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Dividing debt: When student loans last longer than your marriage

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America runs on credit, which means that most Americans have debt. Even if you are otherwise opposed to accumulating debt, you may have taken out sizable student loans to pay for your education. As of 2012, college graduates who financed a bachelor’s degree with student loans had an average of $29,400 in educational debt alone.

If you are going to get married (or have already gotten married) to another college graduate, your combined student loan debt could more than double. Have you ever considered what portion of this debt each of you might be responsible for if you ever divorce?

Generally speaking, student loan debt that each spouse acquired before getting married would stay separate in the event of divorce. However, this is not a guarantee. Perhaps the only hard-and-fast rule in family law is that there are no hard-and-fast rules.

In some cases, student loan debt could be split in half regardless of what each spouse accumulated before marriage. In other cases, the debt may be divided according to each spouse’s calculated ability to pay. If one spouse’s student loans were incurred during the marriage, this can further complicate debt division if the couple ever gets divorced.

Thankfully, there is a way to ensure some predictability with ownership of student loan debt. A prenuptial agreement can lay out exactly how student loan debts acquired during the marriage should be allocated after divorce. It may also be a way to make sure that premarital student loan debt stays with the spouse who accumulated it.

As with all family law issues, dividing debt can be tricky. That’s why it’s a good idea to seek the help and expertise of an experienced attorney.

Source: The Wall Street Journal, “Who Is Responsible for the Student Loans After Divorce?” Charlie Wells, April 13, 2014 

Rising economy sees rise in divorce filings

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While some divorce filings are sudden and leave a spouse blindsided, others happen after years of constant struggle and dwindling affections. But because you can’t always predict the timing of a separation, some people find their divorce coming at a very unwanted time. Such was the case for couples across the nation, including here in Florida, during the Great Recession.

Because of the poor state of the economy and the dismal housing market, many couples forewent the divorce process and toughed out marriages they would rather have ended. But with the economy recovering and the housing market in an upswing, a large number of couples are considering divorce once more.

According to recent statistics from the U.S. Census Bureau, the number of divorce filings has been on the rise since the recession ended, with 2.4 million divorces in 2012. The increasing number of divorces has also encouraged more women to enter the labor force and has led to an increasing need for home goods such as furniture and appliances, which is further driving the economy.

But as readers of our blog know, increased incomes plus a divorce can be a problematic equation, especially when it comes to property division. With the housing market improving, especially here in Florida, some couples may have real estate investments that are worth more now that they were at the peak of the recession. Along with these investments, stock options and retirement accounts may have also improved, which can lead to contentious disputes over who gets what and how much.

While some couples may be hesitant to seek legal counsel, others have found it incredibly helpful in situations like this. A skilled attorney can often help you through many of the disputes that can arise during the divorce process.

Source: Bloomberg Personal Finance, “Worsening U.S. Divorce Rate Points to Improving Economy,” Steve Matthews, Feb. 18, 2014

Can I Make My Spouse Sign A Joint Tax Return If We Divorce?

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The Federal Government allows married couples to file a joint tax return so long as they are married on December 31st of the tax year. Therefore, whether you are in the process of a divorce proceeding or not, as long as you are married on December 31st, you are allowed to file a joint tax return. Because the tax rates and deductions are more favorable for a married couple filing jointly than they are for a married couple filing separate returns, it is often advantageous from a tax perspective to file a joint tax return while in the midst of a divorce proceeding.

However, once a divorce proceeding has started and unless both the husband and wife are W2 employees (receiving a salary from a third party employer), there are many tax issues that can arise. Often, if one or both of the parties are self-employed or own their own business, the discovery process, which may include forensic accountants, can reveal a significant amount of underreported income, improper or inappropriate deductions taken from income, or unreported income. As a result, the signing of a joint tax return can make the signer of that return liable should any audit or tax deficiencies be uncovered at a later date.

If both spouses sign a joint tax return and it were later determined that significant income was not reported, or inappropriate deductions were taken resulting in unanticipated taxes owed to the government (plus penalties and interest which may be significant), the unknowing spouse would be liable for the tax on the same basis as the other spouse. That is, they are each jointly and severally liable for any tax, interest or penalties.

Although in theory, a defense to this tax liability may be that the unknowing spouse is “an innocent spouse” as defined by the tax code and case authority, in most circumstances the innocent spouse defense does not hold up in a court of law. The reason is that in most
circumstances the “innocent spouse” received the benefits of the unreported income either by having monies spent on the lifestyle, or for the payment of various bills, or deposited into investment accounts.

