California divorce: Dividing debt

Since we have been 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  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.

Signs your spouse is considering divorce

It is not uncommon for one spouse to be surprised, blindsided even, by the divorce filing of their spouse.  Often, though, the surprised spouse can look back in hindsight and see the signs.  Here are some:

1. A new vocabulary.  If your spouse starts saying words like “custody” or “community property,” “date of separation” or “dissolution” even (and these terms may not be in the context of your marriage, but may be dropped in conversation about someone else, for example), then this may be a sign s/he is talking to a divorce attorney, or at least gathering information.
2. Shifting of accounts or money.  If your spouse suddenly wants to move money around, it may be a sign of impending division.
3. Changes in his or her relationship with family members.  If your spouse has been estranged from her mother during the marriage and now they’re tight, it may be because the rift was due to the marriage.  Now that it’s ending, the rift is healed…you just don’t know it yet.
4. Super Parent, or changes in parenting.  A spouse getting a divorce may suddenly become super-parent, trying to establish a pattern of caring for children when that wasn’t necessarily the case before.  Your spouse may be setting the stage for the impending custody battle.
5. Sudden reduction in work hours, overtime, or business.  Many spouses, in the face of paying child or spousal support, find themselves with less work, business, or overtime, and sometimes bosses are complicit with this temporary reduction to avoid higher support amounts.
6. Secret conversations.  Catching your spouse spending money or talking to someone on the sly may not mean an affair – it may be an attorney or s/he may be talking to others about you.

Divorce is difficult in the best of circumstances.  If you keep your eyes and ears open, though, you may be able to avoid being taken by surprise.

Dividing a business in California divorce

When one spouse has a small business, it can become a difficult issue to divide at divorce.  Everything the couple acquires during the marriage is community property, so if the business was started after the marriage, then the business is community property and must be divided in divorce.  Generally this means that the business is valued, and the spouse working in the business buys out the interest of the other spouse.  It is the value of the business that is generally the point of contention in the divorce.  Further complicating things is when the business was started before the marriage and continued during the marriage, as the amount of growth in the business during the time of the marriage must be valued and divided – with the same attendant conflicts over how to determine this value.

Often, it is the non-working spouse (by non-working, I mean not working in the business. This spouse may very well be working, but not as an owner of the business in question) who believes that the business is worth a great deal more than the working spouse thinks.  Since there are dozens of ways to value a business, this can  become a war of the experts in divorce court.  In addition, a business can be derailed by the distraction of the divorce as well as the ultimate financial payout.

There are ways to avoid this, but generally they involve planning.  First, you can create a pre-nuptial or post-nuptial  agreement that provides for the division of the business in the event of divorce, and at least can specify how the business will be valued so that this is an argument you can avoid.  Life insurance can be used as a protection against both the death of the working spouse or in the event of a divorce.  In business, we buy insurance to protect injuries on our property, for our employees, and for our potential legal liability, but forget that we may need insurance in case we are unable to work or are in the process of divorce.

Every small business owner should take steps to protect themselves, their business and their family in the case of divorce or death.  A financial advisor, divorce and estate planning attorney can help.

 

California Divorce: How to divide the stuff, from the wedding ring to the collectibles to the couch

Lawyers and judges do not like to get into the business of dividing a couple’s personal property in divorce.  The value of your personal property when you get divorced is not the price it would take to replace what you have, but rather the garage sale price.  So, when you value your personal items (furnishings, kitchen items, jewelry, personal items, etc.), think of holding a large garage sale where everything in your house is for sale.  Then imagine at the end of the day, the house is empty.  How much money do you think would be in the tin box at the end of the day?

For most couples, this doesn’t amount to more than a few thousand dollars, and since each party generally takes some of the personal items, frequently there isn’t any kind of equalization in the divorce.

Of course, if you have valuable antiques, jewelry, or collections, then there can be disputes.  The first dispute is often the worth of the collection.  Husband says his gun collection is worthless because none of the guns work.  Wife says it’s worth tens of thousands because of what the couple paid for it.  The answer is generally to get an independent appraisal and go from there.  The item or collection can be sold and the proceeds split, or one party can buy out the other party’s interest by paying half the value.

Another common question involves gifts.  Gifts given to one spouse are that spouse’s separate property.  Often the biggest gift is that of the engagement ring.  Upon divorce, the wife keeps the engagement ring as hers, regardless of whether the ring is Husband’s grandmother’s.

Finally, when attorneys and courts do not generally want to get into the division of personal property, what is a couple to do?  The best way, I think, is for each spouse to get a different color of Post-It.  Each spouse then goes around the house and ‘tags’ the items they want.  Then at the end, only those items with two Post-Its on them are items of contention. This makes it easy to identify what items need to be discussed without having to discuss every item – it narrows the field, which can reduce the conflict.

How did you divide your personal items when you divorced?

Community Property and Separate Property in California Divorce

There is often confusion about what community property and separate property is in California divorce.  While this can be a complex issue, here is a quick overview.