Category: marital debt

How Can I File Taxes While Going Through a Divorce?

How Can I File Taxes While Going Through a Divorce?

In this world, nothing can be said to be certain, except death and taxes.
                                                                                                – Benjamin Franklin


Unfortunately, the fact that you are going through a divorce does not change the wisdom of  Dr. Franklin’s quote.  Even while going through a divorce, you will still have to figure out how to file your taxes.  One of the key questions that controls how you can file is whether you were still legally married as of December 31st.  Keep in mind that any tax refund received is most likely marital property and any tax debt owed is most likely going to be considered a marital debt.  Therefore, it is in everyone’s best interest to work together to file the return in the most mutually beneficial way possible.

  • Filing Jointly:  If you and your spouse were still legally married on December 31st, you can file a joint return.  If you choose this option, you should also complete IRS for 8888 which allows you to direct funds to more than one account.  This eliminates the need to secure each other’s signature on a joint refund check.
  • Married Filing Separate:  Even if you are still married on December 31st, you can still file a separate return.  Keeping in mind the issues about marital property and debt.  However, this might be a preferable option if you suspect your spouse may be trying to cheat the government or simply will not otherwise cooperate in filing a return.  If there is a later court order or agreement, you may be able to amend an individual return with a joint return.  Be aware that you cannot amend a joint return with an individual return.
  • Head of Household:  If you are are single or legally separated as of December 31st, you may file as head of household if you have maintained the principal place of abode for the children for the entire year or you paid for maintaining the house for more than half the year.
  • Single:  If you are divorced by December 31st, you can also file single for the tax year.

As with anything tax related, you should discuss your particular situation with your tax professional to determine the best way for you to file.  Before you make any decisions about how you are going to file your tax return, you need to discuss the issue with your attorney.  You need to do this as soon as possible in your case because your attorney may need time to file an appropriate motion with the Court before the April 15th deadline hits.

Photo courtesy of John Morgan

Should I Get a Prenuptial Agreement?

Should I Get a Prenuptial Agreement?

Many people who have felt the sting of a divorce decide to once again take the plunge and tie the know once again.  When they do, they often want to minimize the chance of going through the divorce experience again.  That is where a prenuptial agreement comes in.

Prenuptial agreements are also called antenuptial agreements, premarital agreements, or prenups.  Prior to approximately 1990 they were not even allowed in the Commonwealth of Kentucky because it was believed that they would actually encourage divorce.  A Kentucky Supreme Court case allowed couples to determine how their assets and debts would be divided in the event of a divorce thereby bringing Kentucky into line with a number of other states on this issue.

The issue of whether you should even bother with a prenuptial agreement really depends on your situation.  If either one of the soon-to-be-spouses has significant assets that they wish to keep separate from the other spouse, a prenuptial agreement is a definite consideration.  If neither party is coming into the marriage with any significant financial holdings, there probably is no real need for one.

If you have determined that a prenuptial agreement is something that you want to consider, it is important to understand what can be covered and what cannot.  Moreover, the actual drafting and way the document is executed is important as well.

A prenuptial agreement can cover a number of issues such as:

  • What property is each party’s non-marital property
  • What property will remain each party’s non-marital property
  • How marital property will be determined in the event of a divorce
  • How each party’s property will be divided in the event of a divorce or even death
  • How debts will be divided in the event of a divorce
  • The effect commingling assets will have in the event of a divorce
  • How income and appreciation in value of assets will be treated in the event of a divorce
  • What happens to each spouse’s retirement benefits in the event of a divorce
  • Whether maintenance will be awarded and how much

A prenuptial agreement cannot deal with any issues involving child custody or the payment of child support.  Those issues will have to be decided upon either by agreement of the parties in event of a divorce with approval by the court or the court will have to make the final decision.  The reason for this is that the court is the final arbiter of child custody and, more specifically, the child’s best interest in the event of a couple’s divorce.  That decision cannot be predetermined prior to the marriage even taking place.  Additionally, child support is typically seen as a right of the child which cannot be bargained away by either parent prior to the divorce.  In fact, many judges are loathe to allow child support to be waived absent a showing of good cause in the event of an actual divorce.

