California Divorce and Family Law

More couples hiding wealth from each other

Honesty may be the best policy for a successful marriage. But when it comes to divorce, couples are becoming increasingly devious in concealing their wealth from each other.

One fifth of couples who divorced last year tried to conceal their assets or income from their spouse - a figure which has doubled since 2006 - a report has found.

The study - by the accounting firm Grant Thornton, which surveyed 100 family lawyers - found that husbands were much more dishonest when a marriage crumbled.

In cases where assets had been hidden, 88 per cent involved men concealing wealth from their wives. Just two per cent involved women hiding assets. In the remainder of cases, both partners tried to conceal wealth from one another.

Family law experts say a spate of expensive, high-profile divorce cases, such as that of Sir Paul McCartney and his wife, Heather Mills McCartney, is spurring couples to hide their wealth from each other.

John Charman, the insurance magnate, was forced by the courts to pay his ex-wife a record £48 million settlement last year.

The property multi-millionaire Stuart Crossley was involved in a dispute with his wife Susan after she alleged during divorce proceedings that he had failed to tell her about millions in offshore accounts. She later dropped her claim for a financial settlement.

Andrea McLaren, the head of Grant Thornton's matrimonial practice, said: "The number of couples hiding assets from one another has increased by 100 per cent since last year, which is staggering.

"High-profile, big-money cases have scared individuals into trying to hide assets and there is now the perception that women are receiving more favourable settlements than men."

Vanessa Lloyd Platt, a specialist in divorce law, said she had seen a surge in the number of men trying to conceal wealth from their wives.

"Men are seeing these huge settlements and they are terrified," she said. "If they think a marriage might break down, more and more men are panicking and trying to put their capital into trusts and offshore accounts or buy assets in a third party's name so that they are hidden from their wives.

"It is not unheard of for women to lie but, in my experience, men are more likely to be dishonest when it comes to matrimonial disclosure."

The succession of high-profile divorce cases has also seen a surge in the number of couples drawing up pre-nuptial agreements. A survey of law firms found that 67 per cent reported taking on more pre-nuptial work in the past year.

From The Telegraph.

Savings plan distribution in divorce taxed if it's cash

Q: I am going through a divorce in which I will receive a settlement from my soon to be ex-spouse's employee-based pension plan and voluntary savings plan.

I was told I would be taxed on the pension plan distribution if I took the amount as cash and did not roll it over into my retirement plan.

Does this also apply to the voluntary savings plan?

A: Yes, if the voluntary savings plan is a qualified plan, meaning contributions to the account and the earnings made on that money are not taxed until it is withdrawn, then you will be taxed on the amount you take out as cash, says Kathy Ploch, a certified public accountant with Zientek & Co. in Houston.

The normal penalty for taking out premature distributions before the age of 59 1/2 is 10 percent, says Ploch, president-elect of the Houston Society of CPAs.

There is an exception to the penalty for distributions from qualified plans if the distribution is made through a qualified domestic relations order, which is also known as a QDRO, or quadro.

Also, if the voluntary savings plan is a qualified plan, and you take a regular distribution, the tax-deferred earnings and the tax-deferred contributions could be rolled over tax-free, Ploch says.

There are several IRS publications that can give you more information about retirement (publications 590, 575 and 939) and divorce (publications 504 and 555). Go to irs.gov to access them.

However, I caution you not to rely on your own research to make these decisions. Consult with a financial planner or CPA before making final the terms of your divorce and financial settlement. Your age, dependents and health are all factors that must be considered as you plan for a future without your spouse.

Thanks to the Houston Chronicle.

Options exist in case of divorce in family business

Question: My husband and I are the owners of a small, but profitable small business. We've recently agreed to a divorce. How can we divide the assets of our business in a fair manner?

Answer: Problems in the operation of a family-owned business tend to multiply with the introduction of a shareholder's divorce.

Issues such as the direction of the business, the compensation and benefits paid to shareholders, the resolution of day-to-day managerial problems, etc. can destroy the business over time, leaving both parties in worse shape than they would have been had they initially come to terms on how to divide, sell, or otherwise dispose of their similarly owned and controlled business interests.

The following are some options in the event of a family business owner's divorce.

> Sell business to third party. This will have the same general tax consequences whether the sale was driven by a divorce or not. A forced sale is likely to result in a depressed sales price.

> Buyout of a spouse's interest or share. The major challenges with this option include getting the spouses to agree on the method of determining the valuation/sales price of the company, the method and timing of paying the sales price, and determining how the transaction will be characterized for tax purposes.

