Finances are the leading cause of stress in a relationship, and disagreements over debt—accumulating it, managing it, and getting it paid off—can lead to divorce.
The average U.S. consumer has a credit card balance of $6,354, according to Experian. When other debts such as car loans, personal loans, and student loans are added in, it can be a pretty staggering amount of debt to wade through in divorce mediation. On top of that, much of this could impact your credit down the road.
While a lot of people think that in a divorce each party takes their share of the debt—such as any credit cards in their own names—in reality it doesn’t necessarily work that way. In fact, even if you and your soon-to-be ex-spouse come to an amicable agreement on who will handle which debts, the judge or lenders might have different ideas.
What Happens to Student Loan Debt?
You may think that you and your spouse may be each responsible for your own student loans in divorce, but in Massachusetts - an “equitable distribution” state - the court will divide the debt in a manner it decides is fair. To do that, it considers relative income, length of marriage, and other factors in the case. You could end up paying part of your spouse’s student loan balance—or they could end up paying yours.
What Happens to Mortgage Debt?
The best option, according to TIME Money, is often to sell the home and split the proceeds. It’s the cleanest way to cut ties from the mortgage without having to spend time in a court-mandated mess. Another option is to have one spouse take over the house payments, and if he or she can qualify for a refinance in his or her name only based on credit history and income. Keep in mind that any changes you make to the mortgage, including a refinance into you or your spouse’s name, need to be approved by the lender.
What Happens to Credit Card Debt?
Credit card companies don’t have to honor divorce decrees, so it may not matter that you and your spouse agreed to split the credit card debt in a certain way. Like student loans, it matters when the card was opened and whose name it’s in. In the case of a jointly owned card where both parties are on the account, you are both responsible—and if you divorce, both of you should use any savings or assets to pay off the joint card as quickly as possible.
If one of you owns the card but the other is an authorized user, that user is not financially responsible for the balance.
The judge can typically assign any debts to one spouse or the other; in some cases, if a spouse takes on more of the joint debt than you do, they would also get more assets in the divorce to offset that obligation. In other cases, a couple may agree on a certain amount and the judge allows that agreement to stand.
What Happens to Home Equity Debt?
Home equity debt, being tied to the home, can be a bit more complex. If you have outstanding home equity loans or lines of credit in both of your names, selling the home and using the proceeds to pay off those joint loans is the best call. If you or your spouse is able to take over the payments and refinance the home in their name alone, they can also use the refinance to cash out and pay off the original mortgage and any equity products.
What Happens to Personal Loan Debt?
In most cases, if you took the personal loan out before you were married, that debt will continue to be yours even after the divorce. If you took out the personal loan during the marriage, however, that could change. In an equitable distribution state like Massachusetts, the judge will consider a list of factors to decide who pays what amount. Those factors might include who cared for the children, who benefited from the debt, and what the relative incomes are of both parties.
If you or someone you know could benefit from assistance in decision making during a divorce, contact Falmouth Mediation at 508-566-4159 for a free, no-obligation, private, confidential consultation. We will be happy to discuss the key details of your situation, address any concerns, and help you decide if divorce mediation would be beneficial.
Tuesday, March 26, 2019
Tuesday, March 19, 2019
Alimony After the 2017 Tax Code Changes
One of the givens for divorcing couples in the United States has always been the alimony is deducted from the payor’s income and includible in the recipient’s income for purposes of federal taxes. As James Nunn writes in this excellent blog posting, this structure provided some relief by way of a tax break for divorcing couples who would have to use the money that previously supported one household to support two separate households after a divorce. This worked because the recipient was often the lower income earner and would therefore pay less taxes on the income received as alimony than the higher income earner would have had it been includable in their income.
The Massachusetts Legislature used the tax treatment of alimony when drafting the 2011 Alimony Reform Act which stated that alimony should not generally be more than 30% to 35% of the difference between the parties’ incomes.
As of December 31, 2018, the federal Tax Cuts and Jobs Act of 2017 completely upended the way alimony is treated for federal tax purposes and eliminated the prior rule that alimony payments were deductible from the payor’s income and includable in the recipient’s income. This change in the federal tax code has made the percentages in the current Massachusetts Alimony Statute no longer fair or appropriate. The law is, however, still in force and theoretically the Probate and Family Court judges could use it in support of setting an order based on these old percentages.
The current consensus among most practitioners is that the new percentage range is likely somewhere between 23% and 28% of the difference in the parties’ incomes, but it’s not yet clear that the family court judges are in agreement with these parameters.
The Alimony Reform Act also contains language that says alimony should be based on the need of one party and the ability of the other to pay. Despite the fact that need has always been the touchstone of any alimony order the percentage guidelines provided an ascertainable standard that many litigants and lawyers relied on in resolving cases without the need of a trial on the issue of need.
This area of law which was previously settled is now in a time of upheaval and uncertainty. It’s not entirely clear how judges will handle these issues. If you are considering filing divorce or in the midst of a divorce you need to make sure that you align yourself with lawyers and tax professionals who understand the state of the law and how to develop a strategy that will ensure that the result is fair and equitable in light of these new changes.
The Massachusetts Legislature used the tax treatment of alimony when drafting the 2011 Alimony Reform Act which stated that alimony should not generally be more than 30% to 35% of the difference between the parties’ incomes.
As of December 31, 2018, the federal Tax Cuts and Jobs Act of 2017 completely upended the way alimony is treated for federal tax purposes and eliminated the prior rule that alimony payments were deductible from the payor’s income and includable in the recipient’s income. This change in the federal tax code has made the percentages in the current Massachusetts Alimony Statute no longer fair or appropriate. The law is, however, still in force and theoretically the Probate and Family Court judges could use it in support of setting an order based on these old percentages.
