Articles Posted in Finances

One of the more common questions a client asks when consulting a divorce attorney is “how much will this cost?”  There is no easy answer to this question, as it depends on any number of factors- is the spouse in a fighting mood? Is their attorney not prone to encouraging settlement? Are there complex assets at stake that take time and money to understand?

A lengthy and protracted divorce can cost thousands, and even individuals receiving monetary support from the spouse they are divorcing can run up against mounting bills. If the parties establish separate residences, suddenly both are attempting to sustain a household with only their income, where once they had a partner. This all coincides with a monthly expense few people account for in their personal budgets- attorney’s fees.

These booming expenses may result in parties getting creative about their finances.  Some choose to try and cut down on living expenses, some charge it on a credit card and hope for a favorable payout at the end of the road, and some dip into their retirement just to get by.

Should I Use Retirement Funds?

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If the parties to a divorce own a business, or a share in a business, it is a valuable asset to be considered and should be valued.   In cases where only one spouse works in the business he/she may suggest that they both know its’ value because for years they have lived off the business and there is no reason to spend  money hiring experts.     What a business “throws off,” or what the parties have been taking out of the business, however, even if accurate, is only one aspect of its worth– not its true value.   For example a dentist may bring home a certain amount each month; but the dental practice has value  extrinsic to the dentist’s salary.  There is value in the practice  client base, its equipment, its reputation, its’ location, perhaps its’ building—and a certain amount of the value of the business may be based upon the  personal “good will” and reputation of the dentist.

The Business is a Marital Asset and Gets Divided

The party who has built up the business and worked it day in and day out,  may feel that it is his/her business and the other spouse has no entitlement to it.   He/she may resent having to share the business upon divorce.  Unfortunately, the harsh reality is the business is a marital asset, and just like the marital home, bank accounts, and retirement, etc.,  it is  subject to equitable division.   And, unless the business is being sold,  reasonable and fair division is not possible without a proper assessment of its value.

Hiring a Qualified Business Valuation Expert

Each party has the right to hire a Business Valuation Expert.    When considering whom to hire, the qualifications and background of the expert is important.  While an accountant may be able to review the numbers, it is preferable, especially for in-court testimony, that the expert have a recognized national certification as a CVA (certified valuation analyst).

The  business valuation  report should include an in-depth analysis of numerous factors essential to a final conclusion.   Among those factors should be:  the company background and history;  company financial information and analysis (including historical data and future income stream);   a discussion of personal goodwill (if relevant)  and  the method used for the valuation.   The valuation should include a comparative analysis of similarly situated entities both locally and within a market that is relevant.   Oftentimes when each party has hired well-qualified business valuation experts the valuations come back within amounts close to each other–giving the parties greater comfort in the quality of the valuation.

Should You Stay on As a Partner in a Business Post-Divorce?

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TO MOVE OR NOT TO MOVE …

One of the more frequent questions that come up in our practice is whether a party can or should move out of the marital home before or during a divorce proceeding. The answer, unfortunately, is not a simple yes or no. And often it comes up after someone already has moved out!

Reasons why one might want to leave a marital home before or during a divorce are: physical and/or emotional abuse; infidelity; new employment; the emotional need to get away, etc.   The are equally compelling reasons to stay in the home during divorce proceedings   and perhaps live separately under the same roof, such as the financial considerations –savings offered by not having two residences, convenience; parental obligations or concerns about parenting. Each situation is different.      It is wise not to be impulsive about the decision of whether to leave or stay.   Consultation with an attorney is best, to learn fully what your rights and responsibilities are.   At a minimum there are certain items, which must be considered,

The Republican Tax Bill  brings sweeping changes to the nation’s tax code.  As the country adjusts to the revisions and comes to understand the implications, we take some time to highlight the immediate impact this law will have on  families –both intact and those who are facing divorce.     Follow this blog for more details later.

Revisions in the tax code will affect:

           EDUCATION:   529 accounts are expanded to include private school and home schooling.

Currently families can save for children’s college education with the use of tax protected 529 accounts.  In a 529 account your money grows free of any capital gains taxes and  currently it can be withdrawn without any penalty to pay for higher education expenses.   Under the new bill,  the use for money in 529 accounts is expanded.  You  now will be able to withdraw up to $10,000.00 per child, per year,  to pay for private school or for educational expenses that are used for home schooling.   Money that is in a 529 account also may be rolled over to ABLE accounts, which are used for people with disabilities.