Fair market value is the price at which an independent buyer and independent seller would willingly agree to enter into a purchase transaction; however, as the buyer and seller in this situation are not independent third parties, and are in essence forced to transact with one another as co-owners, it is often difficult to arrive at an agreed upon fair market value for the transaction.

In such situations, a specialized appraiser, CPA, or CVA is generally hired for purposes of trying to determine fair market value. Separate appraisers are also sometimes engaged by both of the spouses for negotiation purposes or even to give testimony before a court when the divorcing spouses cannot reach a satisfactory valuation. After the price and payment terms have been agreed on, the spouses must address the tax consequences.

> Transfer/redemption of stock. Where the business is operated as a corporation, the regulations allow spouses to transfer assets in a tax-free manner; however, when the family company will be used to redeem stock, there will be a recognition event if there is either redemption or a constructive dividend.

Spouses can agree between themselves as to how the transaction will be taxed. For the agreement to be effective, it must be filed with the applicable tax return for the year that includes the stock redemption.

> Co-existence - continue ownership and operation of the business. Often the only thing divorcing spouses can agree on is that the family business should not be sold at the time of the divorce.

The option of continuing the family business, with powers and duties divided between the divorcing couple, usually should be considered as a long-term solution only where special circumstances are present. Among such circumstances:

(1) a profitable business that can sustain the monetary desires of both of the divorcing spouses;

(2) a desire or need by both spouses to continue their ownership;

(3) where neither spouse is able or willing to buy the interests of the other;

(4) children of the divorcing spouses are active in the business; and

(5) where both spouses are emotionally and mentally capable of co-existing as shareholders, officers, and directors of the company.

Spouses would enter into management agreements to delineate specific duties in the operation of the business and to identify those issues requiring the vote or approval of both spouses. The spouses also may want to prepare employment agreements to address benefits, termination, resignation, covenants not to compete, etc.

Additionally, all owners should enter into buy-sell agreements to specifically address the future transferability of business interests, and the purchase rights on death, among other issues.

> Split up the company. It may be possible to split a family-owned business between the divorcing couple.

The alternatives available to a divorcing couple include dividing the business assets and beginning or continuing separate business lines with separate ownership or dividing the business into different segments and continuing to own and operate separate divisions of the business enterprise.

From the Coloradoan.com.

2,600 Photos to Be Divvied in Divorce

Nancy Goliger and Bruce Berman's photography collection began in 1991 when the Hollywood couple — he is chairman and chief executive of Village Roadshow Pictures, she is executive vice president of creative advertising at Paramount Pictures — commissioned emerging artists to hit the road and take pictures.

“As I was able to afford to, I then began to buy more established, important images that were at the root of photography,” Mr. Berman said.

A selection from the collection — at last count some 2,600 photographs — was exhibited last year at the J. Paul Getty Museum in Los Angeles.

Now, because the couple are divorcing, about 500 works are heading to auction at Christie’s in New York, starting in April. The rest are being given to three Los Angeles museums: the Los Angeles County Museum of Art, the Museum of Contemporary Art and the Getty, whose donors have included the couple.

“It wasn’t until about two or three years ago that I realized I was a collector,” said Mr. Berman, who worked with Rose Shoshana, a Los Angeles dealer, to build the collection.

It has not been determined which images will go to which museum. “I have asked the museums to give me a list of prioritized preferences,” he said. “Nancy and I want to give them what they want and need.”

The task for the Christie’s experts is how best to sell 500 photographs. “People tend to think that selling so many photographs floods the market and depresses prices, but auction history indicates just the opposite happens,” said Joshua Holdeman, international director of Christie’s photography department.

Rather than sell them all at once, however, Christie’s plans to hold three different sales: one limited to works by Diane Arbus, in April; another of images by William Eggleston, scheduled for October; and a third offering a selection of photographers — from Walker Evans and Dorothea Lange to younger artists with less well-known names — planned for  2009.

Together the three sales are estimated to bring $7 million to $10 million. “It’s a truly American collection that goes from the Depression era to artists who are alive and working today,” Mr. Holdeman said.

Among the highlights are “A Family on Their Lawn One Sunday Afternoon in Westchester, N.Y.,” a seminal 1968 Arbus work estimated at $30,000 to $50,000, and “Los Alamos Portfolio,” 80 prints of Eggleston images taken from 1967 to 1974 and considered his most important work, which carries an estimate of $250,000 to $350,000.

The Evans work includes “Interior at Biloxi, Mississippi,” a 1945 photograph of a fisherman’s bedroom estimated at $30,000 to $50,000. “Black Maria,” a 1955 Lange shot of the back of a police van replete with bullet holes, is estimated at $40,000 to $60,000.

