: support and property. Divorcing couples usually handle these issues in one of two ways. In a mediated me·di·ate v. me·di·at·ed, me·di·at·ing, me·di·ates v.tr. 1. To resolve or settle (differences) by working with all the conflicting parties: settlement, both parties volunteer information, because they recognize that negotiating a fair and reasonable business settlement will preserve the marital estate by minimizing litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. costs and attorneys' fees. Plus, both parties are more likely to comply with a negotiated settlement. Other people prefer to litigate and allow a court to decide how to distribute the marital property. In the latter situation, emotions can run high, but it's important to preserve your legal advantages as much as possible. Don't volunteer any information, and wait for the interrogatories Written questions submitted to a party from his or her adversary to ascertain answers that are prepared in writing and signed under oath and that have relevance to the issues in a lawsuit. , production-of-documents request and deposition before giving up anything. Often, the wording of a specific interrogatory in·ter·rog·a·to·ry adj. Asking a question; of the nature of a question; interrogative. n. pl. in·ter·rog·a·to·ries Law A formal or written question, as to a witness, usually requiring an answer under oath. or request for production of documents is vague to allow you to produce virtually anything and still comply with the request. For example, your spouse's attorney could ask you to produce all your income-tax returns for the last five years, perhaps with the intention of looking at your itemized medical deductions. If the attorney doesn't specifically ask for the supporting income-tax schedules in addition to the actual return, you don't have to produce them -- only the return itself. This won't give the attorney the information for which he or she is looking, but you would have complied fully with the stated request. Read the question very carefully with your attorney and give only what the documents literally ask for. Also, ask your attorney to explain your state's laws on marital property. In many states, marital property, doesn't include property acquired by gift or inheritance, nor does it include property acquired before the marriage or after the separation. Generally, anything acquired during the marriage is considered marital property and is subject to equitable distribution. The laws don't favor one spouse's possession of marital property over the other's. Each spouse has the right to preserve and protect all marital property. For example, just because you're the spouse who's leaving home doesn't mean that you can't take some of your furniture with you to protect it. This notion also applies to marital business records, including bank statements, brokerage account Brokerage Account An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. reports, tax records and the like. If you are separating or divorcing, it might be a good idea to assemble these items and put them in a safe place. If you hold cash and investment accounts jointly with your spouse, the law will generally presume an equal ownership. When you separate, consider removing half the value of each account and depositing the proceeds in a new account in your name only. Later, when the court examines the marital property existing at divorce, you can argue that you and your spouse equally divided these properties when you separated and that no further claims by your spouse should apply. This is a perfectly acceptable legal argument. To protect yourself from an angry spouse who cleans out the bank and investment accounts and takes more than half the household property to which he or she is entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: , take a detailed inventory as soon as you can. Formalize the inventory list and prepare an affidavit affidavit Written statement made voluntarily, confirmed by the oath or affirmation of the party making it, and signed before an officer empowered to administer such oaths. for a notary public A public official whose main powers include administering oaths and attesting to signatures, both important and effective ways to minimize Fraud in legal documents. jurat The certificate of an officer that a written instrument was sworn to by the individual who signed it. Jurat is derived from jurare, Latin for "to swear." It is proof that an oath was taken before an administering officer, such as a notary. . This will come in handy Verb 1. come in handy - be useful for a certain purpose be - have the quality of being; (copula, used with an adjective or a predicate noun); "John is rich"; "This is not a good answer" when jewelry jewelry, personal adornments worn for ornament or utility, to show rank or wealth, or to follow superstitious custom or fashion. The most universal forms of jewelry are the necklace, bracelet, ring, pin, and earring. , rare coins, collectibles and so forth somehow disappear from the face of the earth. In many states, property that isn't due to the efforts of either spouse and that you can trace to nonmarital property will remain nonmarital. Interest and dividend income from investments is in this category. You should analyze all your investment accounts and trace the growth in your portfolios to a nonmarital