To Be or Not To Be (Divorced)

Every once in a while, someone decides to file for divorce after a long separation and discovers a big surprise. Shannon Cavers, who writes the always-interesting Houston Divorce & Family Law Blog, had a post about the situation last Spring. In her post, Shannon mentioned a couple who had been separated for 22 years. During that time, the wife bought a house. Because the marriage had not been legally ended by divorce, the house was technically a community property asset which would be divided by the court. The wife evidently thought it was unfair that she had to share some of her house equity with the husband she had not lived with for 22 years.

In California, and perhaps other states, the values of the community estate are set at the time of separation, but that's not the case in Texas. Here in Texas, the community estate can change right up to the date that a settlement agreement is signed or the court announces its decision.

I have seen separations of 2 or 5 or 10 or more years. In each case, there are issues of potential or perceived unfairness if the court just divides everything in existence at the time of the divorce, regardless of whether the items were acquired before or after separation. In those situations, the house and retirement accounts are usually the biggest assets, but there may be investments that have grown in value or someone could have won the Lottery. The community debt situation may have drastically changed, either increasing or decreasing. If your spouse runs up a lot of credit card debt between separation and the date of divorce, you may get stuck for some it.

What can be done to avoid an unhappy result? Here are a few ideas.

• File for divorce when you separate. That's pretty obvious, but some people don't want to divorce for various reasons. Some people will stay married legally so that their spouse can keep insurance coverage. There may be other religious or moral or legal reasons to stay married.

• Sign a partition agreement. The parties can divide their assets and liabilities and cover future assets, just like a pre-nuptial agreement sometimes does. A verbal agreement won't work and writing an informal agreement between the parties probably won't stand up, either. A properly drawn partition agreement will protect both parties, but they each need to have attorneys to advise and assist them.

• Reach an agreement and rely on the honesty and dependability of your spouse. That's usually a bad idea.

My suggestion: Unless there's a need to keep the facade of a marriage, you should go ahead and get divorced. Both parties stand to lose if they just wait around.

When is the Best Time to File?

Some people say, "It's all in the timing." (Others may say that it's all in the location -- but that's really a different topic!) Timing can make a huge difference in a lot of things in life. One of the most obvious is in financial matters. Investing or selling at the right time can put you in a solid financial position. For example, if I had bought American Airlines stock a few years ago when it was under a $1.00 a share because there was a very real possibility of filing for bankruptcy, and I kept it, even now there would be a nice profit. Likewise, getting out of the market at the right time can ensure a much better position compared to the person who held on to the stock just a day too long.

Apparently, some people have brought the timing issue into the divorce arena. According to the Miami Herald, some attorneys are advising their male clients to file for divorce now while their net worth is low. The idea is that they will have to give their wife less assets now than they would otherwise if the market were up. I understand the logic in that, but I still have some problems with that thinking.

1. The proportions are the same, even if the amounts are different. While it is true that the total amount paid to the spouse in settlement may be less than it would be if the economy were better, the property division should still be in a very similar proportion between the parties as it would be in better economic times. Is a $600,000 -- $400,000 split really a lot better than a $900,000 -- $600,000 since they are both 60-40 splits? Both parties would end up with less than they might in a better economy.

2. It is usually pretty easy to stall and delay in a divorce. The courts are often backed up, which means it will probably take a long time to get to court unless there's an agreement. Faced with a long wait to get to court, many of the wealthier spouses will sweeten the pot to get an earlier deal done. Or, the delay may be long enough for the economy to start to recover.

3. Other financial circumstances could also change that would affect the property division. If one or both parties lose their jobs, or if a company goes broke, that could completely change the situation. If one spouse has been a stay-at-home parent and now has to look for a job, but the economy is failing, that may create the need for lengthy spousal support (alimony).

4. Sometimes, it is the wife who has the more significant investments. She might make the same assumptions and conclusions, and then her husband could be the one losing out.

