There are a lot of issues related to money that you will come across in a Texas divorce. Divorce is a business transaction at its heart. True, you are dealing with emotions, family issues and children but the bottom line is that what a divorce boils down to is dividing up various components of your life with your spouse. This may make you feel a little uncomfortable but it’s the truth.
Money and finances may have led to your divorce. Money fights and money arguments can either be the root cause of a divorce or can be a symptom of a bigger issue that ultimately dooms a marriage. If you fall into one of these categories then you have come to the right place. I would like to share with you some information today on issues that are important to many divorces but that often fall between the cracks when it comes to divorces in Texas.
Your attorney should do everything that they can to help guide you on these subjects. Attorneys are not financial or tax experts. They should not be relied up on to answer questions dealing with investment choices, specific tax implications of divorce and things of that nature. However, you should have an experienced family law by your side to give you guidance on how these subjects can impact you and your divorce.
Social Security issues in your divorce
If you are getting closer to retirement age the Social Security may be a significant concern of yours if you are going through a divorce. People over the age of fifty are getting divorced with greater frequency now than at any point in the past. The challenges that people face in their golden years can differ from the challenges that younger individuals face in divorces. Here is what I believe you need to know in regard to Social Security and your divorce.
If you are aged 62 or older, not married and your ex-spouse is entitled to Social Security retirement or disability benefits you may be eligible to claim benefits based on the income earned by your ex-spouse
There are conditions that need to be in place prior to this occurring, however. You need to have been married to your ex-spouse for at least 10 years, be a single person (i.e. not married), be aged 62 or older and your ex-spouse must be eligible for retirement or disability benefits from Social Security. Finally, the amount of Social Security retirement or disability benefits you stand to receive must be a lesser amount than what you would receive from your ex-spouse.
You would stand to receive a benefit amount from Social Security that would be equal to half of the retirement or disability benefit on a monthly basis that your ex-spouse stands to receive. You should make your attorney aware of your age and that of your spouse at the beginning of your divorce. This will allow you and your attorney to take these potential benefits into consideration when negotiating a division of your community estate.
Your attorney can contact Social Security (or ask you to do so) in order to learn the specifics of the benefits that you all stand to receive. Additionally, your attorney can request that same information during the discovery phase of the case. Many times it could be that you are able to take advantage of these benefits and do not have a need to request spousal maintenance at the conclusion of your divorce.
Special issues for teachers who are going through a divorce in Texas
In exchange for earning a rather modest salary for the degree of difficulty that is a part of their work, teachers receive an assurance that they will receive in benefits what they lack in income. Part of those benefits are contained in pension plans through the Teacher Retirement System of Texas. Retirement benefits through the TRS come from income that is deducted from their paychecks each month.
Pensions are tricky in the context of a divorce because attorneys and clients want to know what the present value of an asset is in order so that it can be accounted for in the divorce. Pensions have little to no present value. It’s not like a 401(k) where you can look up the current value of your account anytime. Pensions are trickier than that and make the property division in your divorce even trickier.
If your spouse is a teacher you need to know that the TRS cannot pay you any benefits under the pension plan until your spouse retires. You cannot cash out any portion of a plan awarded to you in a divorce at the time the case is finalized. If you are in need of cash right now then you should not bank on getting it out of a teacher’s retirement plan. A major benefit of a TRS plan is that often times the monthly payout on one of these plans is often times higher than from a 401(k). This can obviously vary from person to person, but the fact that the TRS mandates a monthly investment means that the payout at retirement if often times more.
In going through your divorce you need to be aware that you should not try to a lump sum payout under an opposing party’s teacher retirement plan. Instead, your attorney should be asking for a percentage share of the account. If you stick to using this sort of more precise language you stand to know what you will receive rather than leave it up to a TRS plan administrator.
Taxes, taxes, taxes
I can’t blame you if you just rolled your eyes or groaned loud enough for your neighbor to hear after reading this title to this section of today’s blog post. Nobody likes taxes. They are a reality for all of us, however. You need to know how taxes will impact your divorce and what you can do to minimize the amount that they eat away at whatever you take away from your divorce.
