Sunday, May 8, 2016

10 Money Mistakes People Make in Divorce

This post was inspired by an ESPN piece about how rookies mess up their finances.   Now people are rarely buying tigers and Bentleys while they are contemplating divorce but they do make a lot of financial mistakes.    Here are 10 that I have personally seen.   They are in no particular order and some feed off the others.   With that said, here we go:

1.  Living the Same Way as Before the Divorce.   I know I just said no order but this is really number one.   Whether you were a two income family supporting one household, or a one income family supporting one household, you are now a two household family.   Somebody moved out.   That somebody has to pay rent, utilites, buy food for themselves, etc.   It's no more one mortgage/rent payment, one household grocery shopping trip.    What this translates to is that the same pot of money now has to go twice as far.   Just because you are getting divorce does not mean an infinite pot of money magically appears.   You are going to have to adjust your spending somewhere.   Which brings up #2.

2.  No Budget.   As noted, the same amount of money has to stretch to cover more things.   That means that you have to know where your money is going so know what is really a priority and what is a luxury.   You will have to fill out a financial statement of your expenses at some point if you are asking for alimony or attorney's fees (child support has a shorter easier form), so you might as well figure out those expenses now.    You don't want to be guessing on your financial form (more on that later).   If you tell me you alone spend $600 a month on groceries and you spend $300 on eating out, I am going to wonder what the hell you are thinking.   I am also going to be really less than sympathetic to any pleas of poverty.   And if I'm not buying it, a judge sure is not going to buy it.   Do you really need to spend $1200 a year PER child on Christmas?    Do you really need that mani/pedi EVERY WEEK?   Doing a budget lets your prioritize so you are suddenly not wondering how to pay the rent because you have no idea where your money went.  

3.  Using Credit Cards.    So money is short and you need to buy the kids' some new clothes.   No problem just put it on the credit card right?   After all it's for the kids and the judge will order your spouse to pay half of it.   Well, no.    There is no such thing as marital debt in Maryland.   If the card is in your name, you are responsible for paying it.   The judge may consider credit card debt when deciding how much alimony you need, but there is no guarantee.   Besides, getting alimony is months away and now you have to pay at least the minimum balance on the card each month.   You were short money before, where is the money to pay the credit card going to come from?   Should you never use credit cards once you are in the process of divorce?   Of course not.   Sometimes you have no choice.   Do what you gotta do.   But, be careful what card you are using.   If the kids need clothes and you are claiming you are broke, don't be shopping at Nordstrom's.   Sears is just fine.   Thrift stores are even better.   Again, do you want the judge wondering why you had to buy the kids clothes at Nordstrom?  

4.   Not Knowing About Retirement/Investment Accounts.   This is a toughie.   Your spouse may be secretative and keep the information from you.   That's fine.   But you should know how much is in YOUR accounts.   There is absolutely no reason to not have the current balance, the name of the account and the account number for things in your own name.   If it is a joint account, you have just as much right to have this information as your spouse.   If your spouse refuses to give it you, go right to the source,   Your name is on it, they can't refuse to give it to you.   Knowing this information will help you decide what you really want in a divorce and to plan somewhat you are getting.  

5.   Buying a New Car.   Yes people do this. And by new I mean current model year.   Which is the worst thing you can do.   Now you owe car payments, plus your car just lost value the minute you drove it off the lot.   A decent used car is a better use of your money if you need a car.   Definitely don't lease a car.   It is not marital property, which you might think is a plus.   But, when the lease ends you still need a car.   You might not have the funds for it.   Again, budget how much payment you can afford and find a nice used cards.   Believe it or not, you can get great deals on last year's models from everyone who didn't listen about not leasing.  

6.   Not Filling Out the Finanical Statement Correctly.   As noted you will have to fill out a statement regarding your income, expenses, assets and liabilities.   This is 9 pages in Maryland.   There is a lot to fill out.   But, it is very important to get it right.   Over inflate your expenses and the other side will pick them apart at trial.    Under inflate and you might not get the alimony you need to support yourself.   Be honest.   If you spend $600 a month on the family for groceries, explain why.   Food allergies, acceptable.    I only shop organic because it's in the best interest of the kids is not.   Trust me, the chances that the judges' kids ate non-organic food and are just fine are pretty high.   "Best interest of the kids" is not a magic formula that excuses everything.   Also, you are signing the statement under penalty of perjury.   If you get caught materially misrepresenting anything on that form, the court can and will hold it against you.  