The bottom line: My suggestion is that if someone wants or needs to be divorced, they shouldn't wait around for the stock market to hit bottom or to reach the top, and they shouldn't rush into a divorce just to save on the pay out. The finances are always an issue, but other personal issues should be primary. Don't let the property division dominate your thinking to the point that you ignore or downplay the other personal issues in the marriage.

Thanks to Tim Evans of the Hattiesburg Divorce Lawyer blog who had a recent post about this topic which had the reference to the Miami Herald article (I don't normally keep up with Miami news). Tim's blog is well worth regular reading.

Can I Get a Do Over?

Recently, a reader sent a comment in response to a post in this blog. The comment asked for legal advice about what could be done in a specific situation in her case. I do not answer such requests for advice for someone who is not a client, but the comment did raise some interesting points about a situation that many encounter. What can you do if you want to change the terms of the property division in your divorce decree after it is final?

The simple answer is: "Nothing." The real answer is: "It depends." Note -- on kid issues, such as possession schedules, custody or child support, you can simply file a petition to modify. On property issues, it's a different ballgame.

Technically, there's nothing that can be done once the judgment is final. Of course, if the second thoughts hit soon enough, the judgment may not yet be final and you can file a motion for new trial or a motion to reconsider. That generally needs to be done within 30 days of when the judge signs the decree of divorce or signs an order overruling a motion for new trial or takes some similar action. These deadlines are critical. If you figure out on the 31st day or later that you want the ruling changed, you are probably out of luck.

If you realize the need to change the terms, or if your circumstances change dramatically, soon enough, you can file a motion with the court and try to convince the judge to set aside the original decree of divorce. With the economic turmoil we are experiencing, there might be a new situation that is compelling to a judge, but don't expect a judge to reverse a prior ruling just because things haven't turned out the way you expected. Getting the judge to set aside the decree of divorce is still a long shot.

But, whether you can actually do something to change the decree of divorce, outside of the first 30 days of when it is signed, depends. It depends on whether you and your ex-spouse can reach an agreement. In many cases, you're probably out of luck. If you don't get along with your ex, you probably can't get him or her to agree to change the terms unless you can show that the change would be in his or her best interest.

What can you do to avoid the problem of being trapped by property division terms that just don't work? Here are my suggestions.

1. Think ahead. It's hard to see into the future, but be aware of what's going on in the world and try to anticipate your needs in the future. Don't just blindly ask for 50% of everything. Put a little thought into your proposal for property division.

2. Don't burn your bridges. Sometimes, you can't help it, but other times there is a possibility of having a mature, civilized relationship with your ex-spouse. That is especially true when there are children involved. Even though you may strongly dislike your former mate, try to be nice because you may need a favor down the line.

3. Try to be agreeable. If you reach an agreement to settle your divorce, you probably have a better chance of reaching other agreements if you need to change things in the future. You can often do things by agreement that a judge would not, and perhaps could not, do.

4. Don't procrastinate. If you see a problem developing that relates to the property division, consult a lawyer and look at your options. Do so at the earliest possible time so that you might be within the initial 30-day window. If you are well past that time, still act as soon as possible so that your ex-spouse will not be as entrenched as he or she may be later on.

5. Be persistent. If a lawyer tells you there's nothing that can be done, consult with another lawyer. Some attorneys are more creative than others and some are more willing to try out-of-the-box approaches. Lawyers have different experiences and perspectives, so keep looking around until you have exhausted the possibilities.

6. Find a reason for your ex-spouse to agree. Put yourself in your ex's shoes. What would entice him or her to agree to do what you want done? What's the benefit to him/her? Be prepared to sweeten the pot a little and give up a little extra to get the deal done.

7. Put your agreement in writing. If you are able to reach an agreement with your ex-spouse, be sure to get it in writing and spell it out so the agreement is clear. If nothing else, create a contract that is binding for both of you.

I don't mean to create false hope here. If you want to change the terms of the property division in your divorce decree, your chances are slim. But you do have a chance, if you act as soon as possible.

