Frequently Asked Questions:
Financial Issues of Divorce

    I'm so angry that my first impulse is to take all the money—and all our possessions—and run. I know I can't do this, but do you have any general advice about an appropriate approach to dividing assets?

    One unhappy wife hired two movers the weekend her husband was out of town. They hauled all the furniture out of the house and placed it in storage. Not the fairest way to divide the spoils of a marriage, and not the most cost-effective, either. This woman had to pay the movers for the day's work, and she had to pay big bucks to her lawyer, who faced the unenviable task of explaining to a judge what her imprudent client had done. Her actions had also placed a significant emotional impediment in the way of settlement.

    You cannot just take the money and run, so grit your teeth and hire a lawyer to divide the spoils—or, if you feel you have the emotional capacity, and, if you have not accumulated too much, try to do it yourselves.

    Unfortunately, for most people married more than a couple of years, complexity rules, even if a divorce is relatively amicable. Most of us own more than furniture, china, and knickknacks. There's a pension, a savings account, an account for the kids' college tuition, some bonds still left over from the wedding, and some paintings that aren't worth much now, but you never know.

    We provide guidelines to both do-it-yourself division and the legal maze, below.

    When it comes to dividing assets, are there any specific guidelines I should keep in mind?

    The laws governing the division of property vary depending on where you live. Lawyers use the state law, as well as the case law (decisions from cases decided by judges) as a guide to what would happen in your case should you end up in front of a judge. Based on that law, they have a pretty good idea of where the chips would fall if your case went to court. If your lawyer is doing the job, he or she will use that knowledge to work out a fair distribution of what you've acquired.

    Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington are known as community property states.Although community property&emdash;the idea that property acquired during the marriage belongs to both spouses equally—is based on the theory that marriage is a partnership, only three of the community property states, California, Louisiana, and New Mexico, require that property be divided equally upon divorce. The other community property states, like the rest of the states, use a system of equitable distribution—the division of assets based on what is fair.

    How can I ensure that the assets will be divided fairly?

    Just what is fair? The law may direct judges to consider several different factors when dividing up property. In some states, there is a presumption of equality—in other words, if you want more than 50 percent, you have to prove you're entitled to it.

    In other states, the court weighs the factors without any presumptions.

    What are the factors a court might consider in deciding how to distribute your money and goods? They vary, but in general, important factors include the length of your marriage, the nature of the property, the responsibilities each of you had in the marriage, whether you have children and who they are going to live with, your health, your education, and your noneconomic contribution to the marriage. In a long marriage, the likelihood of a 50-50 division of assets is much stronger than in a short one.

    One doctor friend of ours was married for just two years and had no children. His income was easily $200,000 a year. Although his wife had no career and no apparent means of support, the court awarded her a six-month period to get on her feet and ordered that the family condo—acquired during the marriage—be sold, with the assets split. The wife received a Lexus, the family car.

    Of course, this was a relatively simple case. The rules and guidelines are not always clear-cut. What about property you had before you got married, but which increased in value during the marriage? You need to talk to your attorney. Depending on where you live and what was done to make the property increase in value, part, or even all, of the property might be subject to distribution.

    If it sounds frightening, it's not. Either your case is complicated enough for you to need the help of your attorney, or it's simple enough for you to work out the division of assets yourself.

    How can we divide our assets without a legal tribunal?

    Depending on what you have accumulated, the job can be easy. You can, for instance, go around the house and simply take turns choosing what you want. Whoever chooses first during the first round will choose second during the second round and so on. This worked quite well for a friend of ours until her husband went up to the attic and selected an antique lamp she'd quite forgotten. She swallowed her protest and went on with the process, and she's glad she did. This game of round robin may sound childish, but don't worry. If you can get it to work for you, go for it! It's better than paying your lawyers hundreds of dollars an hour to do the same thing.

    Many people divide furnishings and other items in the home, including collectibles, by listing all relevant items and then taking turns choosing items off the list. Whether you choose from a list or from items lining the basement floor, the key to success is establishing ground rules. If sets (sterling, bedroom, dining room) are not to be broken up, for instance, then you might decide to allow each person to choose three items per turn, not one. Take the list and write each person's name after chosen items. Then, when it's time for one or both of you to move out, each one just receives the items allocated on the list.

    How do you begin to work it out without a legal staff? The first step is a detailed list of the elements you will need to work through.

    Your master list must seek to include all the assets you have accumulated during the course of your marriage. Include the date the asset was acquired; (if you can't remember but you know it was acquired during the marriage, that's good enough). Make sure to note the cost (if you can recall) and what you think it's worth now. Also note to whom it belongs—you, your spouse, or both. Remember, even if one spouse bought it, if it was bought during the marriage, from a marital viewpoint, it probably belongs to both of you, unless it was acquired with funds that are not joint property.

    Next, you must divide those assets whose ownership is relatively clear-cut. Generally, the easiest thing to divide is the cash. Before you try to divide savings, figure out what will be needed to run the house for the next several months and set aside any sums needed beyond that which comes from income. For example, if one of you is going to move out, money will be needed for the move. If you plan to maintain two homes rather than one, extra cash will be required there. After you've accounted for this type of expense, you should be able to divide the remaining cash 50-50.

    In the wake of divorce, many people like to start from scratch and leave the furniture. Our friend Lisa, for instance, did not take a single sheet or towel from the family home following her divorce. Her sudden liberation signaled, for her, a chance to reinvent herself. All her new possessions, in the context of her new life, became symbols of her personal growth as well as her release from marital pain.

    Yet for others, the possessions represent luxury and comfort—association with a former spouse presents no problem at all. Fortunately, for those who are amicable, dividing the furniture and cars should present little problem. Just set values for your belongings, and then divide them according to value. If one item, say the car, is worth more than all the furniture, the spouse who keeps the car will have to pay the difference.

    What is the best way to deal with the family home?

    You and your spouse can, if you're so inclined, work together to deal with the house. You will, of course, need to have the house appraised. You can each hire a real-estate appraiser to value the house, and then take the average of the two values. Or, if you both trust and like the same person, you can save money and hire one person. Some couples each choose an appraiser, and ask the appraisers to choose a third appraiser, who's valuation will be binding.