First and foremost, the property/assets that you receive in a divorce are taxable. You will need to figure out what your basis is for each piece of property. The basis is the value of the property at the time you acquire it in the divorce minus what the property was worth at the time it was purchased. On very valuable property it would make sense to have the property appraised and then meet with a tax professional to find out your specific liabilities when it comes to taxes.
Credit cards and their potential impact on your Texas divorce
If you own a credit card that allows you to deposit money into the card and make purchases with the money on that card then you have what is known as a prepaid balance card. Basically, it functions just like a gift card. These type of credit cards are pretty simple to deal with in a divorce when compared to a normal credit card. A prepaid credit card can be assigned to either you or your spouse in the divorce. The beauty of doing so is when the balance on the card is gone, the card can be closed and set aside.
In order to properly account for money deposited into a card like this your attorney should ask you for the balance of any prepaid cards so that it can be considered when listing out assets at the beginning of a divorce. If you believe that your spouse has a card with a fairly high balance but do not know the specifics a request can be made in discovery to gain access to that information.
Should you prepay a credit card during your divorce?
Some spouses in a divorce will go out of their way to hide assets from their counterpart. For instance, did you know that your spouse could hide cash on hand by prepaying a credit card balance? Suppose that your spouse has a credit card that is only in his name and that you do not have access to. Your spouse could pay $5,000 towards a $500 balance, thereby hiding $4,500.
What ends up happening is that the same person can make an argument that he has no debt but also has no cash. There is nothing incorrect about that assessment, but the fact remains that he is being dishonest with you and has acted fraudulently. When he makes an offer to take on the responsibility for that card and any balance on it at the conclusion of your divorce, if you agree to that he will have gotten away with his bad acts. Rather than taking on a liability, your spouse has gained another asset through tricking you and your attorney.
There are ways to prevent this from happening and you and your attorney should be wise to those ways. First, you need to request a copy of the credit card statement at mediation or in discovery. Do not rely on a cell phone screen shot of the balance/charge log for the account. Request a paper copy of a statement showing charges, payments and the balance on the card. If he is hiding money in the card account then this is the mechanism to figure that out.
The other thing that I will advise clients to do is to go home and run a search for your credit report. You can see any active credit cards and their balances as of the last time that the credit card company reported that information to the credit bureau. You can ask your spouse to produce a copy of his credit report in discovery if he will not turn it over to you informally.
On the other hand, there are legitimate reasons why you or your spouse may want to prepay a credit card. For instance, it can make sense for you to prepay the card if you are attempting to build credit for your post-divorce life. Or you may want to open a small business after the divorce and need a higher credit limit because you need to put items on the card for your business. Whatever the reason may be you need to examine your spouse’s motivation for doing so.
You may be motivated to pay down a credit card or to prepay if you are concerned about your spouse racking up a bunch of debt during the course of your divorce. Many spouses are impulsive spenders that I encounter. These folks will spend money that they don’t have to buy things that they don’t need to impress people that they really don’t like all that much. The consequences can be profound for a couple that is already facing tight financial circumstances due to a divorce. Prepaying the card may be a defensive mechanism employed against this type of scenario playing out. Speak to your attorney prior to doing so, however.
What happens when a credit card balance is not paid by a spouse after the divorce?
If you are concerned about your spouse living up to their end of the divorce decree at the conclusion of your divorce then I recommend that you join us tomorrow to discuss this topic in our blog. We will be going through a scenario that plays out with relative frequency- a debt is assigned to one spouse in the divorce but that spouse fails to pay the debt as agreed to in mediation or as ordered by the judge.
In the meantime, if you have any questions about the material that we covered today please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week where we can answer your questions in a comfortable and pressure free environment. It can be a great advantage to you and your case to have received feedback from an attorney prior to ever filing your divorce. Talk to us today aobut how we can help you and your family.