What to do with the House

I have been seeing more and more divorces where the parties remain in the same house for a significant period of time after they have officially "separated". A recent article in the San Diego Tribune discussed the phenomenom and suggested some creative solutions for house problems. Fortunately, the housing market here in North Texas is better than the one described in San Diego, but there are still serious problems experienced by divorcing spouses here. Because of the way mortgages were being offered in the last few years, more and more people are experiencing housing crises.

Sometimes, sharing a house can save the parties a great deal of money by postponing the need for one or both parties to buy or rent another residence. That may make it possible to pay down their debts and maybe save up enough to afford a new home. Of course, whether that is feasible depends on how well the parties get along. Even if the parties aren't getting along very well, it may be possible for them to get counseling just to help them learn how to get along on a limited basis for the greater good. When there are children involved, improving the parents' behavior can have added benefits for the children as well as the parents.

Here are some possible strategies for dealing with a personal housing crisis.

1. Forget about making a killing in the real estate market -- just sell the house now! Most houses require some fix-up to get ready to sell. If the spouses will act like adults and work together (or just divide up the jobs), they can do some fix up and then come out in better financial condition. Once the house is fixed up, they need to cooperate in showing the house and keeping it in presentable condition.

2. Borrow money to avoid foreclosure until you can sell. Foreclosure really hurts your credit score, so if there's something left to protect, you should keep searching for sources of funds to borrow to make your payments until the house sells.

3. Divide up the house and each spouse can use parts of it. How difficult that is depends on how well the parties get along. If the parties coexist well, they can share a house for quite a while and split the expenses. If they don't get along, this isn't much of an option. If the finances are really in bad shape, one or both of the spouses need to make some adjustments in behavior so they can share the space without going to war.

4. If there are kids, use a bird nesting approach. In that system, the kids stay in the house and the parents take turns staying in the house while the other stays in an apartment or with family or friends. It provides stability for the children and gives each parent quality time with the kids.

5. Bring in the experts. You can work with a financial planner to come up with possible solutions that fit your financial ability and needs. Even though you may have run out of ideas for solutions, there may well be some ways to work through the situation. An expert in personal finances in divorces may help you discover new solutions. In addition, a mortgage broker may be able to find creative ways to refinance or get money out of the house, if needed.

If all else fails, you can have a receiver appointed and get the house sold to avoid foreclosure. That is a last resort because there often is little equity remaining after the sale.

Thanks to a post about the article that appeared in the Houston Divorce and Family Law Attorney Blog, always a source of interesting and varied posts.

How Finances Affect Divorces

A recent post by James J. Gross in the Maryland Divorce Legal Crier mentioned a topic that seems to be coming up a lot lately. Many people assume that hard times produce more divorces and that divorce attorneys are busier. I have even heard comments that the Recession must be "good for (divorce) business".

Although I haven't done any research on the topic and can only speak about my own experience, I haven't found the economic downturn to be a significant contributor to divorces. The number of people calling about divorces seems to be pretty steady and there has been no noticeable increase in the number of cases I have accepted. Actually, one effect of the economic situation is that probably some people are having more problems in coming up with the funds to pay legal fees.

Money certainly can be an issue between spouses, but that is just as true in good times. In economic hard times, there may be a tendency, at least in the short term, for couples to stay together and jointly battle through the financial problems, sharing the work and rewards. In good and bad times, there always seem to be an abundance of divorce and other family law cases.

One factor that may be a change and that is showing up more and more is that there is sometimes less in assets to divide. In fact, in many families, the amount of debt to be allocated is greater than the value of their assets. Once families split up, that problem becomes worse because there are suddenly more expenses that must be paid, but there's no increase in money to pay the bills with. In addition, there are major student loan balances to be paid; with tuition and fees going up and less college funds to give out, students and/or their parents get stuck paying back high debts for years. Add to that the big mortgages that used to be easily available. Many people ended up in bigger houses than they needed because it was easy to qualify for the mortgage and it looked like the payback would not be a problem.