    You have to subtract the mortgage from the value of the house, of course, to figure out what your home is worth. When you have that number, what then? You need to make some decisions.

    Do you, as a divorced couple, want to continue to carry the house—and can you afford to? If the answer to both of these questions is "yes," you will have many issues to resolve; but at least in terms of the house, you are set.

    If you cannot or will not carry the house, you will have to make the difficult decision to sell. Before you place your home on the market, however, consider these relevant points:

    • Will my spouse or I be able to find comparable or sufficient housing at a lower monthly cost? Remember, mortgage payments are tax-deductible, and rent is not. You may be better off paying a higher monthly mortgage than a slightly lower rent. However, when insurance and taxes are figured in, renting might be cheaper.
    • Are we selling at a loss because of the divorce? If we hold onto the house a year or two longer, might we do much better?
    • Does the house require significant work? Will a renovation make it more marketable, and if so, do we have the funds to pay for the work? If not, you may decide to hold onto the house for now—even if you rent it to someone else—and sell up the road.
    • Will a move be so disruptive to the children that holding onto the house becomes an option, even in the face of financial sacrifice?
    • Are you or your spouse close to age 55, so that you can shelter part of the gain upon sale? If you are close to the age when the IRS lets you shelter a chunk of the gain, you might want to wait before selling your home. Consult with your accountant. In general, you must have lived in the home for three of the last five years, and there is only one deduction per couple. You should seriously consider divorcing before escrow closes so that each spouse can have the $125,000 deduction. Once used, it is forever lost, even if one spouse is not yet age 55.
    • Do you plan to buy a replacement house? If so, make sure that you buy the new house soon enough to "roll over" the gain from the sale of the house to your new home. Again, check with your accountant. Sometimes a couple moves and sells the house three or more years afterwards, only to discover they've been out of the house too long to reap significant tax savings on the capital gains. Check with your accountant.
    • Will the spouse who's moving out be willing to keep his or her name on the mortgage? Unless you refinance the house, both of your names will probably have to remain on the mortgage if one of you retains use of the house. If the spouse who is moving out is not willing to keep his or her name on the mortgage, and you cannot refinance, you may have to sell.

    If you've decided to hold on to the house, meanwhile, how does that work? Say that you've decided to hold on to the house until your youngest child turns 19 and has been out for a year. How, then, will you share in the profit? Because you and your spouse are working this out (rather than letting a judge decide for you), you can make whatever arrangements you both agree to, but here are some ideas:

    • The spouse who pays the mortgage from the time of the divorce until the house is sold should probably get a credit from the net sale proceeds (gross proceeds less outstanding mortgage, broker's fees, and so on) to the extent the principal of the mortgage was reduced while he/she lived there and paid the mortgage. In the best of all possible worlds, that spouse would also get credit for any improvements made to the house during his or her solo tenure there. The rest of the net proceeds would then be split 50-50. By the same token, the cost of improvements to the home over a minimal amount (say $300) could be shared. But watch out for disputes over whether the repair is needed.
    • Consider agreeing that if the remaining spouse remarries, or has a significant other move into the house, the sale provisions which were going to go into effect when the youngest child turned 19 (or 21, whatever you have agreed) apply after the move or remarriage. For some, having a stranger move into "his" or "her" house is too much to bear.
    • If your spouse is paying the mortgage with support from you, it might be fairer to simply agree to divide the net proceeds with no credit for mortgage payments.
    • Decide now how you're going to handle the sale of the house when the time comes. How will you choose the list price and sales price? You might each choose your own real-estate agent and then settle on the average of the prices they recommend, or you might have your respective agents choose a third agent, unknown to either of you, who will set the listing and sales price.
    And now is the time to consider such strategies as dropping the price by a certain percentage if the house is not sold within a certain number of months from when it is first listed. You can set the percentage now, or leave the final figure to the discretion of the agent who handles the sale.

    Even if the sale of the house seems far in the future, you might also take the time, now, to devise a "first option," which means that the spouse who stays in the house has the first right to match a bona fide offer on the house and "buy out" the other spouse. If that spouse passes on the right to buy, the spouse who didn't stay in the house then has the same right to buy out the other. (You can also reverse who gets the first option.)

    Finally, anyone who's bought or sold real estate understands that the taxes saved or incurred with such a sale can be enormous. Therefore, it goes without saying that if you plan to keep the house "in the family" after the split, you should consult a tax attorney or accountant about the ramifications of leaving your name on the house deed even though you yourself will be gone. The last thing you want to discover, 20 years down the road, is that you're liable for taxes you never dreamed of.

    Now is the time to decide how the tax on the profits, if any, will be shared. Fifty-fifty? In the same proportion as the proceeds of the sale? Remember, one of you may be getting a larger share of the net proceeds because that individual made the mortgage payments. That person might then have to bear a larger share of the taxes as well.

    And remember, when negotiating over the house, to give credit where credit is due. If the person who keeps the car has not paid the other spouse for half the value of the car at the time of the split, it's reasonable to post that sum as a credit against the car keeper's share of the house.

    Do put everything in writing. Ask a lawyer how your signatures should appear to make the agreement legally binding. (Do you need witnesses? Should your signatures be notarized? Find out now or be sorry later.)

    Remember, if you can agree to agree with your spouse, you can create ground rules that work for both of you. Perhaps you want to agree to a credit equal to only a percentage of the amount of the mortgage paid off? After all, whoever stayed in the house had the benefit of its use. Maybe you want to wait until the youngest child turns 21 before selling the house. Whatever the two of you agree on is okay.

    What if I must sell my house to make ends meet?

    If your living situation and financial status have changed for the worse because of your divorce, you might consider liquidating some assets or selling the house that was awarded to you to help with your cash flow. Before you make this decision, speak with your accountant or a financial planner.