In a future post, we will discuss the actual execution and enforceability of a prenuptial agreement.  For now, if you think a prenuptial agreement may be right for you, it is important that you meet with your family law attorney, estate planning attorney and financial adviser to discuss your options.

Photo courtesy of scienceatlife

Student Loans and Divorce

Student Loans and Divorce

It has been all over the news about the mountain of student loan debt taken out by college students to fund their education.  As college education costs continue to rise, students are taking out more and more loans.  Some believe that this is setting up a potential “student loan bubble” that could burst and wreak havoc on the economy in much the same way the housing bubble did a few years ago directly leading to the “great recession” of 2008.  With the fact that so many professionals have incurred student loan debt, it is inevitable that student loan debt is an issue that will have to be dealt with in many divorces.

Certainly if the loans were incurred prior to the marriage, the debt is non-marital.  Additionally, ss a general rule, Kentucky has held that student loans are non-marital debt even if taken
out during the marriage.  This goes hand in hand with Kentucky’s position that a non-student spouse does not have a marital interest in the educated spouse’s degree.  This was an argument that used to be made in cases involving doctors, lawyers, etc. whose spouse supported them through graduate school.

As with most things in divorce litigation, there are exceptions to most rules.  Many times, students who are married take out loans that are in excess of the amount needed to actually finance their education.  The excess funds are used to cover rent and other living expenses during the semester.  If the student spouse can establish that a portion of the debt was used for living expenses and did not all go directly to education, he/she may be successful at getting part of the debt declared marital and forcing the other spouse to share the burden.  This will require some planning and most likely researching costs of education at the time of the loan compared to the amounts borrowed and other possible documentation.  If this is an issue, it is imperative that you discuss it with your attorney as soon as possible to ensure that there is sufficient time to secure all of the necessary documents through the discovery process.

Although the general rule says that student loans will go to the spouse who incurred them, it may not be the situation in your case.

Photo courtesy of Simon Cunningham

What is the Difference Between Marital and Non-Marital Debt?

What is the Difference Between Marital and Non-Marital Debt?

We have previously discussed the difference between marital and non-marital property.  There is also a difference between marital and non-marital debt.  With property, the court will start off with a presumption that property acquired during the marriage is marital property.  That is not entirely true with debt.

The true inquiry that must be made is did the debt serve a marital purpose.  This is a fairly broad concept that looks to a number of factors:

  1. Did both spouses participate in incurring the debt?
  2. Did both spouses receive a benefit from the debt or whatever was purchased with the debt?
  3. Was the debt incurred to purchase marital assets?
  4. Was the debt necessary to support the family?
  5. Was the debt incurred for a non-marital purpose or one that did not benefit the entire family?
  6. The respective economic circumstances of each party to handle the indebtedness.

As a general rule, most debts incurred during the marriage will be marital debts.  This would include mortgage debts, car payments, etc.  However, many times a spouse will be in the midst of a divorce and through the discovery process  learn that there are credit card debts or other obligations of which he/she was not aware.  Then the inquiry must be made as to why this debt was incurred.  One example might be where a husband is shocked to learn that his wife has an electronics store credit card with a debt of two thousand dollars.  Nevertheless, he is well-aware of the fifty inch television sitting in his living room that appeared after one of the wife’s shopping excursions.  The family has benefited from the television and absent some other odd circumstance, that debt will be considered marital.

A converse example, would be a situation where the wife learns of a credit card her husband has.  This credit card is used by the husband primarily to pay for time at the local no-tell motel with his mistress.  Obviously, this debt did not benefit the family in any way, therefore, it would be a non-marital debt.

I routinely advise clients at the beginning of a divorce to get a copy of his/her credit report to determine if their name is listed on any debts of which they may not be aware.  Many are surprised by what they find.  Where there is concern about the debts owed by the parties, it becomes very important to secure information on why the various debts were incurred to make sure that you are not burdened with more than your share of the debt.

Photo courtesy of Chris Potter