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If you and your spouse are ending your marriage, one of the first hurdles you will face is property division.
Making sure you are well-prepared will help the process go more smoothly, and preparation may include opening separate bank accounts.
Understanding the rules in California
California is a community property state, which means that the court will divide your marital assets and debts equally. In general, you can expect a settlement that is as close as possible to a 50/50 split. However, before making the final decision, the court will consider points such as your age, your current financial situation, potential earning power, the length of your marriage, child custody responsibility and whether you signed a prenuptial agreement.
The more assets you have, the more complex property division will be, which is why advance preparation is so important. You must identify and place a value on marital assets that you and your spouse own. Separate assets that you owned before your marriage will still belong only to you. Both you and your spouse should have all your financial documents in order. Keep one set for yourself, and provide another to your divorce attorney.
Opening separate accounts
If you feel that financial issues may arise during the property division phase of your divorce, consider closing all joint credit card and bank accounts and opening new accounts in your own name. If there is a joint account that you wish to keep for the time being, your attorney should prepare a written agreement for you and your spouse to sign that explains the purpose for the account and how you will use the funds.
Looking toward the future
Ending a marriage is never easy, and property division can be especially difficult from both a financial and emotional standpoint. Organizational and financial preparedness will help you navigate the process so that you can look forward with confidence to the next chapter in your life.
Having a family is something you may have dreamed of all your life. When things do not work out the way you planned, it can be quite upsetting. Luckily, modern medicine has brought us many ways in which to get the family we want through nontraditional means. If you decide to use a surrogate in California, then you first need to brush up on surrogacy law.
The state has some strict guidelines in place to protect you and the surrogate. The law makes sure the transaction is fair while also realizing the amount of human emotion involved. Plus, it does not forget that at the heart of this situation is a baby, a brand-new life, that requires some stability. The law works to ensure that happens and that there is little to no room for issues once you enter the surrogacy contract.
- The agreement must be in writing
California Legislative Information explains that your surrogacy agreement must contain the stated identity of the parents of the child, including where the gametes came from, and the date of the agreement. If you use an anonymous donor, you do not have to include the donor’s identity.
- You cannot begin any procedure before the agreement
This is a sticking point of the legislation. It is essential that your surrogate not start any medical treatments or undergo any related procedure for the surrogacy until she signs the surrogacy agreement. You have to have this agreement legally enacted before you start to get all the protections offered.
- Everyone needs their own attorney
The law states that you and the surrogate must have separate legal representation; you cannot use the same lawyer. It helps to ensure you both understand the agreement and the details of the agreement you are about to sign.
Hiring a surrogate is not an easy decision, and the process can be stressful. To avoid issues, you need to make sure you understand the related law and get your surrogacy agreement in place.
A will is a plan that you will never get to enact yourself. After all, a will conveys your wishes for what happens to your assets and property after your death. Because you will never be able to oversee the enaction of your plan, you need to choose someone to carry out the plan. In a will, this person is an executor and is a job that comes with great responsibility.
Your choice for executor is as personal as the contents of your will. People typically choose an organized and trustworthy person close to them like a spouse, sibling or adult child.
The job description
You and your will’s executor will collaborate on the strategic elements of your will. This includes cluing them in to the location of your will and how to find your will. Once they find your will, they will take inventory of your property and assets and ensuring that your listed beneficiaries receive their inheritance.
The executor will also have their hands full tying up any loose ends of your life, including everything from bank accounts, collecting the mail, closing credit cards and email accounts and more. They will likely need copies of your death certificate to complete many of these tasks.
One of the most important tasks your executor completes is your final taxes. Failure to complete any of these may lead to a probate court replacing your executor with someone of your choosing. California courts typically choose spouses, then siblings and children.
Who will you choose?
Who you choose for your will’s executor is a big decision. Choosing the wrong person could make your family’s life more difficult, which is something no one wants. However, a responsible and organized executor can the grieving process easier by reducing stress.
Probate almost seems like a bad word. Many people have a fear of this process without even understanding what it is. Probate in California is a legal proceeding, but unlike common belief says, it does not always take a long time. However, it does cost money and take some time, so many people prefer to avoid it if they can. You can help your heirs by creating an estate that essentially avoids the process completely.
The California Courts explain that you can set up certain assets and accounts so they transfer easily upon your death without the need for the court’s involvement. It is also possible, based on the value of your estate, to avoid probate.
Small estate rule
The small estate rule says that if your estate is worth under $150,000, then you may be able to bypass probate. In any case, with an estate of this value, you can simplify probate even if you cannot avoid it altogether.
