Missouri Family and Divorce Lawyer Blog

Identity Theft - Something to Think About

I have posted about identity theft on my business blog, which can be found at http://4stateladylawyer.typepad.com/joplin_mo_business_blog/.  This is not the usual credit card identity theft or fraud but medical identity and social security  number theft or fraud.  I suggest all parents read the post and the article listed therein as these two types of fraud are becoming more prevalent and they are involving children.  There are steps listed in the post which a person can do to try to protect himself/herself or a child.  I hope you find it helpful. 

More Suggestions on Preparing for a Divorce

I want to take the liberty of directing  you to another attorney's blog and his suggestions on how to prepare for a divorce.  The firm of Sherman & Jeffries have the Alabama Family Law Blog and have posted a series of steps on this.  Please take the time to read these steps if you are considering a divorce.  The steps are:

Step 1 - Find a Wise Guide
Step 2 - Make an accounting of the family finances
Step 2A - Determine what you own
Step 2B - Determine what you owe
Step 2C - Determine Income
Step 3 - Make photocopies of all the financial records
Step 4 - Prepare a budget (or two)
Document & Safeguard Personal Property
Step 6 - Establish your own credit
Step 7 - Assess the Financial Accounts
Step 8 - Address the Credit Accounts
Step 9 - Avoid additional debt or major purchases
Step 10 - Stay Put (until further notice)
Step 11 - Keep a diary

Although all of the steps are important, I want to point out step 11 - keeping a diary.  I recommend all my clients, whether going through a divorce or a modification, keep a diary that logs telephone calls and in-person conversations, the date and time of each, and the content of each.  I also have clients keep logs of items involving the children - comments the children make about a situation that is at issue, whether the other parent was involved, etc.  The more you can give the court specifics about an incident, the more likely your testimony is going to be believed by the court.  There are ways to protect this from being discoverable and you should discuss these ways with your attorney.

Social Security/Medicare Elgibility

If you are a stay-at-home parent, do you know how your Social Security and Medicare benefits are affected by a divorce?  You should be, especially if you are being asked to give up your interest in your spouse's Social Security and retirement benefits.  Did you know that unless you have earned 40 Social Security quarters the free Medicare A in not available to you?  Or that if you are between 0 and 39 quarters you will need to have other arrangements made?  Before you sign off on your spouse's benefits, check out your status at www.medicare.gov/MedicareEligibility and discuss the same with your attorney. 

Divorce Tax Tips

When you are deciding on a settlement agreement with your soon to be ex-spouse, you need to consider the tax implications involved.  There is a good article at DivorceNet which lists tax mistakes people make during the process of a divorce and contemplating a settlement agreement.  These mistake tax tips are

1. Not Looking at After-Tax Cash Flow When Analyzing the Workability of a Settlement Proposal. Look at the number of lines on your tax return that change as a result of divorce:
   1. Your filing status changes from married joint to head of household (if you have at least one child living with you) or single.
   2. The number of personal deductions will be reduced by at least one – your ex-spouse (more if you agree to split deductions for dependents).
   3. Your income without your ex-spouse may put you in lower bracket and you will be taxed at a different rate.
   4. Itemized deductions such as state income taxes, real estate taxes, mortgage interest, charitable contributions, and non-reimbursed employee business expenses may affect your return differently.   
   5. Alimony is taxable and you are required to pay quarterly estimated taxes on it.
   6. The effects of AMT (alternate minimum tax) may not be changed without your spouse’s income and deductions.

2. Failing to Negotiate Dependency Deductions. In 2005, the exemption amount for each dependent is $3200. In a divorce or separation, the custodial parent specified in the agreement is entitled to the exemptions or without an agreement, the parent with physical custody gets the exemptions. The lower income parent can sign over the exemption to the higher income parent using IRS form 8332 resulting in greater tax savings to the higher income parent. For example a $3200 exemption for a person in the 31% bracket would save over $1000 while a person in the 15% bracket would save under $500. The value of exemptions starts to phase out for income above $145,950 for a person filing as single, so the exemption may only be effective for a lower earning spouse. Don’t forget to factor in the child tax credit ($1,000 for each child under age 17) and dependent care credits for up to 2 children under 13 ($960 or more).