    Many factors should be considered if you are thinking about selling your house. Your house is an asset as well as a home. If you have children, their emotional needs have to be considered. At this time of turmoil and change in their lives, the house should not be sold for a few years, if possible. If you receive the house through a divorce settlement or judge's decree while your spouse gets the liquid assets, think carefully about whether you have enough cash to live comfortably in the house or whether you should move into less expensive living quarters. If the monthly payments on the house are small, you might as well stay where you are.

    The law holds that once in your life you may sell a residence and not pay capital gains tax on up to $125,000 of the profit, providing you are 55 years of age or older. So, if you are 53 years old, it's better to keep the house for two more years to get this tax break. Caveat: You must have lived in the house for the previous three out of five years to qualify. Check with your accountant!

    What do I need to be on the lookout for when dividing the family business?

    One of the potentially most contentious tasks facing the divorcing couple is dividing the family business. Some avoid conflict by trading the business for the house—whoever gets the business gives the house lock, stock, and barrel to the other spouse.

    But this strategy is not always fair. The only way to know for sure is to have a reputable business appraiser value the business. More expense, but probably well worth it.

    Depending what the appraiser says, it may be fine to trade the house for the business. But what if the business is worth a lot more than the house? What if the appraiser can't figure out what the business is worth because your soon-to-be ex won't provide access to the ledger?

    If your spouse won't cooperate with the appraiser, you need a judge's help. You may have to hire a lawyer who will then ask the judge to order your spouse to cooperate.

    But if cooperation is in the air—and if the business is worth more than the house—the two of you can agree on a financial settlement to compensate the partner who walks away from the business. Of course, such calculations are complex, and you will probably want to engage a lawyer to help you determine the exact amount to be paid over what time frame and at what rate of interest.

    A word to the wise: Make sure that you consult a lawyer before trading the right to stay in the house for ownership of the family business. Sometimes the math involved here is simply too complex for ordinary mortals, and an accountant or tax attorney must be called to the scene.

    I have a tentative settlement, but am I missing anything in the fine print?

    Make sure, when dividing the spoils of a life spent together, that you account for all the financial elements, including pension funds, taxes, and debt. In some states, pensions can be divided between you and your spouse, even though only one of you earned it. (Remember, marriage is viewed as a partnership in most states.) Check with an attorney about this tricky area. Pensions are often divided 50-50 from the date of your marriage until the date you separated, started a divorce action, or actually became divorced.

    Taxes are a joint responsibility as well. It's fair for spouses to agree that if past filed joint tax returns are audited, and if there is a deficiency, the spouse whose income (or failure to report income or aggressive deduction) caused the trouble pays the tax debt. If it is impossible to figure out who's to blame, you should each pay half the debt. While the spouse who didn't work may be appalled at this idea, the truth is you both enjoyed the money when it was earned, and you were also responsible for paying Uncle Sam.

    Debt is a joint burden as well. Remember the game of hot potato? You might feel like you're playing it again when it comes to determining who walks away from the marriage with the debt. Many people think that just because their spouse paid the bills during the marriage, he or she will continue in that obligation after divorce. Nothing could be farther from the truth. Judges will divide debt just as they divide assets. And although the lion's share of the debt may go to the spouse with the significantly larger income, an individual who has managed to avoid paying bills during marriage can be saddled with large loan payments after divorce, providing that individual has the income or assets to pay up.

    Therefore, it's imperative that you subtract debt from savings before you divide stocks, bonds, or cash. If the debt is larger than the savings or you don't want to deplete savings, you still need to divide the debt. You can divide it any way that seems fair. If one of you overspent against the wishes of the other (maybe that's part of the reason you're divorcing), it might be fair for the spender to pay the debt, unless he/she spent the money for the family, in which case a 50-50 division of debt might be fairer.

    To protect your interests and arrive at a fair solution, make a list of your debt, when it was incurred, who incurred it, and why. Write down the monthly payment due, and then figure out who should and can pay it. If all else fails, ask for legal advice on this issue. It will cost you money, but it might save you money, too.

    Remember, the law views your marriage as a partnership. If your spouse worked while you were busy at home tending to child care and other domestic issues, you deserve to share in what your spouse acquired.

    What is maintenance and when is it appropriate?

    Long after the ink is dry on your Judgment of Divorce, you may still be writing checks to your ex. Whether your state calls the payments alimony, support, or maintenance, you call it blood money. Is there any end in sight?

    Or maybe the payments haven't begun. In fact, you're not even divorced yet, but you want some idea of what this breakup is going to cost you. Or perhaps you need to know how much money you can expect to receive so that you can start to rebuild your life.

    Whatever your situation, you must first understand the maintenance basics—what maintenance is exactly, when it is appropriate, and how customary guidelines will determine what happens to you.

    In a nutshell, maintenance is financial support that one spouse provides to the other in the event of divorce. Maintenance is determined, in large measure, by the laws of the state where you live. Some basic rules, however, are virtually universal:

    • A wife can pay her husband alimony and vice versa. Gone are the days when only husbands paid wives support.
    • Most payments stop when the recipient remarries or dies, although there can be cases where payments are "for life."
    • Although you can negotiate otherwise, the payments are usually tax-deductible to the person who pays them and considered taxable income by the recipient. Stated another way, what you receive may be reduced by virtue of taxes, whereas your payments may cost you less when the tax-deduction is figured in.

    The basic rule is simple: The breadwinner spouse pays, and the nonbreadwinner cashes the checks. If you both worked or both have the ability to work and could easily get jobs, the chances are good that neither of you will have to pay the other.

    In one case we've followed, a couple, a doctor and lawyer, were divorcing. The lawyer was a partner at a large law firm, and his wife worked in the emergency room at the local hospital two days a week for $1,000 a day. Neither had to pay spousal support to the other.

    Child support is a different matter. The doctor-wife had custody of the parties' two children, and she was entitled to support from her husband for the children. Most states have a system whereby child support is determined based on a percentage of the parents' income and the number of children, or upon the children's needs, or a combination of the two. Check with your lawyer.

    How will I know how much maintenance I should expect to pay or collect?

