Q: Am I responsible for my spouse’s debts even when I had nothing to do with the charges?
A: Debts from before marriage are a person’s separate debt and you wouldn’t be liable; however, if the debt was incurred during the marriage in order to provide necessities like clothing, food, etc. then you too are liable. Read more on divorce and debt, here.
Q: Is my IRA community property even though it is in my name only?
A: Everything purchased during the marriage, even in another state, no matter whose name it’s in, is typically considered marital or community property in a divorce. In Texas, the income from separate property is also considered a marital asset.
It is important to evaluate the advantages and disadvantages of including your IRA in the list of assets you retain in your divorce settlement. The funds are not accessible before age 59 1/2 unless a 10% penalty, plus ordinary income tax is paid. The tax liability should be considered in the long-range analysis.
Q: What is separate property in Texas?
A: Separate property is what a spouse brings into the marriage, what is inherited during the marriage, received as a gift during the marriage, or received as a legal settlement in a lawsuit. As long as it is not mingled with the community property, it maintains its separate property status during divorce. However, if these funds are mingled with community property, a Certified Divorce Financial Analyst who is trained in tracing can determine what is community and what is separate.
Q: In a divorce, how is community property defined in Texas?
A: Community property is all the property acquired during the marriage, no matter whose name it is in and in which state it was purchased. In Texas, the income from separate property is also considered community property, although the appreciation in value of the underlying assets remains separate. For IRAs and qualified plans, the rules are different unless tracing is used. The appreciation on IRAs and qualified plans remains community property. For more on what constitutes community and separate property, check out this blog post on the topic.
Q: Will I be able to receive spousal maintenance or alimony payments?
A: Court-ordered spousal support is very limited by Texas law. As a spouse seeking maintenance, you must show that you are unable to earn a living, and that the assets you receive in the divorce settlement will not meet your basic needs. However, you may be able to negotiate contractual alimony from your spouse.
Q: What is contractual alimony?
Often the higher earning spouse receives more assets as an offset in exchange for providing contractual alimony. Alternately, in a cooperative divorce, the higher earning spouse may be willing to pay alimony in addition to the percentage of assets agreed upon. Your Certified Divorce Financial Analyst can assist in the preparation of a budget to demonstrate a spouse’s monetary needs after divorce.
Q: Do I have to split my pension?
A: The portion of your pension earned before your marriage is not subject to division in a divorce. However, the portion accrued during your marriage is community property in the state of Texas. It may be possible to keep the pension undivided by having its value offset with other assets going to your spouse. Division of the pension can be accomplished with a Qualified Domestic Relations Order. Your Certified Divorce Financial Analyst can put a value on the pension, if no value is provided by the spouse’s company, or can provide a value if the one offered by the spouse is in question.
Q: If I have custody of the children, should I keep the house?
A: We realize that there may be an emotional attachment to one’s home following divorce, especially if children are involved. However, it’s important to fully evaluate what it will cost to maintain the home, including maintenance, property taxes, homeowners’ insurance, utilities and mortgage payments. We highly recommend that you seriously consider how keeping your home will affect your budget, especially over the long term. Will you have enough funds to pay the necessary bills each month, while also providing for important other expenditures, such as vacations, summer camps, occasional entertainment, etc.?
Retaining the home must be compared to the advisability of giving up other assets that may provide income, or more future appreciation such as investments. Additionally, the cost of alternative housing should be considered, whether that entails renting or acquiring a less expensive home. A Certified Divorce Financial Analyst can help you explore this question before you commit to a divorce settlement that cannot be changed later.
Q: What is a Qualified Domestic Relations Order and is it necessary?
A: A Qualified Domestic Relations Order (QDRO (pronounced quad ‘ro), is the legal document usually prepared by an attorney, that divides a pension or 401(k) in a divorce. The divorce decree does not serve to divide these accounts. There are many factors that go into the language of QDROs which can require advice or additional review of these documents by a Certified Divorce Financial Analyst.
Q: Do we have to go to court to get divorced?
A: This can be answered three different ways:
- In a litigated divorce, if you are unable to reach a settlement, youcan attend one or more mediation sessions with three attorneys (yours, your spouse’s, and an attorney/mediator). This can be an expensive process if several mediation sessions are required to come to a settlement, but allows you to avoid the judge making the final decisions.
- Without a mediated settlement, both parties will be required to attend court with your respective attorneys. This can get expensive and may leave lasting hard feelings between you and your spouse. It is also a very public display of what most couples believe should be a private matter.
- In a Cooperative Divorce, a settlement can be attempted through early mediation using the services of a Certified Divorce Financial Planner trained in mediation. In this instance, only one spouse is required to attend the court hearing. This is the lowest cost scenario, since there is no battle.