3. Not Using IRS Code Section 72t(2)c to Get Distributions from Qualified Plans. More often then not, couples in the process of a divorce have severe cash flow problems. Income stays the same, but expenses increase dramatically because there are two households to support. Changing or downsizing one or both parties' lifestyles often requires a cash infusion to purchase, set up, or carry a second residence. Section 72t(2)c allows the alternate payee (the spouse who is not the employee) to take distributions from a qualified plan (not an IRA) without paying the 10% early distribution penalty even if they are younger then 59 ½. The distribution is still subject to income tax. If the funds are first rolled over into an IRA then the preferred distribution rules no longer apply.

4. Not Following the Rules for Alimony. Alimony is deductible to the payor and taxable to the payee. Where alimony is given there is usually a significant disparity in incomes. Alimony results in tax savings since the higher income individual is able to deduct payments at a higher tax rate while the ex-spouse pays taxes at a lower tax rate. Section 71 of the Internal Revenue Code defines certain rules for payments to be considered alimony. If these conditions are not met then the tax benefits of alimony could be revoked by the IRS.
   1. Alimony payments must be in cash, to your ex-spouse, designated in a divorce or separation agreement, and you must live in separate residences
   2. Payments must terminate on death of the recipient; alimony cannot end on dates corresponding to dependents 18th or 21st birthdays
   3. Alimony cannot be front loaded over the first three years (much larger amounts paid in the 1st year compared to the 2nd or 3rd year).

5. Disregarding the Impact of Taxes on Assets in a Divorce Settlement. The marital assets you keep after the tax man gets his share is the real bottom line. Say your spouse handles all the investments and offers to split them 50/50. Would you rather have cash in the bank, an IRA, or the Microsoft stock you bought in the early 1990s? Each of these assets is taxed at a different rate. Avoid assets that are unattractive from a tax point of view such as low-basis stocks (those that have increased dramatically since you bought them), partnerships where depreciation might be recaptured, or retirement accounts where you have to pay tax on the money you get. Look at the value of assets you will receive on an after-tax basis. Then decide if the deal is fair.

6. Failing to Take Advantage of the Full $500,000 Home Exclusion. Married couples are allowed up to $500,000 in profits tax free from the sale of their principal residence. Formerly, a spouse who moved out as a result of divorce lost his $250,000 deduction because it was no longer his principal residence, but thanks to a change in the tax law an ex-spouse can now retain that exclusion. To qualify, the spouse who moved out must remain an owner and the divorce or separation agreement must grant him use of the home. The ex-spouse must have lived in the home for two years at any time prior to the sale. If these rules are not followed, the spouse selling the residence will only be able deduct a $250,000 gain and will have to pay tax on the second $250,000. Capital gains tax on $250,000 is $37,500 and state income taxes may also apply. If a spouse who is the sole owner remarries, the new spouse must live in the house for two years to qualify for the full $500,000 exclusion. 

7. Not Writing Off the Cost of Your Divorce.  The portion of the cost of your divorce which relates to tax and financial advice is deductible on Schedule A of form 1040. To substantiate this deduction you should obtain a statement from your attorney or mediator delineating the cost of legal services and the amount attributable to tax and financial advice. Normally the deductible portion of your divorce runs from 1/3 to ½ of the total cost. In order to deduct legal fees, you must be filing Schedule A (Itemized Deductions) and your deductible divorce fees must be greater than 2% of your income.

Ask your attorney about these mistake tips.  If your attorney isn't a tax attorney, he or she can consult with a tax expert and obtain the answers or you can consult with your own accountant to determine specifically how the terms of the proposed settlement agreement will affect you.

Source:  DivorceNet's Seven Tax Mistakes in Divorce by Lee Slater, Divorce Financial Planner

Prenup Legislation Proposed

Senator Koster has proposed legislation that would affect prenuptial agreements if passed.  SB 494 (identical to HB 471) would add additional statutes to Chapter 452 and would establish the Uniform Premarital Agreement Act.  In the proposed legislation prenuptial agreements are defined  as agreements between spouses made in contemplation of marriage and effective upon marriage.  They are only valid if made in writing and signed by both parties and full disclosures are made as to assets, etc. As long as the matter is not in violation of public policy or any law imposing a criminal penalty it can be put into the agreement.  However, child support may not be adversely affected.  The bill has just had its second reading and if passed, would be  effective August 28, 2007.  To read the full text of this proposed legislation, go to Uniform Premarital Agreement Act. 