    There are specific guidelines. In general, courts look at the following factors to determine the size of the support check. It follows, of course, that lawyers who try to settle a case out of court (or you and your spouse if you're trying to do it yourselves) need to look at these factors, too:

    • Your income. Is there sufficient money to enable both of you to enjoy the kind of lifestyle you once had, or are you both going to have to cut back?
    • The length of the marriage. The longer the marriage, the stronger the claim for support.
    • Your ages. Younger people are thought to be better able to find work. Older people nearing retirement might be unable to pay support for a long period of time.
    • Your health. Is one of you ill and unable to work? That could affect how much will be paid and how long it will be paid.
    • Job sacrifices you made during the marriage. Did you give up a good position because your spouse had to relocate for her job? Maybe you never used your degree because you worked as a bookkeeper in your husband's business? Whether your sacrifice was obvious or more subtle, it could impact the duration of your support award.
    • Education and job skills. The easier it will be for you to find work, the shorter the duration of your support.
    • Who the children are going to live with. If they're going to live with you and that shortens the time you can spend working each day, you may be entitled to more support than if the children were living with your spouse, or if you had no children.
    • Independent income sources. Maybe you have a trust or other source of income. You never touched it during the marriage because you planned to leave it all to your children. But now, its existence could affect the amount of support you'll receive or have to pay.
    • Distribution of other assets. If you and your spouse accumulated a lot during the marriage and that is going to be split, you may not be entitled to maintenance at all. Let's say that your wife built up her medical practice while you were married, and now she has to pay you half its value of $350,000. Depending on where you live, the receipt of that lump sum could reduce additional support payments.
    • Marital fault. In some jurisdictions, the reason for the break up of your marriage could have an impact on the duration and amount of support.
    • The tax implications of the payment. If you have to pay taxes on what you receive, you may need a larger amount than if you do not have to pay taxes on the payment.
    • The past standard of living, assuming that it was based on fully reported income. In some states, the idea of maintaining the same lifestyle is part of the statute and is a goal, although it is not often reached.

    Judges and lawyers look at these factors to determine how much maintenance one of you should pay the other. The single most important factor, is, of course, how much money there is to go around.

    I have become accustomed to living in a certain style during my marriage. Can I assume that the divorce settlement will enable me to continue living just that way?

    We've all heard the notion, bandied about on TV and in the movies, that maintenance should enable the receiving spouse to continue to live "in the style to which he or she has become accustomed." Well, forget it! The idea is nothing more than a fabrication of Hollywood and a self-indulgent turn of phrase.

    The expression sounds nice, but you'll that note it doesn't make it into the top 12 list above. Though many vital factors figure into the award, the "style to which you have become accustomed" doesn't weigh that heavily. In almost all cases, that style was based on an intact family unit no longer a reality. (And sorry to say, in too many cases, luxurious lifestyles are fueled by a failure to pay appropriate taxes or "loans from the family store." Such dirty little secrets often come to light during a divorce action, limiting the available funds for all.

    It is, in short, impossible to state any rule about how much you should expect to pay or receive. Unless you are wealthy, you should expect to have to cut back, be forced to make and stick to a budget, and consider going to work or working more.

    How can I negotiate the maintenance settlement to my advantage?

    When negotiating for maintenance, be sure to look at the big picture. For instance, Ann Parsons did not want to sell her house under any circumstances. Her lawyer told her that if her case were decided by a judge, the judge would order the house sold and would order her husband to pay her support. Ann's husband had a checkered job history, though he was well-paid when he did work. Ann decided that rather than take any support, she would keep the house. She could earn some money on the side and get by.

    It wouldn't have been the right deal for everyone, but for her, it was. She decided what she really wanted and looked at the big picture. She couldn't rely on her husband to pay her support, and the house would give her income when and if she was ever ready to sell it.

    All situations are different, of course, and negotiating the terms of maintenance will vary from one couple to the next. However, as you go about cutting your own deal, make sure to follow these general guidelines:

    1. The deft negotiator will first figure out what he or she really wants and will cast a cold eye on the reality of the situation. Do you want to stay home with the kids or to go back to work? Do you want the house or the cash you would receive upon its sale? Will your spouse be responsible enough to meet his or her obligations? Don't hold out for promises you know your spouse probably will not live up to.
    2. If you've decided you want support above all else, you must determine your expenses, including recurring expenses and one-time costs due to the divorce. Will you have to move and have cable, telephone, and electricity installed? Or are you staying put, but in need of some replacement furniture?

      Make a detailed list of these one-time and recurring expenses. Then make a list of all sources of income and savings. Try using checks and credit card bills for twelve months and get an average of your monthly expenses. You should, by the way, come to terms with the fact that you may need to use some of the savings for your one-time expenses.

      After you determine the monthly expenses, calculate your shortfall. Is the shortfall a sum you can realistically expect to receive from your spouse? If so, great. (Remember, you may have to pay taxes on the money, so you may need more than the number you've come up with.)

      If you know your spouse can't pay that much, look at your list again. Is there any place where you can compromise? Is there any way you can add to your income?

    3. You don't need to be Donald Trump to know that, when making a deal, you never present your bottom-line figure right away. We know that you've played enough mind games with your spouse to last you a lifetime, but you must play one more time to get a fair shake, and that time is now. Start high (or low if you're the one who has to pay) and gradually move down (or up).

    4. If you're the spouse who's going to pay, avoid a deal that requires you to reveal your income every year. It's pretty common for a deal to include an increase if the paying spouse's income goes up, but if that's you, do you really want to have to reveal your income to your ex every year? You're better off using a set increase, such as a percentage of the current amount of support or an increase equal to the annual increase in the cost of living where you live. (The downside of this approach, of course, is that if your income does not go up, you'll still have to pay the increase.)
    5. If you're the spouse who is to receive the support, ask that you not be held responsible for paying taxes on it. If you're paying the support, say that you want the tax deduction. (Maybe you can compromise on this point by agreeing that each of you will take one of the children as dependents.) Remember the general rule: Spousal support is usually taxed to the person who receives it unless you agree otherwise.
    6. Make sure that the duration of the support depends on a fixed event if you're the spouse making the payments. "Payments until my wife graduates from college" is not such a good idea because she may never do that. "Payment for five years" is much better.
    7. Make sure that you can afford to pay or accept what you're about to agree to. However guilty, angry, or in love with someone else you might be, do not agree to something you cannot afford.
    8. Consider using a lawyer to negotiate support. Even if you and your spouse have worked out everything, this area is usually so fraught with emotion that it is not a bad idea to let someone else handle it.