Q: Should you buy a house before the divorce is final?
A: Even for the fortunate few who have the resources and can afford the down payment, the mortgage payments, property taxes and upkeep of an additional home, careful thought should be given to this decision. While it is possible to purchase a home while going through the divorce process, it is ill-advised in most cases and can be problematic.
Texas considers all property purchased during the marriage (even during the pendency of the divorce) to be community property. It doesn’t matter whose name is on the title or account. The other spouse still has an interest in the home, and the title may not be a clear one. Title companies require the other spouse to attend the closing of real estate transactions, basically giving permission for the home to be purchased.
If you are in a litigated divorce process, temporary orders are usually in place to prevent either of the spouses from spending down assets, or incurring new, large debts. A new home purchase requires approval of the other spouse. Read more about buying a house during divorce here.
In a cooperative divorce, however, the possibility of purchasing a home during the divorce process is simpler, if the non-buying spouse is willing to sign off on the ownership. Funds are then transferred from a bank or brokerage to the title company for the closing. Where they had $50,000 in savings, for example, now she or he has $50,000 in equity in a home.
Q: Should we divide everything 50/50?
A: The State of Texas requires a “just and equitable” division of property. This can take into account the need for one spouse to receive sufficient assets to provide support if the other spouse is the higher earner. A 50/50 settlement is rarely appropriate and should never be agreed to or implemented without careful consideration, negotiations, and ideally, using a long- and short-term analysis of the situation by a Certified Divorce Financial Analyst.
Q: Do I need to hire an attorney to get divorced?
A: An attorney is not required to be involved in all aspects of a divorce case. This approach can get costly very quickly. We recommend using an attorney for the drafting of the decree, once the couple has come to an agreement on the division of the marital estate. It is also a good idea to have an attorney accompany at least one spouse to court to “prove up” the final decree.
Many seeking divorce are increasingly starting their divorce process by initially enlisting the services of a Certified Divorce Financial Analyst, like myself, in order to save time and money. In this way, a couple can work through all the financial aspects of the settlement and arrive at an agreement through mediation.
Q: What is a collaborative divorce attorney and when should I use their services?
A: Some family law attorneys are specially trained to be collaborative divorce lawyers. As such, they agree to negotiate a divorce settlement without using litigation. This relatively new divorce process proceeds through a series of meetings between both attorneys, both parties, and sometimes a financial expert and a mental health professional.
The first four-hour meeting may only deal with understanding how the collaborative process works and its rules. I have found that, arranging the meetings can be extremely difficult with two attorneys involved. Communications by email and phone among all parties is also part of collaborative method. If an amicable agreement between the parties cannot be reached by going through the collaborative divorce process, both attorneys and the financial analyst are required to resign. After this, new attorneys must be retained by the couple in order to proceed. This method of divorce is not for everyone and can ultimately be even more expensive than litigation.
Q: How do I know which assets are the best to keep?
A: Not all assets are created equal because each divorce is unique. Choosing the best mix of assets for you will require analysis and discussion. For example, retirement accounts and other financial assets usually continue to appreciate in value over time and provide income for retirement. However, sometimes one spouse may need cash assets immediately after divorce for support while looking for employment or finishing a training or educational program. Certain assets require more financial outlay for maintenance, taxes and utilities, such as a home. Capital gains may also need to be considered on invested assets and real estate, with an adjustment made to the division of assets. A Certified Divorce Financial Analyst can assist in exploring the alternatives and determining which assets are best to keep in a particular situation.
Q: I have never worked. Can I still get Social Security?
A: If you have been married for 10 years or more, then you are entitled to one-half of your spouse’s Social Security, even if you are divorced. Your spouse still retains his full Social Security benefit. This is determined by federal law and is not a negotiation issue in divorce. For more information about divorce and Social Security, check out this blog post.
Q: When should I employ the services of a Certified Divorce Financial Analyst (CDFA)?
A: The Certified Divorce Financial Analyst should be contacted when you first consider a divorce. However, she can also provide a valuable service any time prior to a finalized settlement by reviewing and evaluating a proposed divorce settlement. Waiting too long in the divorce process before contacting a CDFA can, however, limit your options, and result in a less desirable outcome. Divorce usually involves making important financial decisions that can affect you and your family for the rest of your life.
Q: Are there different ways to get divorced in Texas?
A: All viable methods of divorce should result in a divorce agreement and a court approved divorce decree. However, the methods of getting to these documents can vary drastically. There is no rule or law requires an attorney to control every facet of a divorce. The following article and chart will best answer this question: Ways to get Divorced. Also, read our brief description about divorce alternatives in Texas. If you have further questions about any of these processes, please call me at 832-858-0099.
The above information does not constitute legal advice, and serves only as a general guide to the topics discussed.