            ALIMONY: Alimony is no longer deductible for the payor spouse and no longer taxed to the recipient spouse.  

This  change in  the tax provision regarding alimony does not go into effect until 2019; however, parties in the midst of divorce must be aware of it now as it may have a significant effect on negotiations in equitable distribution agreements.   Understanding the effect of this dramatic change in the tax implications of alimony is important.   If you currently are receiving or paying alimony your agreement may be modified with certain specific language to comply with the new tax rule.  Your attorney should have access to the modification language. Continue reading

When can rent be charged to a Spouse living in the Marital Home Alone?

Spouses that have been displaced from their marital home during divorce proceedings may find themselves put in the position of paying for a home they have no ability to enjoy.  This commonplace situation has led to a general rule in Pennsylvania Courts that a dispossessed party can claim a credit for the fair rental value of marital property which is jointly held against the spouse in possession at the time of equitable distribution.  See Middleton v. Middleton.  Effectively, they can charge the spouse enjoying the marital home rent for the time that spouse spends in exclusive possession of the property.  However, this general rule is firmly within the discretion of the court to award, and is subject to further restrictions in order to adjust to the specific circumstances of the parties.

Factors affecting Rental Credit Awards:

To the extent  a rental credit may be awarded, it is limited by the amount in which the dispossessed spouse had a personal or financial interest in the property.  In Lee v. Lee, this caveat allowed a Wife who used premarital funds to buy and eventually re-finance the marital home to undermine her Husband’s interest in the home, and therefore whether the amount of rental credit due, if any.

Another central factor in determining the amount of credit is the period of time the spouse was dispossessed and the other spouse was in possession (actual or constructive), of the property.

Additionally, the credit is subject to an allocation for any expenditures made by the possessing spouse in order to maintain the property on behalf of both spouses. This includes repairs or any contributions towards mortgage and tax obligations for the home.

Another crucial factor requires that the party have an actual right to be physically present in the home. Regardless of legal title, if one party has been excluded from the home pursuant to a PFA Order, the court ruled in Lee that they are not entitled to a rental credit for the time the Order has excluded them, regardless of whether or not they were already dispossessed prior to the issuance of the Order.

Again, this is a circumstance-specific analysis, and one party’s superior financial obligations will not necessarily support a rental credit award.  In Schneeman v. Schneeman, the court denied a credit notwithstanding that the dispossessed spouse paid the mortgage, insurance, and taxes.  This is because the possessive spouse received a deviated amount of spousal support during this period, which the court considered an indirect contribution to the expenses.  In Lee, the court viewed the fact that the Wife initially urged the Husband to vacate the premises sooner rather than later weighed in favor of granting the husband a rental credit.

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What about other people living in the house with my spouse?

As a rule, no rental credit will be awarded when a minor child is living in the marital home. The general rental credit rule, however, has interesting effects in practice when the court considers the relevance of other solvent adults- typically the parties’ adult children- living in the marital property.     Judge will look at the specific facts when considering whether a non-resident party is entitled to a credit for allowing the parties’ adult children to live in marital rental property.   The surrounding circumstances of the litigation must support a credit considering the relative economic positions of the parties, and courts may not be inclined to allow the credit absent a showing of need or extenuating circumstances. Continue reading

The old saying goes that marriage is about love and divorce is about money.   No matter how wonderful your marriage is, it is a good idea to be knowledgeable about your assets and debts.  No matter how amicable you think your breakup may be,  don’t underestimate the importance of  protecting yourself and your future financial wellbeing. This is not as crude as it sounds.   The sooner you start seeing yourself as a  competent, strong,  and self-sufficient individual, the healthier you may feel  and, more likely than not, the smoother any divorce process may be.

So here are some quick tips…         

  1. Learn about your finances–   gather as much information as you can about your assets and debts. If you are the one who pays all the bills, does the investing,  and manages the money, this is easy. If you are not that person, then start learning…quickly!  It is not an excuse to say, “I don’t know …She  pays  all the bills.”    Gather  documents. Get photocopies of  3-5 years of the last filed tax returns;  all recent bank, investment, retirement and credit card statements. Keep these documents in a safe place and update them regularly.