If you believe that your marriage may be headed for a divorce, you may be interested in some basic, practical advice about what the process entails before you decide to spend money on an attorney. The following questions and answers address some, but not all of the issues involved in obtaining a divorce.
While they are not intended to constitute legal or tax advice, they may give you a sense of how to navigate the divorce process, which is one of the most stressful, emotional, and difficult periods you will ever experience.
9 Questions to Help You Navigate the Divorce Process
1. Should You Stay or Should You Go?
When some couples encounter marital difficulties, they may wonder whether they should work on their marriage, stay legally married and simply live in separate households, or go ahead and get a divorce.
A trial separation is often viewed as an opportunity to work things out in the hopes of reconciliation. Many couples separate and stay separated for years. For example, Warren Buffet was separated from his wife for nearly 30 years before her death in 2004. In addition, the press reported that chef and TV personality Anthony Bourdain, who died recently, was also married but separated from his spouse
While separation may sound more attractive and less stressful than a divorce, you and your spouse are still considered married in the eyes of the law, and all of the rights and responsibilities of being married continue during separation.
You and your spouse are still eligible to file joint income tax returns. Your spouse may be able to remain on your health insurance. You are still liable for any debt they incur on joint credit cards. They also have property rights in certain retirement accounts.
If you pass away while separated, your spouse has rights in your estate. State law protects spouses, giving them a share of your estate whether or not you have a will. Even if you write your spouse out of the will, the state allows your spouse to waive their rights under the will and take a share of the estate anyway, often one-third.
2. If You Decide to Divorce, Should You Hire an Attorney?
Divorce involves the separation of a partnership and the division of property. The law regarding property rights and divorce is complicated and it is not wise to travel that road alone. However, an attorney charges fees for their advice and the bills can add up quickly. An attorney will bill you by the hour for legal services and an attorney’s hourly rate can be substantial. Most attorneys will ask you for a retainer. In most cases, the retainer will be in the neighborhood of $5,000 to $10,000. The attorney will take his fee out of the retainer you pay him. Once the retainer is used up, the attorney will ask you to replenish the retainer.
Generally, you should retain a divorce attorney to help you navigate the legal and other aspects of a divorce. If you have trouble affording an attorney, check the local divorce court. Some courts have legal clinics or volunteer lawyers available to help you fill out the necessary paperwork. Be aware, however, that while legal clinics and volunteer lawyers may tell you they can help you with the paperwork, they do not represent you individually. In fact, once you get some basic advice, you may be able to handle many aspects of divorce yourself.
If you have never been in court before, or are unfamiliar with divorce proceedings, take some time and visit your local court and sit in on one or more divorce hearings. You will be able to see how the proceedings operate and get some valuable insight as to what you will need to do in the event you have to appear in court as you navigate the divorce process.
Also, you should be aware that almost all states have some form of no-fault divorce. If you and your spouse are able to work out an amicable property settlement and agree on child custody and support, you may find the divorce process relatively painless. Generally, one or both spouses are the ones who make the divorce painful by being unreasonable and uncooperative.
If you do hire an attorney, be organized and shy away from calling your attorney for every little thing that annoys you about your spouse. Remember, the attorney charges by the hour. That call is costing you money. Vent to your friends – not to your attorney.
3. Should a Financial Advisor be Part of Your “Divorce Team”?
Unless you are an expert in financial planning, a financial advisor can be indispensable in a divorce, especially for couples with substantial assets. While an attorney can address the legal issues, family law attorneys may not be experts in financial planning.
A financial advisor can run cash flow projections to determine the income that you will need to meet various expenses. In addition, they can also advise you on marital property, the division of assets, housing, debts, alimony, child support, tax ramifications, retirement planning, health care coverage and a number of other financial issues.
When choosing a financial advisor, look for someone with a CDFA (Certified Divorce Financial Analyst) or CFP (Certified Financial Planner) designation. A CDFA is a financial professional who has passed a rigorous test and has the requisite experience level to be certified to help people with money issues that arise during a divorce. Like a CDFA, a CFP has met the required testing and education requirements to assist people with all aspects of financial planning.