You can also set up certain accounts that transfer to a beneficiary upon your death. Life insurance is a great example of this type of account. The court does not have to be involved in this transfer because it automatically happens under the law.
This works best for property. If you and someone else own property together, the ownership transfers to the surviving owner upon your death. Again, this is a legal and automatic occurrence, so no need for probate.
A living trust is another way to transfer assets and avoid probate. You can create this while you are still alive and put assets into it that you will decide who they go to upon your death.
If you really want to save your heirs from the probate process, you may be able to set up all your assets to avoid it. Just make sure that you get some guidance from a professional to ensure everything goes as planned.
Perhaps you are a 30-something woman who is facing divorce. One of your first concerns is about the custody of your 10-year-old daughter.
You gave up a job to become a stay-at-home mom when Emily was a baby. What will happen now? What will the court decide in the matter of child custody?
Different types of custody
There are two forms: legal custody and physical custody. Physical refers to where Emily will live most of the time while legal refers to making important decisions about her welfare and upbringing. Most of the time divorced parents have joint custody. For example, Emily might live with you in the family home she has known all her life, but she would also have a home with her father. In other words, while you might have primary custody since Emily will reside with you most of the time, visitation rights for Dad will be part of the parenting plan you and he will work out.
Back to the workforce
One thing you should keep in mind is that in divorce courts across the country there is renewed emphasis on stay-at-home moms returning to the workforce after a divorce. Even in cases where the husband makes a very good income, women who expect to receive maintenance as well as child support may find that the court encourages them to earn their own way. The judge who hears your divorce case may view the situation differently, especially if you obtain primary custody over your daughter, but it does not hurt to prepare for a different reality.
How the court determines child custody
The primary consideration will be Emily’s best interests. Therefore, the judge will consider her age, state of health and ongoing needs, as well as her family, school and community relationships and how able you and her father are to care for Emily. Going into your divorce, you will have the benefit of legal guidance, which will include helping you manage the concerns you have over child custody matters.
Now that it’s 2019, the effects of the Tax Cuts and Jobs Act are official. One change is that alimony is no longer tax-deductible for the payor, although it is still considered income for the recipient. Another involves the valuation of a business in divorce — many businesses will be valued more highly than before. What do you need to be aware of?
Alimony payors may need to negotiate more
In the past, alimony payments could be deducted by the paying spouse, while they were taxable income for the receiving spouse. That had been true since the Revenue Act of 1942. In general, the arrangement resulted in a higher overall income for the divorced couple as a unit, so adjustments may have to be made in other areas to have the same overall effect. For example, the paying spouse might receive a greater share during property division in order to offset the new tax.
An open issue in this area is how old prenuptial agreements will be handled. Some pre-2019 prenuptial agreements specify a particular amount in alimony and were negotiated with the understanding that the alimony paid would be deductible by the payor spouse. Will courts allow changes in the terms of these agreements to reflect the change, or will they be more inclined to invalidate the agreement under such circumstances?
Some flow-through entities will be valued more highly
The new tax law will also have the effect of increasing the cash flow for many flow-through or pass-through entities. These are legal entities where the entity’s income is treated as the income of the owners or investors. Examples include sole proprietorships and S corporations.
As a result, flow-through entities may be valued more highly by forensic accountants and others who value businesses for divorce purposes. The business valuation is often used in negotiations over property division, as well as when one spouse will be buying out of a shared business.
A QDRO is typically required to divide retirement assets
Most divorces are resolved out of court, with the parties presenting a negotiated or mediated settlement to the court for approval. This settlement then becomes the divorce decree.
When negotiating the settlement, you should be aware that a qualified domestic relations order (QDRO) is generally required for a tax-free transfer of retirement funds from one spouse to the other for the purposes of property division.
As you may know, withdrawing retirement funds early from an IRA or 401(k), for example, can result in both taxation and early withdrawal penalties. You generally need to be at least age 59-1/2 to make the withdrawal without taxes and penalties. Therefore, it is typically disadvantageous to have one spouse withdraw funds and transfer them to the other.
To divide these assets without incurring the taxes and penalties — or at all, in some cases — any transfer of retirement assets generally needs to be made under court order, meaning a QDRO. The plan administrator may not have the authority to make a transfer without a QDRO.
The reason this is important during negotiations is that any QDRO must comply with the plan’s rules. Ideally, you should verify that it does before you finalize your agreement and ask a judge to approve it. That way, you won’t need to go back to court a second time because the QDRO did not comply.
Tax issues can profoundly affect the value of your divorce settlement. It’s important to work with an attorney who understands how taxes affect spousal support, child support and property division issues.