Practical Questions In Divorce & Separation

Divorce involves more than simply terminating a relationship. Divorce involves:

• Wholesale life changes for husbands, wives, and children;
• Your assets will have been divided;
• The amount of money available -- and the expenses -- will change;
• You will have more responsibilities; and
• You will be making decisions alone.

Many people think about divorce, and one out of two do it. And, those who do it find that while divorce eliminates one set of problems, it raises lots of new ones that must be dealt with immediately.

You must establish and focus on long range goals and the effects of divorce because, if you don't organize and plan now, important details will slip through the cracks. First, you must separate your emotions from the practical issues. Emotional decisions are short-term and have no place in your decision making process. Then, you must understand your options before you make decisions. To do this, you must be informed.

What are the upsides of divorce? Perceived happiness and well being? And, the downsides? Breach of a relationship with continued contact, possible relocation, a changed standard of living, and placing important issues in the hands of the judicial system.

First, have your attorney give you a basic understanding of how the court system operates so you will know what to expect and when. Remember: since most decisions made by a divorce court are based on the facts of your case, there can be no guarantees.

You need to know:

• the range of possible results,
• the strong and weak points of your case,
• the best and worst result you can anticipate,
• the probable length of time to complete your case, and
• the probable cost.

Your attorney is trained to assist you in these areas. What all this means is that in addition to the emotional and financial drain normally associated with divorce, there is additional economic and emotional stress in preparing to deal with the practical questions that arise during separation and after divorce.

ALIMONY & CHILD SUPPORT

• Each state has laws that govern the application of alimony and support in its court system. Always check these things out with your lawyer.
• Plan for ways to protect support and alimony awards so if the supporting spouse dies or becomes disabled, benefits can continue. Look into life insurance, long-term disability, and trusts that are designed for this purpose.

DISABLED CHILDREN

• If a child is disabled, then there must be planning for both payments and education. Any settlement should be structured around public benefits and should avoid reimbursement.
• Check into special programs for disabled children and how to avoid reimbursement.

CHILDREN'S EDUCATION

• What's the best way to deal with school changes for children?
• Generally, both parents are responsible for children's college education depending on their income and assets.
• Determine if a fund should be established to assure the payment for educational obligations. If so, in what form, how should it work, and how can it be best funded?
• Find out what financial aid by way of grants or loans may be available and from where.

FINANCING & HOME ISSUES

• What about refinancing, second mortgage, a home equity loan, asking parents or relatives to help you?
• Think in net figures since the sales price of the home will be reduced by the mortgage payoff, closing costs, lawyers' fees, taxes, and possibly other debts.
• The cost of packing and moving should be included in your settlement.
• The cost of disputes over furniture and personal property may be more expensive than buying new furniture.
• Become aware of all tax consequences before you finalize any sale. The last thing you want is to find yourself borrowing money to pay taxes you didn't plan for.
• If you are planning to buy another home, you need to shop for mortgages. And, find out what price home you need to buy to defer the tax consequences.

PROPERTY INSURANCE

• If you leave home, you need a separate policy to cover personal property you take. And, you may need a separate automobile policy.
• Most property insurance is written for the family unit. When that unit breaks up, automobiles may be transferred and your property may belong to someone else. This means that there may not be coverage. So, find out what your policies cover. And make sure to get it in writing from the agent.
• If you move, you may need insurance coverage to cover your property during transit.
• Keep an amount in a savings account equal to your deductibles.
• Make sure your coverage limits are sufficient to replace your property at today's value.
• Jewelry, furs, and other valuables must be listed, appraised, and covered separately.
• List and photograph or videotape all of your personal property and put the results in a safe place.
• Never cancel any insurance. Without coverage, a claim or casualty loss could wipe out the assets you have accumulated.