“I am surprised that I don’t feel sad,” Mr. Berman said about the collection’s dispersal. “It’s time to move on.”

From the New York Times.

End joint finances in divorce

Question: My ex got the house in our divorce settlement. I was told that he was not required to refinance, so of course the loan is still in my name as well. He makes late payments with depressing regularity. This is reflected on my credit score. Do I have any recourse?

Answer:Sadly, not much. As long as your name is on the loan, the late payments will show up on your credit reports and affect your credit scores. That will remain true until he sells the house, refinances the loan or -- heaven forbid -- loses the house to foreclosure.

The late payments and other black marks remain for seven years from the time they land on your credit reports. So if he keeps this loan for an additional 20 years or so and continually pays late, your credit could be affected for the next 27 years.

And as you probably know, late payments send your credit scores reeling. Someone with great credit can lose 100 points from a single payment that's 30 days overdue.

Sorry to depress you. But your situation shows why it's so important to close joint accounts and refinance jointly held loans before the divorce is final. Now, your only hope is to persuade him to refinance, which will be an uphill battle with his presumably awful scores. Or perhaps he'll meet a nice, financially responsible lady and she'll take over the payments. Got any friends you can introduce to him?

More Q&A from LA Times.

No Prenup? Take These Steps

Turn up the lights, turn down the music and forget about romance.

It's time to face the business side of marriage.

Cold as that may sound, the Census Bureau recently released data that should make even the most blissfully married couples forget pheromones and focus on finances.

According to the Bureau, the length of first marriages has been getting steadily shorter since it started collecting such data in 1955. Of couples married back then, about 70% made it to their 25-year anniversary. Now, fewer than half of couples who were to celebrate their silver anniversary sometime after 2000 actually ended up doing so. The majority of marriages ended, due to divorce, separation or death.

"Even the most optimistic people have to ask themselves, 'What financial shape would I be in if my marriage ended?'" says Marilyn Capelli, a financial adviser in Bloomfield Hills, Mich.

The most effective way for couples to button down their finances is through a prenuptial or postnuptial agreement. But many people are reluctant to even raise the possibility of drafting one because it seems so, well, out of sync with that bit about "till death do us part."

Short of one of those contracts, there are some moves that may help you land on solid financial ground, no matter what happens.

Protect Your Inheritance

If you receive a large gift or inheritance before or during your marriage, keep the assets in your own name. If you deposit them into an account you share with your spouse, they may be divvied up in a divorce. If they remain in your name, you keep them.

Don't Get Tangled in Debt

Spouses with different spending habits should hold credit cards in their own names. That way, any massive debt accumulated by one spouse won't end up being a shared responsibility in a divorce.

Plan Ahead With Care

Couples wealthy enough to worry about estate taxes are typically advised to title assets so that each spouse has an amount equal to the estate tax exemption in his or her name (the exemption is now $2 million per person). Here's why: When kids inherit assets, they can potentially benefit from each parent's exemption and inherit $4 million free of estate taxes. But if one spouse dies with no assets in his or her name, that spouse's exemption may be lost.

But be cautious. "If you came into the marriage with money and you title some of it to your spouse, you lose control over it," says Lisa Osofsky, a planner and accountant at Weiser LLP in New York.

There is a way to avoid this and still preserve the estate-tax exemptions: Create an irrevocable inter-vivos (meaning it goes into effect during your lifetime) QTIP trust. Fund it with the assets you would have titled to your spouse. Name your kids as beneficiaries, and they will inherit the assets upon the death of your spouse. They will be able to apply your spouse's $2 million estate tax exemption to the assets inherited through the trust.

Whether you remain married or not, your spouse will be entitled to income from the trust, "but you still protect the principal," Osofsky says.

Stay Connected

In traditional arrangements, where the husband brings in a paycheck and the wife stays home raising the kids, "it's critical that the woman be involved in the finances, maintain a credit record and stay as updated as possible on whatever career skills she has," Capelli says. "While being committed to our families, people need to keep our awareness alive and the doors open."

From The Street.

Work out ring custody pre-wedding

Living in a state where around 49 percent of marriages are ending in divorce, newly engaged couples are getting prepared for what may come. Or are they?

The journey down the aisle can be a very joyous time. Despite the stress and strain of all the plans leading up to the wedding, after all the "wedding jitters" have left, a couple can't help but to bask in the glory of it all.

The reception, the honeymoon suite and the new house can all seem surreal. The couple prepares for their life together and, after the honeymoon is over, what they are usually left with are bills and each other.

