The easiest way to mess up your California divorce: don’t make these mistakes!

Everyone these days is looking for ways to keep costs down, and divorcing couples are no exception.  We see all over the place services offering a divorce for $399, or online ads offering similar low prices for divorces.  These services are generally documents preparers.  Document preparers generally have some experience in filling out the forms necessary for a divorce, but they are not lawyers, do not and have not gone to court, and so they do not know the ramifications for improperly filling out your forms.  They could be depriving you of a benefit that you need, but that you don’t even know about!  Too many times I have had clients come into my office, needing me to clean up a mess a document preparer created, costing them much more money than if they had come to me in the first place.  Use a document preparer at your own risk.  Better yet, don’t use one at all.  Spend a few dollars more at the outset to make sure you get the professional, knowledgeable help you need.

In addition, you must be very careful to complete your forms properly.  In divorce law, there are a great number of forms and disclosures you need to do, such as income, expenses, assets and debts.  You sign these forms under penalty of perjury, so they need to be accurate and complete.  But in addition to these forms, there are other forms that need to be filled out to allow you to let the court and other side know what you want, actually get what you want when it becomes time, have your documents accepted by the court, and have your case completed properly.  While most are straightforward, some have tricky elements that may require a professional to ensure all of your rights are protected.  Do it right the first time to save yourself immense hassle later.

Need more help?  Click here for our FREE Divorce e-Course.

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Trusts and debt payment

I am often asked whether creating a living trust will allow the creator to avoid their debts: their mortgage, their credit cards, their other loans and secured debt.  The short answer?  No.

Living trusts are generally created to avoid probate, estate taxes, and allow one generation to pass assets along to the next generation with a minimum of hassle and expense.  Once you pass away, your successor trustee still has to determine what your debts are, pay them from your estate, assess taxes, and then distribute your assets according to your wishes.

What my debt-averse clients may be thinking of is a spendthrift (or asset management) trust, which does in fact protect the assets in the trust from the beneficiary’s creditors.  Spendthrift trusts are used when an individual or couple want to leave money to someone, usually a child, but don’t want to leave a large amount outright, or all at once.  So, for example, the beneficiary gets a certain percentage or amount at regular intervals (or for specific expenses, like education or health or living expenses), but is not entitled to the entirety of the money until a certain time or age.  In this case, should a creditor come after the child and the money in the trust, so long as there are restrictions placed on the disbursements to the child, then the trust money will be protected against the creditor.  This can mean  a great deal when, for example, there are millions in the trust and the beneficiary gets into a serious car accident with large liability.

In general, however, living trusts do not let you get out of paying your debts. The only way to get out of paying your debts is to not leave enough estate to pay them…which I would not recommend to anyone!

Retirement planning and dividing assets in California divorce

When a couple is dividing their assets in a divorce case, it’s easy to just look at the numbers on the page and divide them. For example, say we have two stock accounts. Let’s have $100,000 in each account. It can be easy to say that they each take one of the accounts and call it even. But, is it?

It could be, but it’s more likely not. If the couple has two accounts, it’s likely that they have them for a reason. For example, maybe one is intended for the long-term and one is a shorter-term investment. If the couple does not evaluate the projections of each of the accounts, one of them could be left holding the short stick.

During the divorce process, however, you can get very tired of negotiating, of waiting, and of just being in the middle of it all. Evaluating the accounts is just another step that you may think really won’t make a big difference. But ask any financial advisor – it DOES matter, and while you may not care now, you WILL later, particularly if you’re the one with the short stick.

As a couple builds their life, they make plans for their retirement. A smart plan has several components, and the couple is likely thinking not only of their own retirement, but also their children’s college expenses, when each of them will retire, and what kind of lifestyle they’re planning on. They may have compromised during the marriage, but at the divorce, each individual needs to come up with their own plan for these issues. Ensuring that the division of the assets is truly equal, and not just the same dollar figure, will be the first step.

Property and debt division in California divorce

California law provides for an EQUAL division of any and all property and debt acquired during the time of your marriage. Exceptions to this are inheritances, which are separate, as well as student loans, which are separate debts. Note that if you are unaware of the acquisition of the property or debt, then this does NOT exempt you from the equal division. So, this means that if your spouse acquired credit card debt in the amount of thousands of dollars that you knew nothing about, you still have to share the payment of that debt with your spouse at divorce.

Also, note that title to the property is not the relevant issue, but rather the time you acquired the property. If you have a car, for example, that you bought while you were married but only put the husband’s name on it, then that car is still community property and subject to equal division.