Your divorce lawyer or friends who have already gone through the divorce process may be able to help you in locating a financial advisor in your area.
4. What Property is Subject to Division on Divorce?
It depends upon the state you live in. In general, there are two types of property states in the United States: common law states and community property states. Even within the common law states, there are two different rules regarding property division.
First, we’ll discuss common law states and the two different versions of property division within them. The majority of these states distinguish between separate property and marital property. In general, separate property is all property that you (1) owned before marriage or (2) acquired by gift, inheritance, or devise (i.e., you got it from somebody else when they gave it to you). Separate property is generally not subject to equitable distribution in a divorce — it’s yours to keep free and clear.
Generally speaking, marital property is all property you acquired during your marriage. Marital property is subject to equitable distribution; if you and your spouse can’t decide how to divide your marital property, then the court will divide it between you and your spouse.
On the other hand, a minority of states make everything the couple owns subject to equitable distribution. Everything a couple has –including assets acquired before marriage as well as items received as a gift, inheritance, or devise – is in the pot for division. Thus, it is possible for a family heirloom to go to your ex-spouse in states that follow these rules for equitable distribution, like Massachusetts.
A completely different equitable distribution method occurs if you reside in a “community property” state, which includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Alaska and Tennessee allow an optional form of community property. While the community property laws differ from state to state, in general, each party own one-half of all the community property. Community property states also exclude separate property (property you acquired before marriage or by gift, bequest or inheritance) from division in divorce.
5. Can You Change Ownership in Assets Pending a Divorce?
As a general rule, you can change ownership interests in assets that you own individually or jointly with your spouse. However, this is true as long as the transfer does not constitute fraud, in which case the transfer may be set aside by a court. In most states, the ability to transfer the ownership of assets ceases on the filing of a complaint for divorce. At that time, an automatic restraining order is imposed, preventing either spouse from transferring assets without court permission. The law is different in each state, so check with the local court to determine what restrictions are imposed on the transfer of assets once a complaint for divorce is filed.
6. Should You Continue to File Joint Income Tax Returns With Your Spouse Pending Divorce?
Many individuals do not realize the legal and tax consequences of filing a joint income tax return with their spouse. Filing a joint income return with your spouse results in “joint and several liability” for the income tax. That means that in the event of an income tax deficiency, the Internal Revenue Service can collect the tax from you, your spouse, or from both of you. This is true even if the item that generated the tax deficiency is not your income.
This frequently becomes an issue when one spouse, without the knowledge of the other spouse, intentionally fails to report income. If you think that your spouse may not be truthful on your income tax returns, it may be a good idea to file as “married filing separately” rather than as “married filing jointly.” While “married filing separately” may result in a larger income tax liability, it will relieve you from liability for a tax deficiency on your spouse’s unreported income.
7. If You Get Divorce, Should You Change Your Estate Plan?
Assuming you do not want your ex-spouse involved in your affairs, you should proactively review your will, trust, beneficiary designations for retirement plan benefits and life insurance, durable powers of attorney, and health-care proxies. While this is not an exclusive list, you will want to revise any documents that name your ex-spouse as a beneficiary of retirement accounts or name them in some form of representative capacity – such as the executor of your estate, the trustee of your trust or your health care agent. For example, most divorced couples do not want an ex-spouse to have the ability to make health-care decisions for them in the event of incapacity.
One of the most frequent mistakes divorcing couples make is neglecting to remove the ex-spouse as the beneficiary of their IRA or 401(k) plan, the beneficiary of their life insurance policy, the executor of their estate, or the trustee of their trust. This is something you should do or make sure is done by somebody else. Often, a financial advisor will tell a divorcing spouse to make these changes, but the spouse never gets around to making the change. In that case, your ex-spouse may become the beneficiary of your IRA or life insurance or may be the executor of your estate if you pass away before them.
