“What is one of the most common financial mistakes that people make in a divorce?”
One of the most common financial mistakes that people make in a divorce is not being wary enough of or taking full advantage of the federal income tax code. Even though the transfer of property pursuant to a Judgment for Dissolution of Marriage does not have overt tax consequences, there may be some hidden consequences. For example, if a party sells property allocated to him or her pursuant to a Judgment for Dissolution of Marriage there may be capital gains taxes associated with the sale that were not taken into consideration when valuing that asset. In addition, there are ways that divorcing couples can use the federal income tax code to their advantage in a divorce settlement. For example, rather than having separate child support and maintenance provisions in a settlement agreement, a divorcing couple can characterize support as unallocated support. This allows the payor to fully deduct all support paid and the payee to claim all support as income.
“Is it better to take more marital property – like the house – instead of spousal support or a part of a pension?”
This depends entirely on how averse to risk you are. Spousal support, when added up, will often exceed the amount being offered as an upfront settlement to “buy-off” spousal support. This is especially true if spousal support is reviewable. However, there are many more risks associated with receiving spousal support. For example, you may get remarried, at which point spousal support will terminate or the payor of support may lose his or her job and seek a modification or termination of the support amount.
Similar types of risk are associated with taking a part of a pension. While pension money does grow tax-free, it cannot be accessed without negative tax consequences for many years. The old adage, “One in the hand is worth more than two in the bush,” applies to this type of decision. If you are comfortable with risk, then agreeing to spousal support may be the appropriate decision. If you are less comfortable with risk, then taking a marital asset, such as the house, might be the appropriate choice. You should ask your financial professional about the tax consequences of taking one asset over another before making your final decision.
“My husband and I own a small business. Who should value this asset, and how do I find them?”
Often, business-valuation issues arising in the context of divorce relate to closely held or small family-operated business. The decision to employ an expert to value the business is a significant and frequently necessary step. Generally, experts must meet two basic qualifications:
The subject matter about which they will testify must be that of which ordinary, reasonable people do not have common knowledge, and
The expert must be, in fact, an expert – that is, have the qualifications necessary to be considered an expert.
A variety of credentials are available for those who meet the qualifications required to value businesses. Several of the more widely recognized designations include: Accredited in Business Valuation (ABV), Accredited Senior Appraiser (ASA), Certified Business Appraiser (CBA) and Certified Valuation Analyst (CVA).
Many resources to find an expert exist, including the Internet, appraisal societies, the business valuation community, the American Bar Association Family Law Section and other professional groups. Questions to ask a potential valuator include: Does the appraiser hold professional designations required in the field? How many years of experience does the appraiser have? How many reports has the appraiser prepared? Does the appraiser have experience in the specific industry? Does the appraiser have litigation experience? What fees and costs may be reasonably expected?
“What information do I need to bring to an initial consultation with my divorce lawyer?”
During the initial interview, you should expect to be asked about the specifics of your case. In order to prepare for this meeting, you should gather all the information (documents, contact information, etc) pertinent to your situation. In a divorce case, this would include any documentation regarding the assets that you and your spouse own, including individual tax returns, business tax returns, W-2 forms, bank statements, life insurance policies, stock certificates and retirement statements. In addition, be prepared to offer details relating to dependent children of the marriage, including age, special needs and the relationship of the children with each parent. In addition, you should relay to the attorney your position regarding division of assets. Finally, you should bring any questions and concerns you have regarding the divorce process.
“My wife and I are divorcing, and I’m concerned about protecting the interests of my children. What can I do?”
In recent years, the general public and legal community have become much more sensitive to the issues of children’s involvement in the legal system in the areas of divorce and support. All states have statutes that provide for the appointment of a guardian or attorney for the child. Illinois is one of three states whose statute permits the court to appoint an attorney for the child, a guardian ad litem or an attorney to serve in both capacities, commonly referred to as a Child’s Representative.
Attorney – the appointment would occur when the court expects the attorney to act in the traditional role expected of all attorneys. The attorney acts as an advocate for the child. He or she should pursue the goals of and may take directions from the child client. The child’s communications with the attorney are privileged and not subject to discovery. The attorney participates fully in the legal proceedings, which include calling witnesses, conducting cross-examinations, and participating in formal discovery.
Guardian Ad Litem – the guardian, on the other hand, is an investigator and reporter to the court. The guardian is bound to determine and advocate for the child client’s best interest, which can be at odds with the child’s preference. The guardian can be called as a witness in the case and cross-examined on his or her recommendations. The child’s communications with the guardian are not privileged, and the guardian does not participate in the proceedings before the court (i.e. he cannot file pleadings or engage in discovery).
Child’s Representative – The role of a Child’s Representative codified what is, in fact, the reality of current practice in many jurisdictions. This appointment combines the powers of an attorney and guardian ad litem. It enables representation (with confidentiality protections and advocacy powers) in accordance with what the representative determines to be in the best interests of the child, but further enables and empowers this person to take on the expanded role of investigation and recommendation. The Child’s Representative is given the protection which he or she would have as an attorney with respect to confidentiality, as well as barring being called as a witness in a proceeding.
“Can my spouse and I conduct our own negotiations without our lawyers present? Of course, we’d each have our own lawyer look over any agreement before we signed it.”
If you have the ability to peacefully discuss the issues involved in the divorce (such as property division and support), then I encourage you to open a dialogue with your spouse. However, it is important that you talk to an attorney prior to discussing the issues with your spouse, so that you understand the parameters of your legal rights. Once you and your spouse understand the issues involved, you can then begin to negotiate. Throughout the negotiations, you should stay in contact with your attorney to avoid bargaining away any rights you may have. Conducting negotiations directly with your spouse can greatly minimize your legal costs. Through open communication with your spouse, adversarial confrontations, including litigation in court, are often lessened, which is always beneficial to your and your children’s mental health. There also may be certain priorities that you and your spouse have and want to be incorporated into the agreement. For instance, you may want to keep the marital home and ensure you have enough cash flow to provide for the monthly expenses associated with it; whereas your spouse’s first priority may be to receive future retirement benefits. If you can effectively express your priorities to your spouse and resolve your issues, it will help provide you with the peace of mind that your main objectives were met and help you to feel comfortable with the outcome of the divorce. Divorce can be a stressful time in your life, but keeping lines of communication open with your spouse and limiting confrontation and anger will ease the tension you may be feeling.