There are a few solutions to the financial problems: win the lottery, inherit substantial assets or own an oil or gas well. For pretty much everybody, those are not anything to count on. Instead, a divorce financial planner might be an excellent investment. We use planners in Collaborative divorces, but they could be used in traditional litigated divorces either working with one party or working as a neutral for both parties, if the parties are fairly cooperative. The divorce financial planner can help with projections and tax advice which can give a new perspective leading to solutions to issues that may have lead previously to deadlock and argument between the parties.

The lesson to be learned here: if a solution is impossible for the situation you face, change the variables and look for solutions in completely new and different areas (outside the box). Throw out the old limitations and just ask, "Why not?".

Should I Keep the House?

Some people skip this question and jump right to, "Can I keep the house?" In many cases, it is possible to keep the house, but it is not a wise decision. I have recently had several cases where one side, or sometimes both sides, wanted to keep the house and an objective observer would have told the party or parties that they were crazy. Such a blunt assessment is often not effective in ending the quest for the house. Often, the fight continues until a judge resolves the issue. Such judicial intervention often results in a house being sold, even after a long fight by a party to keep it. It seems that not very many people are really rational in deciding what to do with their home and that is understandable. This post is for people who are able to thoughtfully consider the various factors that affect the decision about the house. The post will not help people who are operating at a purely emotional level.

To effectively analyze the situation and come up with an appropriate answer, you need to dig deep and come up with the real reason why you might want to keep the house. Here are some possible reasons.

1. You really love the house. Some people have no special feeling toward a house. Others profess undying love for their house. It may be the location, location, location, or there could be some unique features in the house that you really can't find anywhere else. Maybe it's the layout or the closet space or the garage or the storage or the yard or the pool or something else. Maybe it's your "dream house" that you searched for forever. Maybe you really love the neighbors. The truth is that there are great houses in the world, but almost all can be replaced. There can be many other great locations and neighbors. Other houses may have a whole host of wonderful features. And you can gradually create a new dream home somewhere else. If you got transferred by your job to another city, you would have to cope with the change.

It may be helpful to write down what it is about the house that you really love. You can add what unique attributes you find in the house. It's also helpful to remember that no house is perfect. Even the best of houses probably has room for improvement. Write down what you would want to change if you were able to. Those issues would help you make a more realistic evaluation. If you take the good and the bad factors together, you will have a checklist of factors to consider in looking for another house. Writing the bad factors down will give you some perspective and remind you that the house was not really perfect, and writing down all the factors will help you realize that there can be more than one house for you.

2. Financial advantages and disadvantages of the house. Whether a person wants to keep the house often relates to financial issues. If there's a low interest rate, low mortgage balance or low payments, the homeowners are often reluctant to give up the bargain they are enjoying. On the other hand, if there is a substantial equity in the house, many parties prefer to sell the house and cash in their chips. Other people face high mortgage payments which may be unaffordable for just one of the parties. Some others fear that they wouldn't qualify for a new home loan with just their income and perhaps the parties' credit rating has deteriorated over the years if they struggled financially. The owners need to realistically assess their situations for the future to decide if it makes sense to try to keep the house.

3. Punishing the spouse. Some parties will want to have the house sold out from under the spouse to get back at the spouse for real or imagined slights or to be controlling. If one spouse knows the other spouse really wants to keep the house, the first spouse may threaten to have the house sold in order to frighten and control the other party. Some parties may try to keep the house to keep the house away from the other spouse or to try to tie up their soon-to-be-ex-spouse's credit.

4. Keeping the house for the kids. This reason is often a subterfuge for the parent with the kids. While there can be many factors that make a house enjoyable for kids (similar to #1 above), houses and schools can be replaced. Some parents will argue that they need to house to maintain stability. That can have some effect, but there will be change in the kids' lives no matter what and kids are generally pretty resilient. There will be a visitation order that shares time between the parents and the kids will probably be spending considerable time in two separate households. One parent is really trying to blackmail the other if they are saying they need to keep the house for the kids. The adults are entitled to at least equal consideration on the house issue.