And one of these bills that doesn't come cheap is from that gleaming rock upon the blushing bride's hand: the engagement ring. Many women dream of the day when they can walk into their job and, as their co-workers see the gigantic rock on her finger, instantly become the center of attention. The small fortune that is gently circling her ring finger is her pride and joy and, more likely than not, the person she is going to marry is brainstorming ways to pay for it.

After the ceremony and honeymoon are over, if somewhere along the way the woman finds out that the man she calls husband is not the love of her life, what will become of the beautiful jewelry that once symbolized their endless love and commitment?

Typically, the woman will get the ring if a divorce should occur. Since it was considered a "gift," it belongs to the woman and although the husband may have paid for it, the woman will still be able to keep it because it is now considered her property.

There have been heated debates and tearful discussions on the topic of who gets the engagement ring, even going as far as going to court to settle the argument. However, to avoid all the hassle that comes with that, we at The Michigan Journal believe that before the wedding day, the couple needs to make sure that everything is settled by signing a prenuptial agreement before the signing the marriage license.

Every couple needs to look at the future realistically. Although they want to be optimistic and think that everything is going work out, they do need to consider a back-up plan in case something like divorce should arise. Preparation would save the couple a lot of heartache and hassle because they would already know where they stand. They would know who would take the dog, the furniture and of course, the engagement ring.

Forget the romantic fantasy; face the facts and sign the prenup.

From the  Michigan Journal. 

Quitclaim deed overlooked in divorce

Question: What can I do now that I am divorced and my ex-husband's name has been taken off everything, but the title company refuses to take his name off the house? -- Kellie W.

Answer: To get your ex-husband's name off the title, he must sign a quitclaim deed to you. If he refuses to do so, his name remains on the title. The title company can't do anything without a properly notarized quitclaim deed signed by him. Your divorce attorney should have insisted on receiving this important document as part of the divorce proceedings.

Source: Freep.com.

Divorce: Trust Fund Feuds

'Tis the time of presents and charity, and in the spirit of the holidays and the joy of the season, I thought you’d be interested to learn that in some areas of the country, a financial gift or trust fund established for a child or relative (or even yourself) may--despite the best laid intentions of professional wealth managers and estate planners--become part of a battle over property distribution in a divorce case. As you’ll see, it all boils down to where you live.

Here’s why: In most other developed countries, domestic relations law is uniformly applied across the land. But in the U.S. there are different ways of handling the division of assets (and liabilities) upon divorce or legal separation. Basically, in the West and Southwest (i.e., Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin or Alaska--with a community property agreement) you have so-called "community property" laws that look upon each spouse as having an equal, undivided, one half interest in every "marital" asset or income (regardless of title). Meanwhile, the rest of the U.S. follows the "equitable distribution" method derived from English common law. These equitable distribution laws view marriage as an economic enterprise or partnership and demand that "marital property" be distributed fairly (but not necessarily equally) between the spouses upon divorce.

So far, so good for trust-funders, and trust-founders, because most community property and equitable distribution states limit the concept of marital property to that which was accumulated by the parties during their marriage; specifically excluding from distribution "separate property," typically defined as anything that was acquired before the marriage, or during the marriage individually by gift, bequest, devise or descent (i.e., inheritance). But here’s where things get complicated.

For a select number of states, the normal marital property/separate property distinction doesn’t exist. Instead, everything any spouse owns is subject to distribution upon divorce. Last I checked, Connecticut, Indiana, Kansas, Massachusetts, Michigan, Montana, New Hampshire, North Dakota, Oregon, South Dakota and Vermont allow basically all forms of property in the "marital pot," regardless of how, from whom or when the property was acquired by either spouse. Similarly, Alabama, Alaska, Arkansas, Hawaii, Iowa, Minnesota, Ohio, Wisconsin and Wyoming will distribute separate property, provided there's a special show of need by the nontitled spouse or the kids. (Consult with a lawyer to confirm your state's current status.)

Consider the Vermont statute on the issue: "All property owned by either or both of the parties, however and whenever acquired, shall be subject to the jurisdiction of the court," i.e., available to either spouse in a divorce case. Compare it to California’s code or even New York’s statute, which specifically immunize separate property (i.e., that which was acquired before marriage; or property individually acquired by bequest, devise or descent; or gift from a party other than the spouse) from distribution upon divorce or legal separation.