7.   Going on Trips.   This doesn't mean never take a vacation while the divorce is pending, but think about your trips.    Are you claiming you can't keep the lights on but you take the kids to Six Flags a couple a times a month?    Are you going to Disneyland in California but claiming there is no extra money for alimony.    Or the worst, are you paying for trips with your new significant other -- and that person's kids -- but claiming no money to take your own kids anywhere?   Again, do you want to explain these expenses to a judge?   If you have a family reunion in NYC every year, fine.   No one should miss a family reunion that you have attended every year of the marriage just due to divorce.  But no one wants you just going "Hey I'm FREEE I am can anywhere I want now and no one can tell me otherwise."   While techinically true, is that the way you want to spend some of your finite pot of money?  

8.   Not Paying the Mortgage.    Regardless of whose name the house is titled in, both parties have an interest in the property.   If you have been paying the mortgage continue to do so.   Not paying it hurts your credit.  If the mortgage is in the other person's name, if you contribute and you stop and the other person can't make the payment, it makes you look like a jerk.   Judges hate jerks. It may even be foreclosed which means everyone -- including you -- loses your interest in the home.   The value of the home may be the one chunk of money you have to start life over, don't mess it up.   

9.  Over Housing Upon Moving Out.   For some reason people think they need to have the exact same lifestyle after separating as they had before.   If they had a 4 bedroom, two bath house and every kid had their own room, they must have that when they separate.   Then they wind up moving some place they can't really afford.   Evictions are never pretty.   Thnk about what you really need.   Are the kids grown up and out of the house?   Then why are you hanging onto the house for dear life?   Get yourself a smaller place.   Easier to clean, cheaper, and probably newer.   You can get a spare room for when the kids visit, but you don't need to maintain their rooms exactly as they were.   The kids are not moving back in (one hopes).   If you have young kids, how much room do you really need?   How often will the kids be there?    Every other weekend from Friday night to Sunday night?   Can you sleep on the couch a couple of nights?   If you have joint custody you might need more room.  But again, finite pot of money.   Your life has changed, your home is not going to be exactly the same every again.   So don't try to recreate it.

10.  Taxes.   Oh my.    If you always filed jointly, make sure you have copies of what was filed for at least the last couple of years.   Look it over yourself.   If your spouse won't give it to you, request it from your accountant or the IRS.   If your accountant refuses to give it to you, get from the IRS.  Then don't use that accountant again.   Yes, people will still continue to use the same accountant they always had even after finding out that accountant had been favoring the other spouse all along.   Get an accountant who will protect your interests, not your soon to be ex spouses.   Talk to an accountant about the effect of filing separately.   Make sure you are clear over who gets to claim the kids.   No, just because you are paying child support does not automatically allow you to claim the kids.   In fact, physical custody determines the child tax credit.   If you filed jointly and you owe back taxes, find out why.    Joint tax debt may be allocated by a court (may, possibly, maybe).   If your spouse didn't file taxes and you were waiting to file jointly -- stop waiting.   File separately.    Let your spouse deal with the IRS, keep your own self out of trouble.

Basically this all boils down to think about your money.   Know what you are doing with it and why.  Know what and who you owe and why.   Know what is coming in and what you have as a cushion.   The more you know the less stressed about money you will be during the divorce process.

Thursday, January 21, 2016

Child Support - Due and Owing

Watching the stock market tank, and hearing oil is going bust I am having flashbacks to 2008.  Now I am not too worried about my law practice, because I normally serve low income people.   They can't afford the big firms in the best of times.   A slower economy just means more people needing reasonable priced services.   This post is what to do if the economy tanks again.

This comes up all the time,  "I've been out of work several months, now my license is suspended due to owing back child support, how do I fix that."   Well, you can't.   At least not the owed child support.   In Maryland, you can only modify your child support from the date of filing.   So you if you wait several months to file, the court is not going to go back those several months and adjust it to the new amount.   From the trial date, they will only go back to the date you formally filed the paperwork with the court to ask for a modification.

As soon as you find yourself unemployed, go file for modification.   A letter to child support enforcement is not enough.   You have to formally ask the court for a modification.   If you find a job before trial, great.   Just make sure you formally dismiss the case.   Failing to show up can get attorney's fees awarded to the other side.  

In the meantime, be actively looking for work.    You are going to have to show the court you are not evading your child support obligation by being unemployed for a long period of time.   The court gets it that it might take some time to find a job.   But if you show you are trying, they will work with you.   And trying means lots of applications every week.   An application a week or a a couple of month is not going to cut it.   Looking for a job should be a full time job.  

Make an effort to pay.   If you get unemployment, try to pay at least something out of it.   The courts and child support enforcement are much more willing to work with someone who is making an effort.  The full arrears may not go away, but they will accumulate more slowly.   The court may even cut you a break (don't count it, but it has been known to happen).    

Remember, this money is for your kids.   Just because you are out of work doesn't mean they don't need things like food, clothing, a place to live.   If you don't make your payments, or at least something, it makes it harder for the other parent to provide for them.   And the other parent is probably experiencing the down economy too.