In most cases, in order to alleviate a known problem with underreporting taxes or in order to relieve a potential problem if it is unknown if the tax return is correct or not, the parties can agree to enter into an indemnity agreement. This indemnity agreement provides that each spouse is responsible only for the portion of the tax return that reports his or her individual income. That is, if one spouse correctly reports his or her income, and the other spouse does not, then if there is any tax liability, the party that incorrectly reported the income would be liable for the entire tax and any penalties and interest that occur as a result.
It is important to note that an indemnity agreement is only a contract between the husband and wife, and as between the parties and the government, it is not binding. Therefore, if the parties entering into an indemnity agreement do not have the financial assets to make this indemnity provision realistic, it is of little value. The indemnity agreement can also provide that should there be any attorney’s fees or costs incurred by either party in defending an IRS claim as a result of any underreporting of income, the party who created the problem will pay those expenses as well.

Notwithstanding the fact that in many cases an indemnity agreement can solve the parties’ concerns, a husband or a wife cannot be forced to file a joint income tax return if they choose not to do so. However, if the failure to file a joint return under reasonable circumstances results in an increase in tax, then that fact and evidence of that fact can be introduced in the divorce trial. The person responsible for the increased tax by refusing to sign a joint tax return under reasonable circumstances (i.e. either with an indemnity agreement or there is no evidence of any underreporting or non-reporting of taxes) can be made to pay the unnecessary tax expense incurred by the other party.
So although a party cannot be forced to sign a joint tax return, it may be wise to do so in many circumstances, so long as the party who is requested to sign the return is fully protected from any undiscovered or later discovered tax consequences.

Divorce petition has Captain and Tennille singing new tune

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As people evolve over time, it’s not uncommon for them to reconsider their marriage and the feelings they have for their spouse. While this might not be the case for everyone, some people might find themselves questioning whether they should stay in the marriage or if they would be better off filing for divorce. This can oftentimes come as a huge shock to many people, especially if the couple seems like the most unlikely to file for divorce.

Such may be the case for many people here in Fort Lauderdale who may have been shocked recently by the news that Toni Tennille and Daryl Dragon filed for divorce. Best known for their 1970’s hit “Love Will Keep Us Together,” the couple’s recent decision to split shows that even a 39-year marriage can sometimes end abruptly.

Seventy-three-year-old Tennille filed for divorce on January 16 and, according to reports, indicated that health insurance coverage may have been a factor in the couple’s split. This might come as news to Dragon, also known as the Captain from the famous singing duo, who is said to have told reporters recently that he wasn’t sure why his wife of so many years filed for divorce. Possibly fueling the speculation that health insurance is at the heart of the separation is a 2010 blog post written by Tennille in which she explained to readers that Dragon had started exhibiting symptoms of a neurological condition similar to Parkinson’s disease and was experiencing tremors.

Regardless of the reasons for separation, discussions about property and asset division could make the divorce process incredibly contentious. That’s because, according to another news source, it’s likely that the couple made much of their wealth after they married in 1975. It’s quite possible that much of their property and assets will be considered marital or community property and might be subject to equitable distribution. This might not sit well with Dragon who, if his health continues to fail, may need additional funds to help pay for medical treatment down the road.

Source: The Washington Post, “Captain and Tennille, musical duo of the ’70s, divorcing after 39 years of marriage,” Diana Reese, Jan. 23, 2014

Property division and financial accounts during divorce

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Getting a divorce can have a significant impact on your finances. Working with your attorney to ensure that you are financially cared for following your divorce is vital. Florida residents might be interested in learning about some basic ways to protect your financial stability when going through a divorce.

When you discover that a divorce is imminent, you should start checking out the finances. Look into the accounts so you are familiar with each one, since they will likely all go through the property division process. If you aren’t well-versed in financial matters, taking a financial course can help you to better understand the ins and outs of all the finances that will be affected by the divorce. You can possibly learn how to save money, work with advisors and navigate through your portfolio after divorce.

If you are a senior citizen going through a gray divorce, you should be wary of senior seminars that offer free meals or other perks. The Association for the Advancement of Retired Persons warns that many seniors are pitched ideas and concepts that aren’t suitable for their situation when attending these seminars.

You should also be prepared to update your will and any legal documents listing heirs, beneficiaries, executors or administrators, since your wishes will likely change because of your divorce. Your divorce attorney can usually help you update these documents to ensure that your final wishes are documented.

Finally, you should update all tax information. This includes not only your W-9 form, but also withholdings for IRAs and other financial programs. If you have life insurance or health insurance, make sure your information with those is also up-to-date.

Going through a divorce is a major upheaval. While you might be tempted to focus on the basics, such as child custody and property division, it is equally as important to work with your divorce attorney on other financial matters. An experienced Florida divorce attorney can often provide you with valuable insight into how your divorce will affect your finances.

Source: Huffington Post, “Financial Tips That Ease the Sting of Divorce” Julian Block, Dec. 25, 2013