Finally, “equal division” does not mean that we are dividing each and every asset, one by one. What we’re doing, rather, is dividing the value of your property. For example, if you have a house with equity in the amount of $100,000 and the wife has a community property pension in the amount of $100,000, then the husband can take the house in exchange for giving up any right he has to his wife’s pension. Generally, if one spouse can afford to keep an asset, then the court will not order its sale.

California divorce: Dividing debt

Since yesterday we were talking about dividing personal property in divorce, today I thought we could talk about dividing debt.  Dividing debt in divorce is a big issue these days as many couples find themselves coming away from marriages without any assets at all, and in some cases, with only debt.  There are a few issues that commonly come up when it comes to dividing debt in divorce: how to handle debt during the divorce, how to handle debt of one spouse or debt unknown to the other spouse, and how debt is handled post-divorce when one spouse agrees to service the debt but both names remain.

1. In California, once the Petition is filed (for Petitioner) and served (for Respondent), both parties become subject to restraining orders preventing them from acquiring or disposing of property of debt other than in the “ordinary course of business.”  Basically, the parties should continue to service their debt and pay their bills as they have in the past, before the divorce was filed.
2. The question often arises about debt one party has incurred (and the other party doesn’t want to pay) or one party’s lack of ability to pay the couple’s debt. This is both a common and a difficult situation.  The debt is most likely to be a joint debt, whether it’s a credit card or other debt, so any non-payment is going to adversely affect both parties.  If you can pay at all?  Do pay.  Don’t harm your own credit score to get back at  your spouse – it’s not worth it.
3. Another question that comes up is that one spouse may have incurred debt, such as credit card debt, that the other spouse is unaware of.  Unfortunately, in California, any and all property and debt acquired during the marriage is community property, and divided equally upon divorce, regardless of whether it was known to the other spouse.  There are exceptions in the case of, for example, the unknown credit card was used to pay for an extra-marital affair, but this can be hard to prove.
4. At the end of the divorce, you and your spouse may agree to divide the bills, but in the case of a credit card, both names can remain on the card.  This means that if the payor decides not to pay or defaults, then the company is going to come after the non-paying spouse for payment.  This is unavoidable, as banks and credit card companies will go after anyone to get their payment.  Your recourse, as non-paying spouse, is to send the company a copy of the Judgment or Marital Settlement Agreement that says you are not liable for the debt, and that should be the end of it.  But you do want to make sure that your Judgment includes who pays for what debts so that you have this on hand should there be a problem in the future.

One final comment on joint debt and credit cards in divorce: once the papers are filed, unless you really need the cards, close them.  Do not allow either spouse to use the joint credit cards, because untangling that mess in the divorce, when both spouses use a joint credit card, is a nightmare.

New financial gender roles in the family: House-husbands? Sugar mamas?

In the law school Class of 2000 at UC Hastings in California, women outnumbered men.  In college and many other graduate schools, this is also the case.  The increasing number of women in higher-paid jobs, longer and more successful careers, and the length of time that this has been true has led to more and more women earning substantial amounts of money.  Adding to this the troubled Oakland economy and many individuals – men and women – out of work, and we have a result that means there are many households with working women and stay-at-home men.  Whether the men are caring for children or looking for work, it is no longer the ‘norm’ to find exclusively women at home.  In fact, many men are choosing to stay home while their wives pursue their careers.

A recent article discusses this very concept, questioning our societal norms.  Do we still look down on men who don’t work, who choose to stay at home and raise children?  It was just in 2009 that the bestseller Smart Girls Marry Money: How Women Have Been Duped into the Romantic Dream – And How They’re Paying for It, by Dr. Daniela Drake and Elizabeth Ford was released.  This was the antithesis of working women and stay-at-home men, actually encouraging women to “marry up” since it was fruitless to try to compete with men in the professional realm.

Huh?

As the linked article discusses, our society has changed, and even in celebrity relationships we see women moneymakers partnering with more obscure, unknown or lesser-earning men. Just look at Britney Spears or Mariah Carey with lesser known Kevin Federline or Nick Cannon, respectively.  This is true in the non-celebrity realm as well, as we see in Alameda County courts more fathers as primary caregivers for their children, more fathers as equal participants in the child rearing process.  No longer is there a presumption that the mothers should get the children in a divorce.  Both parents are equal in the eyes of the law.

Are we going to see an increase in “Sugar Mamas”?  Start talking about the plight of house-husbands and the discrimination against them?  Perhaps not tomorrow, but as our society evolves – and the Bay Area is frequently on the forefront of such things – we may see some of these issues arise.

Looking back to see the present

Today’s repeat guest blogger is Sarah Tolson, a Certified Financial Planner with her office in Danville. Her bio and contact information are below.