5. Party owned the house before marriage. In Texas, that makes the house the separate property of the owner and the court will not ordinarily have the ability to take away the separate property from the owner, assuming the owner can provide sufficient proof of the prior ownership. There are a few ways for the other spouse to get some money out of the house, but they probably can't become the owner or force the owner to sell it. In Texas, however, either spouse can claim a homestead right to possession of the house, and that would enable them to continue to live in the separate property house of their ex-spouse for a while. The homestead right does not create ownership, however.

6. Inability to sell the house. There are often reasons why the house can't be sold, even without legal impediments. The house may be in such bad condition that it can't realistically be sold at all, or it could only bring a small amount of net equity. The housing market could be really down in certain areas with the result that houses aren't selling or they're selling for very low prices. Some areas have had a lot of new house building currently or recently which makes it virtually impossible to sell a pre-owned home, much less make anything on the sale, in that area. Some parties are upside down with their mortgages and owe more than the house is worth. They would have to pay off the balance of the mortgage in order to complete the sale, and it's hard to get people to do that.

There's something about a house that seems to make people behave irrationally. If you think you want to keep the house after your divorce is final, look at the above considerations before deciding for sure that you want to either sell it or keep it. There's often a lot of money at stake, so the decision should be made rationally, rather than just emotionally. And it's a good idea to consult with your attorney about this decision before you make it.

What Once Was Ethan Allen Is Now Just Sticks N Stuff

James J. Gross, in the Maryland Legal Crier blog, has another of his fine, common-sense posts about a topic most attorneys discuss often with their clients. While some items of personal property are worth fighting over, most things are not worth as much as the attorneys' fees incurred in the fight. I recommend that you read his following post and take it to heart.

"Dividing up the furniture and furnishings can be a difficult task in a divorce. But this is the tail wagging the dog. Most of the value of the marital estate is in the house and the pension. Furnishing and furniture might account for 5% or less.

Sometimes when everything else is agreed upon, folks get stuck on dividing the china, crystal, silverware, jewelry or the frequent flyer miles. Whenever this happens, and it is not logical or profitable, I usually think that they are hanging on to the marriage or the fight instead of the property.

If you want a reality check, jewelry is worth one third of what you paid for it, the minute you walk out of the store. Look at the classifieds and you can find used diamonds, which in truth are not one molecule different from new diamonds, going for as little as $500 a carrot. Gold may be selling for more than $800 an ounce, but your jewelry is measured in grams, and the pawn shop will give you around five dollars or so a gram for it.

Furniture depreciates around 20% a year, so if it is five or more years old, it is essentially worthless until it becomes an antique. And if you don’t believe me, go to an auction or a used furniture store.

The Kelley Blue Book is online to tell you what your automobile is worth. Don’t forget to subtract the car loan.

Each spouse can hire an appraiser to value the real estate at $400 or $500 each, then if they disagree they can appoint a third appraiser. Or you can ask a realtor. Or you can simply agree on the value of the house. Zillow.Com will give you a value for free. If you still want to fight about it, Zillow also gives you a range of values or you can fiddle with the assumptions and comparables to get a new value.

I mention all this so that you can weigh the value of what you are fighting for, against the legal fees that it is going to cost to get it."

It's easy to get caught up in the fight or to stand on principle or to seek "fairness", but we need to keep in mind the big picture and make intelligent decisions. It is often wise to skip some battles and instead try to balance the benefit with the cost of fighting or negotiating. You'll later be thankful you did.

Can My Spouse Take My Retirement?

In a recent post, in the Preventive Family Law for Nevada blog, Allison Herr wrote about a common question among parties going through divorce. The issue comes up in several variations. What happens to retirement funds? Can my spouse get my retirement? Will I have to withdraw funds from my retirement to pay my spouse? Will I lose retirement funds that I earned before marriage?