Case Review - Spouse Has to Pay When Found to Have Squandered Assets

In Franklin v. Franklin, the Missouri Eastern District Appellate Court, upheld the trial court's finding that the husband had squandered a marital asset and ordered the wife to be reimbursed.  During the last part of the marriage the husband talked the wife into mortgaging the marital residence in order to obtain funding for the couple's business.  The parties separated with the husband remaining in the residence.    The mortgage payments became overdue and the husband refused to assist wife with bringing them current and saving the residence from foreclosure. The wife sought reimbursement for the loss of the residence.  During the divorce proceeding the wife had a financial expert review the business and personal finances and the expert testified at trial that the husband had spent an average of $100,000.00 per year from the business account on his personal expenses and had put down a large sum for a house he wanted to purchase.    The appellate court stated that when a trial court hears evidence that shows  a spouse has squandered a marital asset (the residence) in anticipation of a divorce action, the trial court may order reimbursement to the other spouse. 

Source:  Franklin v. Franklin, Missouri Court of Appeals, Eastern District, Case number ED87422, February 6, 2007

Alimony - Prenups for Women

What do you think about first when someone mentions the words "prenup" or "alimony"  (called "maintenance" in Missouri)?  You probably think that the man is wanting the prenup so he doesn't have to pay alimony to the woman in the event of a divorce.  Right?  Well, it is time to rethink this.  Women should start thinking about protecting their assets before they get married or even enter into a living arrangement with a man.  Why?  More and more women are seeing an increase in their income due to owning their own business, working their way up the corporate ladder, etc.  In many cases the woman's income will be more than the man.  Women need to start thinking about protecting their assets just like the men have always done.

You may be thinking that no man will ask for alimony - that it will hurt their "manly" pride.  Wrong, think again.  Men are starting to seek alimony and it just isn't the rich and famous like Nick Lachey or Elizabeth Taylor's ex.  It is the man who stayed home with the children while the woman went off to work; it is the man who works part-time  or who doesn't make as much as the woman and got used to the finer things that her money helped provide.  It could be the man you are planning on marrying or moving in with.

How do you protect your assets?  If you plan ahead you can have a prenuptial agreement or living arrangement agreement prepared by your attorney.  Be prepared to reveal all of your assets to your attorney and to your soon-to-be spouse.  If you don't reveal all of the assets in the prenup those assets will not be part of the agreement and there could possibly be grounds for fraud and setting aside the whole agreement.  If you want to enter into a contract before you live with someone you will need to include whether any or all monies will be combined, how the joint bills are to be paid, how the separate and personal bills will be paid, what will happen to the joint assets should there be a separation or parting of the ways, etc.

What if you are already married but want to protect your assets?  PINK magazine, February/March 2007 issue, has listed four things you can do.  These include:

1. Getting the man back into the workforce before you ask for a divorce or even hint that you are thinking about one.  If he is working and earning money on his own, he should not need as much or any support from you;
2. Keep all assets that you inherit in your name alone and do not co-mingle them with your spouse.  This means you do not put any monies into a joint account with your husband, you do not put his name on any real property, stocks, etc. Do not let your parents or other persons give assets to you and your spouse.  Have them just give it to you.  In other words, keep the assets totally in your control and name. 
3. You should build up a nest egg in a separate account under your control only.  This way should something happen you will have access to money if you need it.
4. You may be able to get your husband to sign a post-nuptial agreement, but don't count on it.  If you ask for one after the marriage you are probably going to be giving up more assets than you would have had you entered into a prenuptial agreement (think along the terms of a divorce settlement on this one.)

Due to tradition a woman may not feel comfortable asking the man in her life to enter into the agreements described above.  Women have come a long way in the work force and have worked hard to build up their assets and to provide for themselves and not have to rely upon the man taking care of them.  Women want to be treated as equals and are equal to men in this area and they should not hesitate to protect their assets just like the men should not hesitate to protect theirs.  Remember - entering into an agreement before the marriage or living arrangement is concluded is the best way to do this.