Due to strikingly diverse ways of addressing the concept of "property," trust fund issues play out differently depending on where you divorce. So long as you don’t reside in a "kitchen-sink" (aka "all-property") state, any trust that was settled and continues to be controlled by a third party--say, a parent or relative--will continue to be the separate property of the beneficiary spouse, unavailable for distribution to the other spouse upon divorce. The same will hold true for gifted property. In fact, the only way to change the character of separate property, like a family trust or gift funds, would be to commingle them with "marital" accounts with the explicit intent to share ownership or control with the other spouse. Short of this kind of transmutation, what belongs to one spouse, individually, will continue to be his or hers alone--as long it's maintained separately during the marriage.

If, however, you live in Connecticut, Michigan or Massachusetts (or any of the other all-property states) the result could be very different. Not only could an interest in a family trust fund be considered marital property, but theoretically the court could transfer the ownership interest in the trust or gifted property to the other spouse, individually, after the divorce. (Of course, if you live in one of these all-property states, having a legally enforceable prenuptial agreement is crucial to maintaining the integrity of family wealth that might have accumulated over generations.) Without the protection of a valid prenuptial agreement (i.e., entered into voluntarily--with full financial disclosure and opportunity for effective legal counsel and conscionable when enforced) you could be leaving your marriage with a whole lot less than your spouse.

According to a leading case from Massachusetts, D.L. vs. G.L. (AC 01-P-1253) 61 Mass. App. Ct. 488 (2004), the court can (depending on the facts as applied to the governing factors--i.e., duration of marriage, lifestyle and typical usage of funds, age and health of the parties, their respective contributions to the marital estate, their opportunities for future income and investment, their ability to earn money and general equity concerns) award even a remainder interest to the "other spouse," so long as the likelihood to benefit from the trust in question is not "too remote or speculative." In other words, the interest in a trust must be more than a "mere expectancy" to be considered property available for distribution.

(The Massachusetts court cited the possibility of receiving a future inheritance as an example of a "mere expectancy" too speculative to be a factor in a divorce case.) But remember, what's good for the goose is good for the gander. The court will also consider your spouse's access to family trust funds and gifts when performing the calculus of property distribution. But no matter where you live, whether an all-property or marital only state, all sources of income, whether from separate or marital trust funds, will be included when support obligations are set. Same goes for gifts: If you regularly received $22,000 a year from your parents, this money will be deemed available when deciding how much you can pay (or need) for support. For instance, alimony (also called spousal support or maintenance) will be set according to your ability to meet your own needs--or pay for those of your spouse--after the court distributes whatever property you have between you. So, even if you are fortunate enough to live in a state that will not distribute family trust funds as property, per se, you can be sure that the income those trusts generate will be included when fixing final spousal and child support amounts.

What's more, while a spouse will be supported to the extent required to maintain the marital lifestyle (or marital standard of living--MSOL), kids will be entitled to receive support commensurate with a parent's ever-increasing ability to pay. In other words, their standard of living will always be tied to their wealthiest parent's current lifestyle, long after the divorce is a distant memory, pending their eventual emancipation (ranging from high school graduation to age 21, or beyond, depending on where you live). It's like they say, you can divorce your spouse, but you can't divorce your kids. (And why would you want to?)

Finally, to make sure your own gifts or trusts remain in the correct hands, draft your documents carefully and retain control of the funds. If your beneficiaries happen to live in an inconvenient "kitchen-sink" forum, beseech them to gain the protection of a prenuptial agreement before they wed, or consider withholding your beneficence till you’re sure about their spouses' respective intentions about your money. If the natural objects of your bounty are already wed and living in an all-property state, make all distributions or gifts a "mere expectancy"--or less. Ho, Ho, Ho.

This great article from Forbes.

Removing name from mortgage is key amid divorce

Failure to do so then means waiting for ex to refinance or sell

Q: My wife and I divorced last year. Her name is still on the mortgage. She wants her name taken off. She signed a quitclaim deed. I sent this to the mortgage company, asking them to take her name off. I do not want to refinance because the mortgage has a good interest rate. The mortgage company refused to remove my ex-wife from the mortgage obligation. Is there any way to do this without refinancing or selling?

A: No. There is nothing your ex-wife can do to get her name off the mortgage obligation. If she had a good divorce lawyer, he or she would have insisted you refinance in your name alone so she could be free of that mortgage obligation on her credit reports. Because that wasn't done as part of the divorce agreement, although your ex-wife's name is off the title after you recorded that quitclaim deed, her name remains on the mortgage until you refinance or sell. If you make the monthly payments on time, that will reflect well on her credit reports and FICO (Fair Isaac Corp.) credit score.

More questions and answers in The Beacon Journal.