With the unemployment rate remaining persistently high, it might be easy to become discouraged over the progress of the economic recovery. But if you are looking for signs of a recovery, the employment situation is the last place to look — literally.

Employment is typical of a class of economic indicators, called lagging indicators, that are poor at predicting how the economy will perform in the near future. However, when it comes to providing confirmation that a particular trend is in place — whether it be a recovery or a recession — lagging indicators can play a vital role. Here’s a roundup of some common lagging indicators and why they can provide useful information for investment decisions.

Employment
Rising unemployment is usually one of the final signals that a recession has begun, and rising employment is among the last indications that an economy is recovering. In both situations, it’s difficult to miss the influence of human emotion in the business cycle. During a slowdown or a recession, employers may cut back on other expenses in order to avoid layoffs for as long as possible. And when conditions begin to improve, employers may avoid hiring until they are confident that the recovery is sufficient to justify additional labor costs.

Corporate Earnings
Earnings are a lagging indicator because they reveal past performance. Most publicly traded companies release their quarterly earnings one month or more after the quarter has ended. So even though stock prices are technically a leading indicator, actual corporate earnings performance may say little about what to expect in the future. However, if economic activity seems to be faltering, yet no recession has been officially declared, economists may look at earnings and other measurements of business revenue for confirmation.

The Conference Board Lagging Index®
Perhaps the most important lagging indicator, which actually gets little attention, is The Conference Board Lagging Economic Index. As with other lagging indicators, this index is most useful when compared with leading and coincident indicators. Coincidentally, The Conference Board also produces coincident and leading indexes, which makes comparisons convenient.

The lagging index tracks average duration of unemployment, manufacturing and trade inventories to sales ratio, labor cost per unit of manufacturing output, the average prime rate, outstanding commercial and industrial loans, ratio of consumer credit outstanding to personal income, and the consumer price index for services.1 Changes in these seven variables are averaged to arrive at an index value.

Although some experts consider the lagging index to be a lackluster source of information, economists tend to pay close attention when it shows something other than a confirmation of the direction of the leading and coincident measures. A divergence suggests that the stock market may have misinterpreted the direction of the economy.

Lagging indicators rarely make headline news, but they are an important source of information. We can help you keep an eye on these and other indicators.

1) The Conference Board, 2010.

Sarah Tolson, Certified Financial Planner™ recipient, is passionate about building the next generation of her family’s legacy of personalized financial planning; and she is committed to helping professionals create wealth-building plans tailored to their age, goals, and life circumstances.
4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506
phone: (925) 736-3024 / fax: (925) 736-3026
http://www.GirlsJustGottaHaveFunds.com

Sarah Tolson is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, Inc. Member SIPC. (2121 N. California Blvd. #395, Walnut Creek, CA 94596 (925) 979-2300). CA Insurance License #OF43069.

New Rules are in the Cards

Today’s repeat guest blogger is Sarah Tolson, a Certified Financial Planner with her office in Danville.  Her bio and contact information are below.

In 2010, the federal government issued a dizzying array of rules and reforms affecting the plastic you carry in your wallet. In case you had trouble keeping track, here are some of the important developments.

Credit cards: Under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, consumers must be given a 45-day notice before any significant changes affecting their account terms can take effect. Such changes include higher interest rates, fees, and finance charges. Consumers who exceed their credit limits cannot be charged an overlimit fee without their consent. Card issuers must send statements a minimum of 21 days before the due date, which must be the same date every month.¹

Debit cards: Banks are required to have a debit-card user’s permission before they can charge overdraft fees on point-of-sale purchases and ATM withdrawals (overdrafts via paper checks and automatic payments are exempt; banks can continue to cover them for a fee without the account holder’s permission). Card holders who agree to the fees will have their purchases authorized when their accounts don’t have sufficient funds. Card holders who don’t accept the fees will likely see their over-limit purchases declined.²

Gift cards (and certificates): Issuers cannot charge inactivity fees on cards sold on or after August 22, 2010, unless the card or certificate has been inactive for at least one year. After one year, the issuer may levy inactivity fees, but no more than once per month. The money stored in a gift card must be usable for at least five years from the date the card was issued. If a consumer adds money to the card, the amount added must also retain its value for at least five years.³

1) Bankrate.com, 2010
2) National Foundation for Credit Counseling, 2010
3) Federal Reserve, 2010

