Changes In Property Values Complicate Property Settlements

The Financial Times ran the below story in this weekend’s edition, looking at how shifts in the value of real estate can complicate property settlements. While the article focuses largely on how rising values – a thing of the past in most markets in the United States – can change how spouses approach their divorces and how such matters can affect timing, it is no doubt true that now declining values can have an impact, albeit perhaps in different ways, on such issues as well:

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.

SOURCE FOR POST: California Divorce and Family Law Blog
(Via Georgia Family Law Blog.)

How Will Divorce Affect My Credit?

In the unfortunate event that you get a divorce, worrying about your credit score may be the last thing on your mind. However, even during the most trying times of our lives, the world keeps spinning and the fact is, divorce can greatly impact your finances and credit history. If you are seeking or have finalized a divorce, it is time to assess what needs to be done to preserve or restore your financial reputation. Below, we will explain how divorce can affect your credit, as well as what you should do before and after your separation.

Plan Now to Avoid Potential Divorce Complications

When business owners think about wealth management, they may think of stocks and bonds, trusts and other investment options.  But one thing that is not often discussed – although it can have a significant impact on the accumulation of wealth – is divorce.
The statistics show that 40 to 50 percent of couples who marry this year will divorce.  When that statistic is added to the fact that people are marrying later and often after successful careers are under way, it means that the impact of divorce on wealth management is probably more significant than ever before.

The divorce of a business owner or executive can cause serious complications, not only to the individual, but also to the company.  This is because unless precautions are taken, a married person’s ownership of a partnership or corporation will be presumed to be marital property subject to division in divorce.

In order to avoid finding itself with unwanted partners or shareholders, a business needs to plan.  It can prevent stock or partnership interests being transferred to a non-employee spouse by several different means.

Shareholder or partnership agreements, employment agreements and buy-sell agreements are some of the tools available to prevent strangers from acquiring an ownership interest in a company.  Such agreements can provide that no shareholder or partner may transfer any ownership interest to a non-employee, or to one not in a specified category of persons.  Or, the agreement can ensure that the company has the option to purchase any stock or partnership interest owned by a shareholder or partner who is going through a divorce.

Another factor to consider is that businesses sometimes award unvested stock options or unvested restricted stock to their executives.  The options or restricted stock will be deemed marital if earned during the marriage, but most courts will not consider them marital if earned in the future, after the marriage is ended.  Because neither the individual nor the business wants them split with a divorcing spouse, which would eliminate literally half of the company-provided incentive for the executive, the company should make clear in its documents whether the award is compensation for past performance or whether it is an incentive for the executive to remain employed at the company and earn benefits in the future.

Additionally, unless stock or a partnership interest is inherited or acquired as a gift, the interest will be considered marital property, subject to being split with a spouse in a divorce, or if awarded solely to the employee-spouse, requiring an offsetting payment to the non-employee spouse.  If the stock or partnership interest is ordered split, the once-majority owner loses control, or if the employee already owns merely a minority interest, the position is further diluted.

How a business is structured is also an important factor to consider.  Not only property division but also support awards are affected by the form of ownership in a business.  For example, if a spouse owns an interest in a subchapter S corporation (a business that passes its income through to the individual owner’s tax return) courts will presume that all the reported income is actually received by the individual, and thus is available to be paid for maintenance or child support.  (Many lawyers and judges do not understand that the income reported on line 17
of the individual’s 1040 tax return may have no connection with the cash distributions actually received by the individual from the business.)

While the decision whether to become a C corporation (a business that reports and pays taxes on its income rather than having the owners report the business income) is a very complicated one, if the business owner has the option, he or she should consider the possible advantages of converting to a C corporation prior to divorce.

In my experience, the typical small business owner who is divorcing wants his or her spouse to be awarded something other than an ownership interest, making non-transferability of stock or options crucial. However, even if the company does not have agreements preventing transferability, of course a shareholder or partner of a small business can also protect that interest through a prenuptial or post-nuptial agreement.

The spouse cannot be divested of rights to marital assets unilaterally or without a fair deal being struck, but such an agreement can be structured to protect the business interest while being fair to the spouse.

These various options are only a few to consider and are best explored with trusted business advisors,  such as an accountant or business/family attorney. But there is no doubt that with careful planning, many business complications that could arise during a divorce can be avoided.

Source for post: Small Business Times

Protecting Your Business in the Event of Divorce

A business owner who is married or considering marriage, should know how his or her business may be affected in the event of divorce. The following legal issues may pertain to a business and a marriage:

• The value of your business may be included in a divorce settlement. Under Pennsylvania law, marital property is defined as all property acquired from the date of the marriage until the date of separation, including property that is titled in only one person’s name and including any increase in value in property acquired before the marriage.
• A business may be scrutinized during divorce proceedings to determine income for support and equitable distribution purposes.
• A prenuptial agreement may exclude a business from equitable distribution proceedings as long as full disclosure has been provided.

Some guidelines you can follow to generally protect a business are as follows:

• Have a good business accountant. This person should be able to help explain your financial decisions if they are called into question by the other party.
• Retain all records of the value of your business at the time of your marriage. With this information, you will be able to record the appreciation and depreciation of the business during the marriage.
• Itemize all expenses; keep accurate tax returns, records, books, and receipts. These will all be scrutinized in a support context.

Creating a fair settlement requires good information from both parties. When you have good records, you can protect your business – and yourself – in the unfortunate event of divorce.

Source for post: Divorce Source

Why Dividing Assets Is Getting Harder

The weekend edition of the Wall Street Journal had an interesting article about the increasing difficulty that couples are facing in fairly dividing their assets when they dirvorce, as a consequence of the increasing prevalence of exotic and obscure investment products, as well as the recent volatility in the housing market. The article discusses the growing popularity of “certified divorce financial analysts” and how they can help navigate thorny financial issues. You can read the article in its entirety below the fold.

But Who Gets the Dog?

Divorce is a difficult, painful process. Ending a marriage, dividing assets, and trying to maitain stable, productive parenting relationships is very, very difficult. sometimes folks borrow a little extra trouble by extending their disagreements to the pets. Really, its true. I have seen it, and, based upon this excellent post from Lee Borden at Lee’s Divorce & Family Law Blog, others have, too. Read Lee’s post, and take my word for it, he’s right on the money.

Source: Lee’s Divorce & Family Law Blog. Thanks to Dan Nunley at the Oklahoma Family Law Blog for this post on the issue.

Tax treatment of stock options in divorce

The distribution and tax treatment of stock options in the course of a divorce can be a very confusing subject. The Tax Prophet has published this newsletter that helps explain how options that are transferred from one spouse to another are treated for tax purposes.

Divorce billionaire style – and no lawyers in sight

Today’s Wall Street Journal brings us the story (free for today only) of a rather extraordinary divorce. Seems a billionaire couple decided to get divorced. Instead of cutting each other to ribbons in the press and in court, and spending gobs of money on legal fees, they got together over a bottle of wine at the Beverly Hills Hotel and came to an agreement (or close to an agreement) on how to divvy up the money and stuff. No fuss no muss. All very civilizedThe reprter who brings us this story seems to think that there’s a lesson to be learned here. Maybe there is, but I am not sure that the reporter suggests the right lesson.

Divorce and joint debt

Very often during the course of or after a divorce, one or the other spouse has a question about how joint debt is managed. Many people have some misconceptions about what their responsibilities are for joint debts, even when those debts are specifically addressed in a settlement agreement or final divorce decree. The Federal Trade Commission has published this article that helps to explain spouses’ respective responsibilities for jointly incurred debts.