    One last tip: Make sure that spousal support payments are not crafted to end when a child comes of age. In general, the Internal Revenue Service will view such payments as disguised child support and may disallow the tax deduction for them. (That is because child support is not tax deductible to the paying spouse, and the recipient spouse does not have to include that money in income.) Although this may be good for the recipient (who now won't be taxed on the support), it is bad for the paying partner (who will now be unable to deduct the payments from his/her income), and it can wreak havoc on a deal. In addition, remixing the agreement can present a very difficult problem because the IRS may go back to recharacterize what is taxable and what is not taxable. Presumably, the receiving spouse has been paying the taxes. You will now have to amend and seek a refund. It is better to draft your agreement correctly the first time and stay away from contingencies which reduce support at or about an event concerning the child such as, for example, reaching the age of 18.

    How will changes in life circumstances impact what I can expect to pay or receive for support?

    We all know that life is a roller coaster. If there's any evidence of this hard and fast rule, it's your divorce itself. One moment you're flying high, on top of the world; the next your world has been shattered to a thousand bits. It takes just a second for someone to be killed in a car or plane crash or to die of heart attack or stroke. Economies can crumble; companies can fold; real estate values can soar or plummet based on world events or the fates. You know the old truism: Nothing is certain save for death and taxes. You can count on it.

    This is one reason why it may be best for you to see a judge when negotiating support. In general, if a judge decides your case, you will have an easier time changing a support award than if you and your spouse sign off on the payment in a separate agreement.

    Why is that? When you sign an agreement, judges assume that you thought of all the possible things that may happen in the future and that you accounted for them in the agreement. For example, if you were to pay support at the rate of $300 a week for five years, the agreement could have provided that if you lost your job, you would no longer have to make payments. If you didn't provide for that and you do lose your job, you can ask a judge to allow you to stop making the payments; but the judge may point out that you had your chance to include that in the agreement and now it's just too late.

    When a judge decides your case after a trial, on the other hand, he or she does not account for future possibilities. The decision is based solely upon what the judge has heard in court. Therefore, if you or your spouse lose a job some years down the road, you'll have an easier time convincing the judge to make a change than if you had signed an agreement.

    Bottom line? Make sure that you account for all possibilities when you sign an agreement, and always consult with an attorney.

    What is child support?

    If you are the noncustodial parent, you will be expected to contribute to the children's economics needs. This money, paid to the custodial parent on behalf of the children, is child support.

    "Why can't I pay child support directly to my child—or at least set up an account so I know the money is being used for the kids? After all, isn't my spouse really the one benefiting from the child support?"

    Child support comes in two varieties—direct and indirect. When the noncustodial parent sends money directly to the custodial parent on a regular basis—every week, every other week, or every month—the child support is "direct."

    "Indirect" child support, on the other hand, involves payments made to third parties for expenses like school tuition, camp, lessons, after-school activities, and health care costs.

    If you are the custodial parent, you may wonder whether you're better off receiving a larger amount of direct support and paying the third parties yourself, or letting your former spouse make those payments and getting less direct support. Conceptually, it is nearly always better for the custodial parent to receive sufficient funds from the non-custodial parent to pay tuition, school activities or camp. It is more than simply the money; it is a question of control. So long as the former spouse is in control of the money, doling it out when he or she decides to do so , the custodial parent will be unable to get on with his or her new life.

    The truth is, your ex is benefiting, to a degree, from support paid to him or her for your children. If your former spouse pays the rent with child support, of course he or she is also benefiting. The same goes for the phone, electricity, and cable TV, even food. Let's face it, your ex isn't going to buy steak for the kids and hamburger for himself or herself.

    You still need to provide child support such that your children can live in approximately the same style as you. It is morally just, and it is the law.

    When children spend equal amounts of time with each parent, how is child support affected?

    In this case, each of you will be responsible for those expenses incurred while the child is with you. However, you still have to work out how to pay for other costs, such as clothing (there's no point in having two entire wardrobes) or education. If your incomes are about the same, those expenses can be split. If there is a disparity in your incomes, the expenses can be divided according to the percent of the total each one earns.

    For example, if your combined income is $100,000, and you earn $40,000 while your former spouse earns $60,000, the $1,000 tuition payment would be split 40/60.

    Obviously, this kind of expense sharing takes a lot of goodwill and planning, but so does negotiating an arrangement whereby the children spend equal amounts of time with each of you. If you can't work it out and a judge has to decide this issue, it is unlikely he or she will agree to a 50/50 living arrangement for the children, nor will the judge allow you to decide how the expenses should be divided.

    Is there a formula for child support?

    Every state has its own formula for deriving child support. Each state also has exceptions to the formula and exceptions to the exceptions, so it is critical to check the law of your state before you make a deal.

    Usually, the formulas are based on the ratio of the parties' incomes, though the definition of income varies by state. Income can be defined in the very broadest way—to include not only wages, but also assets like stocks or a pension or regular, annual gifts from family members—or it can be defined in a narrow way, limited only to earned income.

    The law usually provides for deductions to be taken from the income, and those deductions vary from state to state, too. Federal, state, and local taxes and payments already being made on behalf of other children from prior relationships are among the common deductions.

    A percentage of your share of what's left then becomes your annual child support obligation. Different states use different percentages, and the percentage usually increases depending on the number of children you have.

    In some states, a ceiling is placed on the income used to calculate child support, such as a combined parental income of $80,000. All income above $80,000 might be subject to a different percentage from the first $80,000 of income. Or, a cap might be put on the amount of income above the $80,000 for the purposes of calculating child support. Most states have developed a statutory formula which is used to calculate child support.

    Due to my personal circumstances, I cannot afford to pay the amount of child support stipulated by the formula. Is there any recourse?

    Of course, there are hardship provisions in the law. The standards vary from state to state, but the general idea is the same. If, for some reason, payment of child support based on the percentage would present a hardship, you may be able to get a variation from the formula.