Sarah Tolson, Certified Financial Planner™ recipient, is passionate about building the next generation of her family’s legacy of personalized financial planning; and she is committed to helping professionals create wealth-building plans tailored to  their age, goals, and life circumstances. Sarah joined her family’s wealth-building business to help the children of her family’s clients begin to start building their own wealth, with someone who understood their values and who would not be judgmental or lecture them like a parent. Sarah has a Bachelor of Science in Business from the Kelley School of Business at Indiana University. She joined her family’s firm in 2006 after several years in a successful retail merchandising career with Target Corporation and Abercrombie & Fitch. As an active member of the Junior League of the Oakland-East Bay and the Pleasanton North Rotary Club, Sarah participates in philanthropic work regularly. Sarah is on the Board of Directors for the Financial Women’s Association of San Francisco and helps to organize events especially for members who live in the East Bay. She is also the Vice President for the Founder’s of Success chapter of Business Network International (BNI) and a member of e-Women Network. In addition to financial consulting, Sarah is an entertaining and captivating public speaker; and she is currently writing a book about financial planning for women with young families. In her spare time, Sarah enjoys playing tennis, cooking, and traveling. 4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506 phone:                         (925) 736-3024             / fax: (925) 736-3026 www.GirlsJustGottaHaveFunds.com   The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Sarah Tolson is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, Inc. Member SIPC. (2121 N. California Blvd. #395, Walnut Creek, CA 94596 (925) 979-2300). CA Insurance License #OF43069.

 

How to get through your divorce with money, your sanity, and hope for the future: Law, strategy, and everything you need to know but no one tells you

This is the working title of the book I am putting together primarily for divorcing parties in California, but there will be general application for those outside of California.  I am targeting a release at the end of the month and want to be able to help the widest audience.

The topic will include: what to do and think about when you’re thinking of divorce, the initial process, the overall process, emotions involved, hiring a lawyer, the things they don’t tell you that you need to know, finances, child custody and visitation, child and spousal support, property division, debt, negotiation strategies, settlement conferences, trial, specific issues that come up frequently (substance abuse, moving away, for example), completing your case, post-divorce considerations, and where/how to get help.   Each topic will include the “hard” law and strategy as well as the emotional and logistical, common sense aspects and the things no one tells you but you need to know.

Sound worthwhile?

I’ve been thinking about doing this for a while, and this blog is one way of getting the information out there.  But now, I don’t see that there is another publication that combines everything: law, strategy, emotions and all the little things you don’t expect.  Many publications have some of these, but none have all of them together.  I think it’s time to give access to the divorce process to everyone who needs it, and not just those wealthy enough to spend tens of thousands of dollars on attorneys.

What do you think?  Is there a topic you would like me to include?

Things they don’t tell you about divorce in California (and everywhere else!)

I have talked a lot about the different aspects of  divorce in California, financial aspects, alternative options, parenting in divorce, and preparation, among other topics, but I’ve never written about all those aspects you don’t know about or hear about until you are in the thick of it.  Here’s a few of the key things they don’t tell you about divorce:

1. It’s going to take a LOT longer and cost a LOT more than you ever imagined.  No, longer than that….and even longer than that.  Whatever you’ve imagined, add at least 50% more time and money.  And this isn’t just attorney fees money, it’s lost wages money (those pesky court appearances), increased debt money, and new expenses money (new blender, new apartment).
2. Attorneys – even your attorney – can seem like s/he isn’t on your side.  Sometimes this is good, as when you’re hearing the reality of divorce and your attorney is not just telling you what you want to hear (so you’ll be disappointed later), but sometimes it’s bad, as when your attorney is mean or nasty to you.
3. Your attorney may not be telling you ways to save money on your divorce.  This can vary from attorney to attorney, and it can range from benign oversight to outright malpractice.  You have to decide what’s going to work for you, but don’t fail to either get a second opinion or learn at least some law and procedure so you know what questions to ask.  The more you fight, the more the lawyers get.
4. The system is not fair.  It’s not designed to make you feel better or vindicated or right.  It’s flawed, and the people involved are flawed, as people are.  “Making the judge see your side” is not going to get you your way.  What will get you your way is having the facts on your side.
5. Your children will act out, misbehave, develop illnesses they never had, and otherwise have a really hard time with the divorce.  Instead of blaming your ex-spouse, work with him/her to help your children.  You will save them in the short AND long run.
6. Your lawyer is not going to be offended if you fire him/her and get another lawyer.  Most lawyers welcome the reduction in caseload and “starting over” with a new lawyer is not hard at all.
7. Much like #4 above, the legal system is not going to help you at all with the emotional aspects of the divorce.  Get a therapist, as soon as you can.  Get over it, in your own way and your own time, and not with lawyers, courts and hearings.
8. The more you learn/know, the better off you’ll be, regardless of how complicated or contentious your case is, the amount of lawyers’ fees (if any), and how long the process takes.