Some states do have so-called “revocation” statutes that automatically remove an ex-spouse as the beneficiary of a retirement account or life insurance or as your representative (e.g., an executor, trustee, and health-care agent). However, these statutes only come into play once the divorce is finalized. If you die prior to divorce, these statutes are generally ineffective. Plus, the United States Supreme Court has recently held in a couple of cases that revocation statutes are not effective to remove a spouse as the beneficiary of a qualified retirement plan such as a 401(k). For example, if you die with your ex-spouse named as the beneficiary of your 401(k), your ex-spouse is entitled to the proceeds of your 401(k) regardless of what your divorce agreement or state law provides.
8. How Are Social Security Benefits Affected by Divorce?
As a general rule, a divorced spouse (let’s say wife in this example) who was married for at least 10 years and has been divorced for at least two years can claim spousal benefits on her ex-spouse’s (ex-husband’s) Social Security earnings record. These benefits are available when the ex-husband reaches full retirement age: for example, age 66 for those born in 1954. The divorced wife must be at least 62 and unmarried to claim these benefits. And if that ex-husband had been married twice, and each marriage lasted for 10 years or longer, both ex-wives could be able to claim Social Security benefit on his earnings record, depending on their age and marital status.
Think of Johnny Carson. He was married to four different women, each for at least 10 years. Each of Johnny’s ex-wives could potentially claim Social Security benefits off of Johnny’s Social Security earnings record. However, the divorced spouse (wife) will receive reduced benefits if she claims benefits before reaching full retirement age. Also, the divorced spouse (wife) will be subject to the earnings limits if she has not reached full retirement age.
That means that if a spouse (wife) collects social security off her ex-spouse’s (ex-husband’s) earnings record before she reaches full retirement age, some of her benefits may be lost or eliminated if she earned too much money. Thus, it is generally better to wait until full retirement age before collecting Social Security benefits.
Social Security benefits are available regardless of whether the former spouse (husband) applied for benefits based on his own work record. The divorced spouse’s (wife’s) benefit is based on what the former spouse (husband) would receive at full retirement age and is not affected when the former spouse (husband) claims benefits – or even if his benefits were reduced because of excess earnings.
Remarriage by the former spouse (husband) does not affect the divorced spouse’s (wife’s) benefits. However, remarriage by the divorced spouse (wife) terminates the benefits based on the prior marriage. This provides an incentive for the divorced spouse to live with, but not marry, a new spouse.
If the former spouse (husband) is deceased, the surviving divorced spouse (wife) is eligible for benefits if:
- she is at least age 60,
- the marriage lasted for at least 10 years, and
- her own benefits would not be higher.
9. What If You Aren’t Married but Are Severing the Relationship with Your Significant Other?
It is extremely common for couples to live together but not marry. They often buy a home together and share expenses and assets. Terminating the relationship can be confusing in terms of property division. Unlike a marriage, where there are specific laws governing divorce, most states do not have statutes governing the breakup of a relationship. Hopefully, unmarried couples who have purchased a house together or otherwise share income and expenses engaged an attorney at the start of their relationship to draft a cohabitation agreement covering all aspects of the couple living together – including the termination of the relationship. Unfortunately, that is rarely the case.
In the absence of a formal agreement, unmarried couples will face the same obstacles in separating as married couples but without the comfort of laws that govern their separation. They should do the same thing as married couples going through a divorce (i.e., seek legal and financial planning advice). For example, in the event they have purchased a house together, they will have to determine whether to sell the house or transfer it to one of them.
If one partner decides to buy out the other, the purchasing partner will have to figure out how to pay the purchase price. In addition, the selling partner will want to make sure that they have their name taken off of any mortgage. Since the couple has no official legal status, unmarried couples will find that the legal and financial aspect of a separation to be less than straightforward.
Divorce is an emotional and stressful process. However, there are a number of important decisions that you have to make. The information provided above is intended to help you recognize some of the issues you may have been wondering about. It is not intended to be legal or tax advice. For that, you should rely on a professional advisor.
Jere Doyle, LL.M., is an estate planning strategist for BNY Mellon Wealth Management and SVP of BNY Mellon. He advises individuals and families on managing and transferring their wealth in a tax efficient manner. He is a lawyer and lecturer in the Graduate Tax Program at Boston University School of Law. www.bnymellonwealth.com