    Although there are hardship provisions, judges are usually reluctant to lower the percentage unless the reason is very strong.

    George was paying the mortgage on the marital residence to keep it from foreclosure. His wife, Margaret, and son, Ben, lived there while he lived in a boarding house. He asked the judge to lower his child support payment because his income was too low to pay the mortgage and the court-ordered child support. The judge refused his request, and the family had to sell their home at a loss.

    Had George and Margaret been able to negotiate the child support during this time of decreased income for George, they might have been able to keep the house until they could sell it at market value.

    If you and your ex-spouse are on friendly terms and you have been laid off from your job or have had a reduction in your pay, the first person to talk to is your former spouse. If you're lucky, she or he will be willing to reduce the amount of child support for a period of time until you get back on your feet, or make a trade, such as less child support now, but more later.

    If talking to your ex is not realistic and if a judge decided your case, you can appeal his or her decision. Consult with an attorney who is knowledgeable about how the appeals courts have ruled in such cases. In some jurisdictions, the higher courts tend to defer to the lower court in child support matters, on the theory that the lower court judge had the opportunity to observe you and your spouse in court and may have reached a decision based on what he or she saw. Stated more directly, if the judge thought you were lying about your income, the appeals court might be inclined to go along with that judge's decision.

    You can also return to court after a period of time—at least a year—if the situation has changed or if you were unable to prove something at trial that can be substantiated now. Peter testified that he could not afford the full percentage of child support because he suspected he was going to lose his job. The judge would not consider the possibility of Peter's losing his job as sufficient to warrant his paying a lower percentage of child support. Six months later, Peter did, in fact, lose his job. He went back to court and was able to get a reduction in his child support obligation.

    Is it in my best interest to settle child support payments out of court or to depend upon the decree of a judge?

    Now that most states have formulas for determining child support, there is little mystery about the outcome if you were to have a judge decide instead of settling out of court. If you are the custodial parent and your spouse is not willing to meet the state's guidelines during negotiation, why should you settle? Most of the time, of course, you shouldn't. But there are exceptions. The following are some important reasons for agreeing to less support than the state's guidelines might otherwise allow:

    • More certainty that you can collect the support. Most parents will pay what they can afford and especially what they have agreed to pay. In contrast, when they fall hopelessly behind or a judge orders them to pay more than they can afford, they often default, and it's a lot harder to collect.
    • Add-ons. If you agree to a child support figure that is less than the formula, you may be able to get your spouse to add on other items. Maybe the law of your state doesn't obligate a parent to pay for after-school activities, camp, or even college. You might be willing to accept less child support than the formula provides if your spouse will pick up some of these items.
    • Ease of modification. If a judge decides your case and a year later your former spouse gets a big raise, you would have to go back to court to get an increase in child support, and you might not win. Also, you might have to pay legal fees. On the other hand, if you negotiate, you can include a provision in your agreement that obligates your spouse to increase the child support if he or she gets a raise. You've saved yourself legal fees and headaches. It may be worth it to take a little less than the formula for one or two years knowing you'll get an increase down the road without the hassle of returning to court.
    • Exception to the formula. Remember, there are usually hardship provisions to the law that make the formula inapplicable. If your spouse demonstrates to a judge that hardships exist, the judge may not apply the formula. If that situation is a possibility for you, negotiation might be in your best interest.

    Likewise, if you are the noncustodial parent, negotiating might be best for you because:

    • Your spouse might agree to less than the guidelines allow.
    • You have more say over what your financial needs are and can try to tailor the agreement to your situation.
    • You can modify the agreement to state that if your income decreases by a certain amount, your child support payments can be reduced accordingly.

    How can I determine child support without relying on my state's formula?

    To ascertain a fair amount of child support without using your state's formula, it is best to figure out a monthly budget for the children. Household expenses, such as rent, food, mortgage, and utilities can be allocated one-half to the children, one-half to the parent, or allocated one part each among all the children in the household and the parent. Clothing costs for the year should be added up and divided by 12, as should camp, extracurricular activities, birthday party gifts, and similar items that are paid only once or twice a year.

    Once you and your spouse have worked out a budget, you can determine the total contribution for each of you. There should, of course, be a mechanism for calculating cost-of-living increases this payment into the future. You can base your formula on the cost-of-living increase as determined by your state's Department of Agriculture or other indices, or, if you prefer, you can base it on increases in your incomes. Because most people prefer not to reveal income each year, most people base such payment increases on outside, objective criteria.

    What is the duration of child support?

    Child support should terminate at the age your child is considered emancipated under your state's laws. In some states, that means age 18; in others, age 21.

    Other events can terminate child support as well: the child's entry into the military or assumption of full-time employment, or marriage before the age of emancipation. If the child moves in with the noncustodial parent on a permanent basis, child support should stop. (You may want to negotiate a sum the former custodial parent will have to pay in that case.)

    In some states, your child's right to obtain support from you continues after your death; that is, your estate is liable for the court-ordered payments made before your death. Your estate becomes a party in the action where your support obligation was ordered and it can be enforced or modified just as it could have been before your death. In some jurisdictions, it is insufficient that you and your spouse agree to a modification of child support. Your must go to court to obtain an order modifying the amount of support. Otherwise, your support obligation continues to accrue and is enforceable as any other judgment, even though your child may be living with you. Get an order modifying support even if you and your spouse have agreed.

    If you and your spouse agree, child support can extend beyond the age of emancipation. For example, if in your state the emancipation age is 18, but you want your spouse to continue to pay child support until your child graduates from college, you would try to negotiate a provision stating that child support continue for as long as the child is a full-time undergraduate student, but in no event beyond the age of 21.

    How will child support affect my taxes?

    Absolutely not, unless you and your spouse agree otherwise and write that into the settlement agreement. Therefore, under most circumstances, you will have to earn, on average, from $115 to $140 (depending on your tax bracket) to be able to pay $100 in child support. By the same token, the parent who receives child support does not have to pay taxes on it, so he or she is getting the full amount paid.