The current consensus among most practitioners is that the new percentage range is likely somewhere between 23% and 28% of the difference in the parties’ incomes, but it’s not yet clear that the family court judges are in agreement with these parameters.
The Alimony Reform Act also contains language that says alimony should be based on the need of one party and the ability of the other to pay. Despite the fact that need has always been the touchstone of any alimony order the percentage guidelines provided an ascertainable standard that many litigants and lawyers relied on in resolving cases without the need of a trial on the issue of need.
This area of law which was previously settled is now in a time of upheaval and uncertainty. It’s not entirely clear how judges will handle these issues. If you are considering filing divorce or in the midst of a divorce you need to make sure that you align yourself with lawyers and tax professionals who understand the state of the law and how to develop a strategy that will ensure that the result is fair and equitable in light of these new changes.
Tuesday, March 12, 2019
Child Custody and Mediation
Child custody conflicts are among the most stressful and potentially damaging aspects of a divorce for everyone involved – but is there an alternative? For some the answer may be yes, and can help save peace of mind, psychological well-being, and financial costs.
Rather than battle in court over the type of custody agreement for the children, mediation can be an option that offers a less contentious alternative for many parents. Since the goal of most divorcing parents is the child’s happiness and stability, this can be one way to resolve issues productively during what is an already difficult life event.
The Typical Child Custody Process
Typical child custody cases involve going to court with an attorney as part of the divorce proceedings. The judge will determine the type of custody awarded – whether joint custody or sole custody – and the arrangements for the child’s residence and visitation times.
For parents who are divorcing, resolving these issues in a court of law can be fraught with tension and anxiety. Court costs, attorney fees, and time spent negotiating or battling over the agreement can all add up financially and emotionally.
Yet mediation is an alternative solution that allows both parties to meet with a neutral arbiter to work out the best arrangement with input from both parties. Unless one of the parties is alleging domestic violence or other serious legal violations, making court involvement necessary, this can be something that even a contentious divorcing couple can successfully navigate.
The Mediation Process
I meet with both parents and begins with the idea that this will be a collaborative process. Both parents’ input is part of the discussion and it focuses on positive solutions rather than placing blame or revisiting divorce conflicts.
I, much like family counselors, am trained to work with both parties to facilitate communication. The goal of communication is both short-term and long-term: to first develop an agreed upon custody arrangements that will work successfully for parents and children, and to ideally promote future communication between the parties around parenting issues going into the future.
Because I do not have anything to gain from the outcome, I can be a dispassionate and productive factor in resolving disputes. Children will benefit from less conflict, and in some cases can meet with me as well.
Mediation offers a positive solution for children during a divorce assisting parents in promoting better methods of communication which will be key in moving forward and working together as parents for the child’s best interests long after the divorce.
Rather than battle in court over the type of custody agreement for the children, mediation can be an option that offers a less contentious alternative for many parents. Since the goal of most divorcing parents is the child’s happiness and stability, this can be one way to resolve issues productively during what is an already difficult life event.
The Typical Child Custody Process
Typical child custody cases involve going to court with an attorney as part of the divorce proceedings. The judge will determine the type of custody awarded – whether joint custody or sole custody – and the arrangements for the child’s residence and visitation times.
For parents who are divorcing, resolving these issues in a court of law can be fraught with tension and anxiety. Court costs, attorney fees, and time spent negotiating or battling over the agreement can all add up financially and emotionally.
Yet mediation is an alternative solution that allows both parties to meet with a neutral arbiter to work out the best arrangement with input from both parties. Unless one of the parties is alleging domestic violence or other serious legal violations, making court involvement necessary, this can be something that even a contentious divorcing couple can successfully navigate.
The Mediation Process
I meet with both parents and begins with the idea that this will be a collaborative process. Both parents’ input is part of the discussion and it focuses on positive solutions rather than placing blame or revisiting divorce conflicts.
I, much like family counselors, am trained to work with both parties to facilitate communication. The goal of communication is both short-term and long-term: to first develop an agreed upon custody arrangements that will work successfully for parents and children, and to ideally promote future communication between the parties around parenting issues going into the future.
Because I do not have anything to gain from the outcome, I can be a dispassionate and productive factor in resolving disputes. Children will benefit from less conflict, and in some cases can meet with me as well.
Mediation offers a positive solution for children during a divorce assisting parents in promoting better methods of communication which will be key in moving forward and working together as parents for the child’s best interests long after the divorce.
Tuesday, March 5, 2019
Divorce Mediation - What to Expect
Many times the thought of going to court to resolve issues pending in your divorce is frightening. Accordingly, it makes sense, prior to going to court, to at least attempt to mediate your dissolution matter and resolve as many issues as possible.
In this excellent blog posting, Dickinson Wright offers numerous benefits of mediation:
- Recognizing Common Goals.
- Addressing the Unique Circumstances of Your Situation.
- Creating a Safe Place for Communication.
- Fulfilling Your Children’s Needs.
- Reducing the Risk of Harm to Your Children.
- Eliminating the Risk and Uncertainty of Trial.
- Reducing delays in completing your divorce.
- Having the Support of Professionals.
- Lowering Stress.
- Achieving Closure.
If you or someone you know could benefit from assistance in decision making during a divorce, contact Falmouth Mediation at 508-566-4159 for a free, no-obligation, private, confidential consultation. We will be happy to discuss the key details of your situation, address any concerns, and help you decide if divorce mediation would be beneficial.
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