Staying Together

For many people, making their marriages work is one of life’s great challenges.
A recent article in the Wall Street Journal entitled, "The Divorcé's Guide to Marriage" included tips from a study of divorced persons who felt they had learned from their mistakes in marriage. The article gave 4 tips on the best ways to stay together:
1. Boost your spouse's mood.
2. Reveal more about yourself.
3. Talk more about money.
4. Get over the past.
As the article points out "this is advice learned the hard way."

This article was written by Phoebe P. Hall. Managing Partner/Attorney, Hall & Hall, PLC, 1401 Huguenot Road, Suite 100, Midlothian, VA 23113, and 4323 Cox Road, Suite 100, Glen Allen, VA 23060, Tel: (804) 897-1515, Fax (804) 897-2499

Marital Debt vs. Separate Debt

In our last blog, we talked about the nature of assets; and in fact, many separated spouses want to focus on division of assets.  But what about debt?

Prior to July 1, 2011 the Virginia Code did not specifically address the classification of debts as martial or separate as it defined the assets of the parties, and the presumption was that all debt acquired during the marriage was marital debt.

Beginning July 1, 2011, Section 20-107.3(A) specifically addresses the classification of debt and provides that the court must determine whether the debt is marital or separate, and provides the court with definitions of what those classifications are and the presumptions the Court must use when determining how the debt should be treated.  The statute now provides that the Court has the authority to find a debt separate debt, even if incurred during the marriage, if it can be proven that the debt was incurred for non-marital purposes. 

Debts that particularly can create areas for dispute and discussion include credit card debts, student loans and personal loans because often those funds are used for a variety of purposes compared to first mortgages or car loans whose purposes can sometimes be more clearly determined.

Liquidity in Equitable Distribution

If you are contemplating or if you have started the process of  separation or divorce, you may have heard the term equitable distribution.   Simply put, this term is the concept of how assets and liabilities will be apportioned.  In this blog, we want you to be aware that not all assets are the same.  Cash or funds from bank accounts  are the most liquid; they do not have tax consequences; what you see is what you get; you can get at them immediately.  A house, other the hand, that is sold will have proceeds reduced by commission, closing costs, etc.  A house that is transferred has other transactional costs and carries with it the cost basis so that when it is sold in the future, any tax consequences may be figured.   Compare those assets to stock or investment accounts that have capital gain taxes when the asset is sold for cash.  Retirement accounts such as IRAs and 401ks not only have tax consequences but also have restrictions as to when they can be taken out of the account without additional penalties.  When considering divisions of assets in a separation or divorce, understanding the nature of your assets is important so that apples are divided with apples or other considerations are made for an apple and orange exchange.

Options for the Marital Residence

For couples going through a separation or divorce, the marital residence and what happens to it can have big financial and emotional aspects to it.  Historically, there were three choices for a marital residence: (1) the Wife retains it and pays Husband for a share of the equity; (2) the Husband retains it and pays Wife for a share of the equity; or (3) it is sold.

Under options (1) or (2), it was customary for the retaining spouse to either to refinance the mortgage(s) or have a deed of assumption whereby the retaining spouse assumed the mortgage(s).  However, with the ever-changing requirements of the mortgage industry, more and more spouses are unable to meet the criteria in order to refinance or assume the mortgage.  They do not have sufficient liquid funds to pay an additional down payment where the house may be underwater; they do not have the requisite income; they have too much other debt, etc.

The previous option for spouses who were unable to refinance or assume the mortgages was to place the house on the market for sale and then divide the net proceeds.  Today, unfortunately, houses may have no equity, and/or the parties do not want to sell. 

For settlement purposes, spouses can discuss allowing one party to stay in the house and can make an agreement on how mortgages are paid and can make an agreement on how the other spouse gets paid for his/her share of equity.  If this is a course you are considering, it is important to consult with a family law attorney and a real estate attorney to make sure that the agreement is drafted in a manner to try to protect co-debtors of a note, to try to protect in the event of death, to try to protect against further judgments being secured by the house because once a divorce is entered, your rights in real estate can change.

There are many different opinions about if and when the real estate market will turn around and housing prices will increase. Making sure that you have set out a plan that takes into account a long term view is important and understanding the intentional and unintentional consequences of  your actions are essential.

Importance of Financial Planning

Most people enter into marriage with a strong sense of commitment, expecting that their marriage will last “until death us do part”.  Sometimes, however, despite their best intentions, a couple ends up in a separation or divorce.   Financial disagreement is a source of many separations and divorces.  One protection for the parties in a marriage is for each party to understand and know about the finances, keep their spending and debts under control, maximize their income, and plan for savings and investments.  Stay informed about what income is being brought into the household, what expenses are being incurred and what is being saved.  Communicate and try to reach a mutual understanding of your goals for today and tomorrow.

    Good financial planning is the key to your financial future; nowadays there are many resources on financial planning from basic budgeting to saving for college and retirement. Too often we see financial planning that is reactionary, triggered by divorce, a job change, children approaching college age, or the approach of retirement.  Don’t wait to do your planning until one of these events occurs if you want to be ahead of the game.

    People who work from a budget are more likely to manage their finances well than people who just spend what they feel they need to without regard to where the money will come from to pay their bills.  In separation and divorce, we frequently are faced with couples who were living beyond what their combined incomes could sustain during the marriage; and then they are overwhelmed by the reality of how that same income now must be used for two households

    In one of our upcoming blogs, we will give you some tips on how to budget.  Being knowledgeable about finances is important whether you are single, married, divorced or widowed. 

Economic Layoffs

It is not news to our readers that the economy continues to be turbulent with unemployment rates still high, ongoing layoffs throughout the area, and a housing market that is slow to recover.    Financial difficulties that couples must address in this environment are heightened and where separation or divorce is a component, the financial woes are further escalated.  One cannot live as easily as two.

A spouse who has stayed home to care for children may find it difficult to obtain employment.  A spouse who has historically worked may be laid off.  How will bills for the marital residence be paid and how will bills for a separate residence be handled?  Courts can make orders of child support, spousal support, payment toward the maintenance of assets.  Spouses can try to work out an arrangement on their own.  While each spouse may feel that they are entitled to live at the same standard of living, this is not necessarily possible if economic layoffs have hit your family and it will be important to look at what expenses can be cut.

Some financial planners now are becoming trained in helping couples, together or separate, to manage household expenses.  Consulting with one of those professionals may be helpful.  Considering options for debt consolidation may also be helpful.

 Refinancing where economic layoffs have occurred may not be possible.  Investigating options about how to pay the mortgage will be important.

In times of economic layoffs, understanding your own options for education, training, and possible changing careers paths should be gained.

Economic layoffs coupled with a separation or divorce can make times seem unmanageable; having a good support system in place will be important.