MEDICAL COVERAGE

• Everyone involved has a vested interest in finding out what health coverage you've got -- non-covered medical expenses can wipe you out.
• Without planning, changes in health care coverage can be risky and cause continued litigation and expense.
• If you rely on coverage at work, find out how to continue coverage on the non-covered spouse and children. And, make sure that the coverage is with a financially stable insurance company. If an employer purchases health coverage from someone other than an insurance company or if there have been frequent shifts in the insurance company that's covering the plan, WATCH OUT.
• Get estimates of the increased health insurance costs in the future so everyone can plan future budgets.
• In some employee health plans, term life and disability insurance are included as benefits. Check into them.
• If there's no coverage at a place of employment or current health insurance will not cover the family, begin looking for major medical and hospitalization alternatives immediately.
• Plan now for pre existing conditions which might make it difficult for the non working spouse or children to secure or continue health coverage.
• Always read the policy and do not rely on a brochure or the representations of an agent.
• Never cancel any insurance policy until you know what is going to replace it. And, never buy a policy until you know what`s covered and when coverage begins.
• If one spouse was or is in the military, check on medical benefits that may be available.
• Look into medical, dental, and prescription bills that are not covered by health insurance.

LIFE INSURANCE

• If you have an insurable interest in the life of another, you should consider the purchase a policy of insurance on that life to secure the obligation.
• If someone other than you is making the premium payment, always make sure that you get regular proof of both premium payment and beneficiary designation.

CREDIT

• Before the divorce, check into the status of your credit. Just because both of you use an account does not that mean that both of you have credit ratings and credit histories.
• Make sure to obtain your own credit history before you divorce. Order your credit report.
• If there have been credit problems in the past, there are ways in which to reestablish credit. Check into them, but don't pay exhorbitant fees for what you can do yourself.
• Just because a court order requires your spouse to make payments on your debt, this does not absolve you of responsibility to the creditor because the court cannot tell the creditor what to do.
• The filing of bankruptcy either during or after the divorce may affect your debts. Talk to your lawyer about this.

RETIREMENT PLANS

• In most states, retirement plans are divisible on divorce. But there are many different kinds of retirement plans and many complex rules.
• Federal law gives a spouse the right to decide how pension benefits are distributed. Unless waived in writing, many pensions are automatically paid on a joint and survivor basis.
• There may be questions about such things as taxation and integration of benefits with Social Security. Your lawyer is trained to assist you in all of these areas.
• The breakup of a marriage is like the breakup of a business partnership. But 90% of those who get a lump sum today will not have it within five years.

INVESTMENTS

• You can't afford to be suckered into a high risk and high return deal. You could be among the consumers who lost more than $500 million in the last two years to unscrupulous planners and salesmen.
• Understand what you're getting before you write that check. Before you invest in anything, including life insurance, make sure you find out about the amount of sales commissions and how much you will be penalized if you decide to remove your money in the first four years.
• Even annuities and guaranteed investment products may be risky. Always check out the financial stability of the company behind the product.
• Almost anyone can use the title "Financial Planner," and between 150,000 and 500,000 people do. Don't be fooled by designations. You might not even need a planner.
• So, first determine if you need a planner. Then find out for how long and where planners and salesmen have been in business. Get bank references, client references, and references from professionals. Then check out the references.

ESTATE PROTECTION

• Of all adults in the United States, 70% have never written a will. You should change your will after divorce or remarriage. Discuss this with your lawyer.
• Your estate can be structured to provide for your children by use of trusts and guardianships.
• Always spell out guardianship provisions in your will. If you don't, a court will do it for you...when you aren't able to argue.
• There are many kinds of trusts available and insurance policies can have trusts as beneficiaries. Choose custodians and trustees carefully.
• Look into living wills and make sure that you have a power of attorney in place so someone can make these and other decisions if you become disabled.

TAXES

• Don't forget to ask about the tax consequences of the way your estate is planned, and watch out for gift taxes before you make a transfer.
• Always check out the tax consequences of what you are going to pay or receive...before you finalize your arrangement.
• "DIVORCE" means much more than terminating a marriage. Any time there is a transfer or a payment, either now or in the future, you must consider Income, Gift, and Estate tax consequences.
• Sometimes, people don't know that a gift has been made and a tax is due until it's too late. How property is titled and who has the control over the property can determine whether there is a tax or not.
• You need to make sure that before you begin paying or receiving funds, transferring or receiving property, paying debts, or signing wills and trusts, all of your taxation questions are identified and answered.
• Try to get indemnified from the expense of tax audits and back taxes and penalties if you didn't earn the income declared on tax returns filed.
• Legal expenses attributable to tax advice are deductible. Ask your lawyer about this.

Sound easy? It's not. Whether you are paying or receiving, you will have less assets, less income, and more expenses. With your lawyer, you must try to predict your financial future -- today -- which is no easy task. So, you should be realistic and candid and be prepared to back up your estimates with facts.