    Is there anything I should be on the lookout for when negotiating child support?

    If your child support agreement includes a mechanism to increase child support without returning to court, consider a similar mechanism to decrease child support in the event of a financial setback, such as a job loss or a reduction in income of, for example, 25 percent or greater.

    If you are the parent paying child support, you might want a provision that reduces it by, say, a third or half, when the children are in camp or away at college, particularly if you are also contributing to camp or college. Why not a 100 percent reduction? Your former spouse still has to maintain the home for your child after camp or during college vacations, assuming that your state is one of the few in which the age of majority is 21.

    Also make sure that you take as much as possible into account. Of course, if your child is a toddler, it's difficult to think about what college will cost or who will pay for it years down the road. If a judge is going to try your case and you have young children, you'll probably have to return to court when the child is a junior or senior in high school to have the judge address the issue of who will pay for college. If you want to settle all the issues now, however, a provision that often works is this: You and your spouse simply agree, now, to pay half of what it would cost to send your child to the most expensive school in your state's college system. Any excess amounts (say your child gets into Harvard) will be paid by the parent or parents who can afford it. This way, both parents have a minimum obligation.

    What about the Bar Mitzvah, the First Communion, the sweet-16 party, the first car? If your case goes to court, judges may not wish to address those types of expenses at that time. But if you are negotiating an agreement, anything goes.

    If you want to be ready for anything, you may want to figure some of the following expenses into your agreement now: baby-sitter and day care; birthday parties; camp; first communion; Bar and Bat Mitzvah; Sweet 16-party; application fees for colleges; travel costs to visit prospective colleges; SAT, Achievement test fees, and tutoring costs; orthodontia; psychotherapy; after-school activities; sports activities, uniforms, equipment, and fees; Boy Scouts or Girl Scouts; car and driving lessons; and, of course, a wedding.

    Wait a minute, you might be thinking, if all those items are extras, what am I paying child support for? Answer: Food, shelter, clothing, telephone, utilities, and so on. Of course, depending on the amount of child support you are paying, your spouse may have to use some of the support for these extras.

    Do be careful. Anything you sign may come back to haunt you. Harvey, for instance, felt so guilty about leaving his wife, Jessie, that he agreed to pay for each of their four daughters' weddings at the Waldorf Astoria, or someplace comparable. The daughters were only teenagers at the time. Unfortunately, Harvey's business took a turn for the worse. Although he could not afford the expensive weddings, he was obligated to pay for them.

    My ex is in default with his or her child support payments. What is my recourse?

    Each state has its own enforcement procedures, so it's best to consult with an attorney about how to enforce your award. In some states, all you or your attorney need do is notify your former spouse that you intend to have his or her wages garnished and then proceed by filing the required notice with his or her employer.

    Garnishment means that the child support will go directly from your ex-spouse's employer to you, but there are usually limits on how much can be garnished per paycheck, and those limits might be less than the amount you're supposed to receive. It is important to seek legal advice about how to proceed because a mistake may mean that you have to negotiate the child support payments all over again, and collection will be delayed. What's more, you'll need legal help in collecting amounts above and beyond what may be garnished.

    Usually, when your ex is in default and you have collected all you can through garnishment, you will have to go to court to ask the judge for a money judgment. Then you have to try to collect against your former spouse's assets, such as a bank account.

    In 1992, the federal government passed the Child Support Recovery Act. That law punishes people who willfully fail to pay a past-due support obligation to a child who resides in another state. A judge can fine and/or imprison (for up to six months) first-time offenders. Repeat offenders can be fined and/or imprisoned for up to two years.

    The law does have teeth, but with these caveats:

    • Your ex-spouse and your child cannot be in the same state. If they are, the law does not apply to you.
    • A judge must determine the amount of child support due. The law does not apply if you have not been before a judge who decided how much is due.
    • If the amount due is $5,000 or less, your former spouse must have owed it for more than a year for the law to apply.
    • If the amount due is more than $5,000, there is no minimum time period.
    • Your spouse's failure to pay must be "willful." If he or she can show that circumstances made it difficult or impossible to pay, the law might not apply.

    This law is rather new, but is gaining in popularity and publicity as the crackdown against "deadbeat" parents grows. It remains to be seen, however, whether it will be a cost-efficient way for parents to collect child support.

    My ex-spouse has married into wealth. Does this mean my child support payments can be reduced?

    Even if your ex-spouse remarries into wealth, most courts will not require the stepparent to shoulder the expenses for someone else's child. However, if there is a gross disparity between your income and your spouse's resources—including those derived from the new spouse—you may be able to get a reduction, particularly if you can show that your ex has access to the money or is living with the children in a lavish lifestyle.

    The child support I am receiving no longer pays for my child's food, let alone clothing, shelter, and after-school activities? Do we have any recourse?

    See an attorney. Your ability to up the payments depends, in large part, on whether a judge decided your case or you and your spouse negotiated the deal. In general, if a judge decided your case after a trial and you can show that your children's economic needs are not being met, you probably have a good chance of getting an increase. If you and your spouse negotiated your deal, it's harder to get a judge to change it, but not impossible if your children's reasonable economic needs are unmet.

    How can I accommodate my child's health and insurance needs in a child support settlement?

    If a judge is trying your case, health insurance will be one of the items he or she will direct you or your spouse to maintain. If you are negotiating a settlement, here are some things to consider:

    • If you have health insurance through your employer, keep your children covered. If neither you nor your spouse has health insurance through an employer, try to agree to allocate the cost of the premiums between you.
    • Be sure to allocate the uninsured health care costs. Allocation can be in the same proportion that your individual incomes bear to your total income. If one of you is not working, then the other should pay all these costs.

    A problem often arises when one spouse pays health care costs, and the other pockets the reimbursement. You can avoid this problem up front, in your settlement agreement: Simply ask that your spouse reimburse you within ten days of receipt of the doctor's bill, not when the insurance comes through. If you are not engaged in settlement discussions, ask the judge to include this time limit in her decision.