source, because that's a good argument against giving your spouse any of that money. CUTTING THE STRINGS As soon as you and your spouse separate, try to sever TO SEVER, practice. When defendants who are sued jointly have separate defences, they may in general sever, that is, each one rely on his own separate defence; each may plead severally and insist on his own separate plea. See Severance. all joint ownership in titled property by writing to the banks, brokers and financial institutions involved. Under common-law theory, husband and wife are one person, and that has special implications in real property disputes. If you and your spouse hold joint title to a piece of property, neither of you can sell your interest in it without the consent of the other. This differs from a joint ownership by two unmarried individuals, in which either person has the right to sell his or her portion of the property. However, that doesn't apply to any bank accounts held jointly. Here you don't have tenancy by the entirety A type of concurrent estate in real property held by a Husband and Wife whereby each owns the undivided whole of the property, coupled with the Right of Survivorship, so that upon the death of one, the survivor is entitled to the decedent's share. , but rather a joint tenancy A type of ownership of real or Personal Property by two or more persons in which each owns an undivided interest in the whole. In estate law, joint tenancy is a special form of ownership by two or more persons of the same property. that either party can sever by a unilateral action. Also, prepare a new will to prevent your spouse from inheriting property in case you die before the divorce is complete. You can name the beneficiary in the new will, forcing the spouse to engage in a will contest action to claim a statutory share, if provided under state law. Most states consider an interest in a business as marital property. A business owned before the marriage is considered nonmarital only to the extent of its value at the time of the marriage. The marital property element is the appreciation in value during the marriage that's attributable to the efforts of the person with the interest. If that person is a mere investor and the increase in value stems from passive appreciation, then the entire value of the business may be excluded as nonmarital property. If you owned the business before the marriage, you should hire a certified business appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property. Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market to assess how much the business was worth when you married and to calculate that value in present dollars. Divorce courts usually treat as marital property the goodwill value of a business, notwithstanding its relationship to future earnings. You can argue that future business earnings aren't entirely related to the goodwill developed during the marriage and shouldn't be treated as wholly marital property. Specifically, depending on the business, future earnings may clearly be associated with existing as well as new customers. That can work to your advantage, since it reduces the goodwill value that can be classed as marital property. One way to do this is to increase the capitalization rate Capitalization Rate According to the Appraisal Institute, it is a method used to convert an estimate of a single year's income expectancy into an indication of value in one direct step, by dividing the income estimate by an appropriate rate. for projected earnings anywhere from 10 percent to 30 percent. PROTECTING YOUR ASSETS If you're a businessowner, you'll also need to protect your business' cash and cash-equivalent assets, which are easy to identify and value in marital property appraisals. You might want to convert these assets into property and equipment that you use in the business or that's necessary for growth. These assets will depreciate depreciate v. in accounting, to reduce the value of an asset each year theoretically on the basis that the assets (such as equipment, vehicles or structures) will eventually become obsolete, worn out and of little value. (See: depreciation) rapidly and will weaken any argument from your spouse that you have enough liquid assets Cash, or property immediately convertible to cash, such as Securities, notes, life insurance policies with cash surrender values, U.S. savings bonds, or an account receivable. with which to make a monetary settlement. In particular, business real estate investments for future expansion allow the owner to eliminate the cash assets from the books and retain a valuable asset that can be used as collateral for working capital loans. Many companies provide executive perquisites Fringe benefits or other incidental profits or benefits accompanying an office or position. The abbreviation perks is used in reference to extraordinary benefits afforded to business executives, such as country club memberships or the free use of automobiles. that don't appear on the W-2 form W-2 Form The form that an employer must send to an employee and the IRS at the end of the year. The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck. as wages. These include health insurance and medical benefits, educational expenses, travel and entertainment, automobiles, stock options, retirement plans and so on. The spouse often overlooks these benefits