Source:  PINK, February/March 2007

STEPS TO TAKE WHEN CONSIDERING A DIVORCE

When a person is considering leaving his or her spouse and filing for divorce, emotions are usually running high and may take over the person's rational judgment.  I see this all the time when I am consulting with a divorce client for the first time.  Therefore, I have created a list of things to do or consider before taking that final step and moving out of the marital home or having the spouse do so.  These steps are based on Missouri law but can be useful in other states.  Some of the things you should do are:

1. Know your financial situation.  Know what your monthly, semi-annual or annual bills are, how much income you and your spouse have coming in,  and where all bank accounts, stock assets, retirement accounts, 401K accounts, etc. are and the value of each.  It is a good idea to make a copy of each document and keep them in a safe place where your spouse will not be able to take them or destroy them.  I usually recommend the client keep the documents in a safe deposit box that the spouse does not have access to or  a parent's  or friend's house.  It is not unusual for one spouse to try to hide assets from the other when going through a divorce.  You should also be thinking about what debts each of you will pay during the pendency of the divorce. 
2. Know the physical assets in your house - each antique, family heirloom, furniture pieces, kitchen items, etc.  It is a good idea to have a video or a picture of all physical assets in the house for future reference.  While you are doing this be thinking about the value of each piece and whether that piece is something you would like to keep or let your spouse have. 
3. Know the vehicles that are owned or leased by you and your spouse.  This should include the make, model, vehicle identification number, how titled, the current mileage, and the debt and creditor on each vehicle.
4. Obtain the legal description of each parcel of real property that is owned by the two of you together  and by either of you separately.  Know the value of each property and the debt thereon.  If needed, have a real estate agent look at the property and give you an estimate of what he/she thinks the property can sell for in the current market.
5. Know the insurance policies that are on you, your spouse and any children you have.  This should include health and life policies.  Obtain copies of these documents if possible.  If your spouse carries the insurance for you, start checking into the availability and cost of obtaining insurance through your employer or through a private insurance agency.  In Missouri the spouse is not required to carry insurance on you after the divorce is finalized unless so ordered by the court.  The spouse that is carrying the insurance when the divorce petition is filed is required to maintain it throughout the divorce proceeding. 
6. Start putting together what your financial situation will look like after the divorce if you receive all that you want and/or will be obligated to pay.  Usually if you receive an item that has a debt on it, you will be required to assume that debt.  Take into consideration any insurance that you will need to obtain and pay for.  Do not count on receiving any maintenance (formerly known as alimony) as maintenance is difficult to obtain in Missouri if both spouses are working, healthy, and capable of providing for himself or herself.
7. Start considering the custody and visitation arrangements for any minor children (under 18) that you and your spouse have together.  If one of you have a child that is not the other spouse's, the non-parent spouse will not have any custody or visitation rights to the child unless the parent agrees to it.  I always instruct my clients that unless the other parent is abusive or negligent in some manner regarding the children, the children need to spend as much time as possible with both parents.  This is a time for the parents to put aside their anger and hurt with each other and think about what is best for the children.   The children will be going through enough heartache and difficulty with the parental separation and do not need to be put in the middle of the battleground unless there truly is a legitimate reason that concerns the children's health and welfare.
8. Plan for ways to pay for your attorney fees and costs for the divorce.  In Missouri the filing fees for a divorce range from $125.00 to approximately $200.00 (depending on the county where filing and if there is real estate and children involved).  Attorney fees for a contested case will usually range from a retainer of $750.00 to approximately $15,000.00, depending upon the complexity of the case and the amount of fighting between the parties that the attorney anticipates.  Attorney hourly fees are usually between $125.00 and $250.00.  Just remember, you will usually pay more for an experienced attorney.  Some attorneys will take payment plans but more and more divorce attorneys are requiring a large retainer (what they think the case will cost in total) because of past clients not paying all the fees that are due.  This seems to be the one area where that is a problem for attorneys.
9. Remember, the more you and your spouse can work out together as far as division of assets, debts and the custody and visitation of your minor children, the less the Judge will have to decide and the less you will receive a judgment that neither of you like.  It will also be cheaper as far as your attorney fees are concerned.

The above is just a start in the items that you should consider and do if you are contemplating a divorce.  Depending on your particular circumstances, an attorney will advise you of more things to do or not to do.  Whether you hire an attorney to represent you or if you decide to go "pro se" in your divorce proceedings, you should always consult with an attorney in the beginning to know what your legal rights are.