    If you and your spouse are negotiating, you should both agree to provide life insurance for the benefit of your children. The parent who is paying child support should provide enough to cover his or her support obligation, which means that each year, he or she can reduce the proceeds (remember, child support usually ends when the child turns 18 or 21). The amount should include the paying parent's share of college as well.

    The parent who is not paying child support should also maintain coverage, if he or she can afford to do so, to help with college.

    Who should the beneficiary of the life insurance be? There are two sensible solutions. If your children are young, name your former spouse as beneficiary and hope he or she will use the money to care for your child. If the children are older, you can make them the beneficiaries, but you still have to hope that the children are taken care of. You can, of course, name a relative, but we don't recommend that. Your ex-spouse may, justifiably, express doubt as to whether the relative will ever use the money for the children at all.

    For the very rich, trusts and trustees may be warranted. For the rest of us, just plain trust—in the other spouse—is best.

    I have never been financially independent. Now that I must go it alone, how can I prepare?

    As soon as you're faced with the prospect of going it alone financially, call your accountant, if you have one. Your accountant, who is familiar with your family's financial situation, is in the best position to help you develop a plan to get back on your feet.

    If you don't have an accountant or your accountant is no longer willing to work for you because he or she is working for your spouse, see the manager at your bank. Bank officers are very helpful. Don't overlook this important resource. They act as private financial consultants during a time when you can use all the support you can get.

    According to one New York bank manager, who has seen many people in the midst of divorce, the most uncertain people are often women whose spouses have been the sole providers while they have been caring for the children. They have been steeped in the joys and burdens of their children's lives and waited each evening for the 8:30 train to arrive to see their spouse for an hour or two before retiring.

    Even though they worked for a few years before having children, they have been out of the work force too long to reenter at the same level, or the work they used to do has changed dramatically. In most instances, these women are told , the most important first step is finding a means of earning money for themselves; in other words, they must find a job.

    It also behooves such individuals to build personal credit. The task is far easier, of course, for people who can show they have income, often by documenting a job.

    The credit issue is vital. These days, it seems, we can hardly exist in America unless we pull out a credit card to pay the tab. If you have been working all along, your credit rating will not be affected by your divorce. If you have been relying on your spouse's income, on the other hand, you will have to establish your own credit history. Although the prospect seems intimidating, it's not as formidable as it sounds.

    First, you must be able to identify your sources of income, including salary, interest, and, of course, maintenance. Because banks are seeking good credit risks, they will be looking not just at your income, but also at debts, credit history, collateral, and stability (how long you've been living in the same place). There's a formula to this, and it's not mysterious: If your income-to-debt ratio is 30 to 40 percent (you pay no more than 30 or 40 percent of your income to pay mortgage, car loans, and the like), banks will consider issuing you a bank credit card.

    If you don't have a viable, personal credit history, you can start to build one by shopping at stores that give instant credit; department stores, gas stations, and local stores are all good candidates. Begin by making small purchases on credit, and pay your bills promptly. Then get a Visa or MasterCard. Pay your debts on these cards right away, too. If you've done things right, you should have your own, positive credit history in about a year.

    How can I come to terms with my debt in the wake of my divorce?

    You and your spouse most likely have joint debts. These might include a tax debt, a mortgage, a car loan, and credit cards. If you are the nonmoneyed spouse, you may have your name on the mortgage or car loan statement anyway; this means you are in debt—even though you have no income to offset the debt.

    Third parties, such as the IRS and banks, don't care whether you are getting maintenance or child support. They don't care if you are divorced. They just care about the money you owe them and how they will get it back. They are not bound by the divorce settlement. They will hold both you and your spouse liable for payment.

    Jim, for instance, owned a construction company. One year, he hid income by simply not mentioning it on his income tax statement. His wife, June, was shocked to learn that the IRS held her as well as her husband liable for his income tax evasion. She was not protected by their divorce settlement because the income tax statement was filed jointly.

    Remember, you are responsible for all the joint credit card debt your spouse incurs as long as you're not divorced. Stephanie, knowing she was planning to leave her husband, went on a shopping spree before she lowered the boom. She racked up about $5,000 in purchases. Her husband had no recourse. He was liable for the debt as well.

    If you've been held responsible for a spouse's debt, you may seek recourse in the "Innocent Spouse Rule," a provision in the Internal Revenue Code. Under this rule, if you can show that you are completely ignorant of your spouse's wrong-doing, you may not be held liable. Check with your accountant to see if you fall into this category.

    Can you tell me something about techniques for holding onto money that should really be forked over in divorce?

    When it comes to money, greed is, unfortunately, a common trait. If someone has been planning a divorce for a while, and if that person is so constituted, he or she might devise numerous strategies for hiding money from a spouse and children. With the right legal help, however, wronged spouses can often come away with much of what is rightfully theirs.

    One underhanded technique to look out for is bankruptcy. As a strategy, it's more common than you might think: To avoid payment to an ex-, some people will go as far as declaring bankruptcy in the middle of their case. If this happens to you, you must hire a bankruptcy lawyer, who will ask the judge to exclude you from the list of "creditors" who will not be paid. The spouse declaring bankruptcy may find he or she has gained an advantage when it comes to distribution of your worldly goods; but if you take the action you should, maintenance and child support.

    You should also stay alert for illegal transfers. Another devious way the moneyed spouse might try to reduce the amount of assets declared during a divorce action is to transfer assets to a friend or family member. She will then claim that she no longer has these assets. The lawyer for the recipient spouse has to then prove that the transfer was made to deprive that spouse. If the transfer is about to happen, the recipient's lawyer can go to court to try to block the transfer. To substantiate this claim, the lawyer has to prove to the judge why he thinks the property is about to be transferred and what property or money is involved.

    Marion Dupont came from a wealthy family, who gave her several properties after she married Andrew Billings. After three years of marriage, Marion met a man with "more intelligence and energy than Andrew could ever hope to have." After she broke the news to Andrew and filed for divorce, she began transferring the titles of her property to her sister. Andrew was clever enough to suspect Marion would do something sneaky like this, so he hired a private investigator. The PI did his homework and was able to provide proof that Marion was in the process of transferring the titles. Andrew's lawyer then brought this to the attention of their judge and was able to block the transfer.

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