in identifying sources of alimony alimony, in law, allowance for support that an individual pays to his or her former spouse, usually as part of a divorce settlement. It is based on the common law right of a wife to be supported by her husband, but in the United States, the Supreme Court in 1979 , and courts find it difficult to place a marital property value on these benefits. As for taxes, in general you're better off not filing a joint tax return with your spouse while you're separated or going through a divorce, even though the married-filing-separately tax rates are higher. But if you've been separated for more than six months and a dependent child lives with you, you can use the lower head-of-household filing status. Also, during the divorce process, don't exercise any employee stock options, whether qualified or not, unless they're about to expire. Ownership of stock options in a nonpublicly traded company is particularly difficult to value in terms of marital property. If the option plan isn't tax-qualified, you risk losing any right to the stock. What's more, if you transfer stock or property to a spouse, you'll also transfer your basis. This means that, after taxes, land is not equal to stock where both have an equal fair market value but different tax bases. For example, if the land has a basis of $90,000 and a fair-market value of $100,000, while the stock has a basis of $20,000 and a fair market value of $100,000, the two are clearly not equal after capital-gains taxes. If the spouse gets the stock, he or she would have a built-in gain of $80,000 subject to tax, while you'd have a built-in gain of only $10,000. Retirement plans pose many potential problems in a divorce, too. For example, suppose your qualified pension plan is to be divided between you and your spouse as a lump sum Lump sum A large one-time payment of money. . If you withdraw money from the plan and give it to your spouse as part of the settlement, you may incur a 10-percent premature withdrawal penalty, income taxes on the withdrawal, and possibly a 15-percent excess-distribution penalty. However, if you have the plan trustee transfer the funds from the qualified plan into your IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. account, and you then transfer them into your spouse's IRA account, you won't be taxed. The spouse will be taxed on withdrawal from his or her IRA account. NO POINTS FOR ALIMONY PAYMENTS After the divorce settlement, alimony and child-support payment issues may enter the picture. You can't deduct money you pay your spouse unless the payment meets the alimony requirements of section 71 of the tax code, including the requirement that the payments be made pursuant to a divorce instrument. However, an alimony trust can preserve the property for you and require your spouse to pay taxes as the beneficiary of the trust. Under this arrangement, you avoid any taxation on the income generated by the property and you get the property back when the trust term expires. Child support is never tax-deductible. However, a support trust funded with municipal bonds can insure the child receives support, and you won't get taxed on the income from the trust. If you'll be reducing payments to your spouse for any child-related reasons, such as when a child reaches the age of majority, none of the payments will be deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). as alimony, even if you and your spouse otherwise meet all the alimony rules under section 71. And if you reduce alimony payments during the first three years after a divorce, the complex recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. rules in the tax code can mean additional taxes for you. As you can see, you have to be savvy about today's legal and tax hurdles when you're going through a divorce. The world of "Divorce American Style" is fraught with expense, trauma and complexity. It's far better for both parties to approach the event as a business transaction so that they can negotiate a fair settlement. But if that's not in the cards, you have plenty of options to preserve your income. WHO GETS CUSTODY OF THE DEPENDENTS' EXEMPTION? Many divorcing couples spend thousands of dollars in legal and accounting fees fighting over who can claim the tax exemptions tax exemption, immunity from the requirement of paying taxes. Federal, state, and usually local law provide exemption from taxation for a wide variety of organizations, usually not-for-profit, such as churches, colleges, universities, health care providers, various for the children. In general, the person who provides more than half the support for a child gets the exemption, but only up to a certain income level. The fist table shows how much a $2,350 dependency exemption saves you, based on 1993 rates, while the second shows at what point the Internal Revenue Service starts phasing out your dependents' exemptions. WHAT'S IT WORTH TO YOU? Tax Rate Taxes Saved 15% $353 28% $658 31% $729 36% $846 39.6% $931 DIMINISHING RETURNS Filing Income Phase- Status Out Level Married, Filing Separately $ 78,950 Single $105,250 Head of Household $131,550 Joint Return $157,900 Mr. Zipp is a certified public accountant Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. and lawyer at Zipp & Stouffer, an accounting firm in Rockville, Md. |
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