The questions arise in a variety of circumstances. A spouse may have earned some or all of a retirement account prior to the current marriage. One spouse may just not have much retirement to divide. Sometimes, one of the spouses has no retirement. Often, a person considers his or her retirement plan as personal resource which should not be divided because that person alone earned the benefits at that job. Even where both spouses have created retirement accounts, it is common for each party to want to keep all of his or her own account.

The starting point to remember is that under Texas law, virtually all retirement funds earned during a marriage are community property and are subject to division upon divorce. Retirement funds earned prior to marriage are not community property and a court cannot divide them unless both parties agree. Usually, spouses will work out an agreement on how to divide all the assets, including retirement accounts. Courts and attorneys usually try not to complicate matters by dividing every asset. Instead, they usually will divide the community assets by awarding complete assets to one party or the other and "equalizing" the division at the end.

It is a good idea to not become too emotionally attached to your retirement account. Such emotional attachment is not rational and puts you at a disadvantage in negotiating a settlement. If your spouse detects your feelings, he or she may manipulate you by threatening to take the retirement so that they can end up with something more valuable that they really want. In addition, the account is just an asset and a court really could award all or part of the community portion to your spouse. There's no reason to get upset over that unless the account has some special value or you expect a big increase in value in the future.

It is not necessary for a court to order a party to withdraw funds from the retirement account and pay them to the other spouse. A special court order, the qualified domestic relations order, can split an account without causing tax consequences or penalties.

The best way to approach the retirement accounts is to plan ahead and figure what your needs and goals are about retirement. Will you have sufficient assets to support you through retirement? Do you have separate assets? Are you realistically expecting an inheritance? Can you project a budget for your needs and living expenses? What amount of money now will it take to support you in the future? Do you want risky, but very profitable investments in your retirement account, or do you want a conservative approach that is safer, but less likely to grow significantly? It would actually be a good investment for you to get expert advice from a financial professional who is not trying to sell you a product. You can ask your attorney for a referral to help you find someone to help you plan. With careful thought and planning, you can protect your future, with or without a specific retirement account.

How the Judge Divides Assets -- Will We Have to Sell Everything?

This is another in a series of common questions from clients. The answer is "NO".

Many clients ask if the Judge will make them sell everything and then split the money. Sometimes one party will threaten the other with asking the Judge to sell everything. That's usually done to scare or intimidate the other party who may not have been as compliant as the spouse wants. Sometimes it's suggested out of frustration when the other party is stubborn and unreasonable (imagine that happening in a divorce!). Sometimes it is just a bully's threat. Sometimes people have been told by family or friends that it will happen.

Theoretically, the Judge could order things sold, but I have never seen it in over 30 years of divorce work. There are some obvious reasons why it doesn't happen:

1. It's too much trouble. Imagine a giant, comprehensive garage sale or auction. It would be unmanageable. There would be no one to run the sale and make sure it was all done honestly. It would require a lot of people to work the sale. Such a sale would undoubtedly take a long time and would probably delay the divorce.

2. There would be little return for the sale of used things. The cost of replacement would greatly exceed the gain from the sale. There might not be a market for a lot of things, and some things would be "priceless", as they say on the commercial. Some things would probably have a negative value.There could be tax consequences from the sale of some assets and a court is not likely to knowingly set up that problem.

3. In Texas, the Court is required to make a division of property that is "just and right". It is hard to conceive of any judge thinking selling everything would result in a just and right division.

The most common means for dividing property is by agreement. Most cases are settled by agreement. Negotiations occur almost constantly while a case is pending, unless one party literally refuses to discuss settlement or takes an unyielding, extreme position that makes settlement impossible. Probably 90--95% of cases settle before trial. If informal negotiations are unproductive, mediation is a highly effective settlement method that is used all the time. One way or another, the parties usually reach agreement on property agreement.

So don't worry if your spouse threatens to have everything sold. It ain't gonna happen!