Tag: debt

When is a Prenuptial Agreement Enforceable?

When is a Prenuptial Agreement Enforceable?

For years prenuptial agreements were not enforceable in Kentucky.  That all changed with two Kentucky Supreme Court decisions that were handed down in 1990.  Those decisions held that prenuptial agreements were enforceable subject to appropriate limitations.

In order to be enforceable, a prenuptial agreement must meet several requirements.  First, there must be full disclosure by both parties as to his/her financial status and holdings.  The full disclosure of assets rests primarily on the party who intends to rely on the agreement (i.e. the person with the most assets).  Courts will usually take a reasonable view of this requirement and, where it appears that a spouse was aware of the other party’s assets prior to the marriage, will deem this requirement met.

The agreement must also be freely entered by the parties without fraud, material omission, misrepresentation, duress, or mistake.  The court will usually review the agreement to determine if it is unconscionable both at the time it was executed and at the time it is sought to be enforced.  If the court finds the agreement to be unconscionable, it may modify so much of the agreement as necessary to satisfy the conscionability requirement, but should otherwise give effect to as much of the agreement as possible as long as there was no fraud or duress in its execution.

It is also wise for both parties to be represented by separate counsel during the negotiation and execution of the agreement.  This helps to show that the agreement was entered as an arms length transaction and further combat claims of fraud or duress.

Duress is a complicated issue that the court will look at based on the totality of the circumstances surrounding its execution.  As a practical matter, the agreement should be signed as far in advance of the wedding day as possible.  Courts have been concerned where agreements are presented to would-be spouses on the eve of a wedding when the church is booked, the guests are arriving, and the possible embarrassment of being “left at the altar” looms large.

Once the agreement is executed and the marriage is solemnized, the agreement may be revoked by the parties.  This may be done by physically destroying the agreement itself as with any other contract.  A court may also find that the parties through their actions and behaviors have abandoned the agreement.

A prenuptial agreement is a complicated issue that should not be taken lightly.  If you choose to enter a prenuptial agreement, be sure you understand all of its provisions and a very particular about the method in which it is executed.

Photo courtesy of Jim Hammer

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

How Do I File My Return If My Divorce Is Not Final By the End Of the Year?

How Do I File My Return If My Divorce Is Not Final By the End Of the Year?

Today’s article is brought to you by Tara R. Blazina, CPA with Kemper CPA Group.  We routinely consult with Tara and others at Kemper on tax, financial and business valuation matters. 
Filing status is determined on the last day of the tax year (usually December 31). A couple who has not obtained a final decree of divorce or separation by the last day of the tax year is considered married for tax purposes. There are five filing statuses, only four of which pertain to parties who are divorced or in the process of getting a divorce. Individuals who are deemed married can file as married filing jointly, married filing separately or as head of household (if certain qualifications are met). An unmarried individual may file as single or head of household.
Often times, married filing jointly will create a lower tax liability. However, both you and your spouse are jointly and severally liable for the tax liability. Married filing separately allows you and your spouse to only be liable for the tax reported on your separate tax returns, but may create a higher tax liability. Your tax preparer should be able to calculate both married filing jointly and married filing separate to identify the advantages and disadvantages of both filing statuses so that you may make the best decisions for your situation.
If you file married filing separately, you and your spouse may amend the return to change to married filing jointly for up to 3 years after the due date of the return (not the extended due date) However, if you file married filing jointly you may not subsequently amend the return to file married filing separately; except in the event of a death of either the taxpayer or the spouse. A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. The personal representative has 1 year from the due date(including extensions) of the joint return to make the change. [IRS Publication 504]
In order for a married individual to file a head of household, they must be deemed an “abandoned spouse”. All of the following qualifications must be met to be considered an abandoned spouse. 
  • The individual pays more than half the cost of maintaining his or her household for the taxable year.
  • The individual files a separate tax return.
  • The individual’s household is the principal home of a dependent child for more than six months of the year (this condition is met if the tax payer is entitled to claim the dependency exemption for the child, even if they do not claim the deduction).
  • The individual lives apart from their spouse for the last months of the year.

There are many facets of a divorce that can impact your tax return. It is important to discuss all options with your tax preparer and be aware of the tax impacts of your decisions. 
Note: This information is general in nature and should not be construed as tax advice. You should always work with your attorney or tax professional to determine the tax advantages that will best fit for individual situation.
What Should I Bring to My Divorce Attorney’s Office at the First Meeting?

What Should I Bring to My Divorce Attorney’s Office at the First Meeting?

In actuality, you do not need to bring anything to your initial meeting with your attorney.  However, if you want to be efficient, there are a number of documents that will be needed in almost every case.  The sooner you provide these to your attorney the sooner your attorney can get your case positioned for settlement or trial.  (It also saves your attorney the time of having to chase you down to get you to produce these documents, which ultimately saves you money in attorney fees.)  The following is a non-exhaustive list of what you will need to gather for your attorney:

1.  Copies of your last three most recent paycheck stubs.

2.  Copies of Federal and State Income taxes for the most recent tax year.

3.  Documentation of all other income for the past 48 months, including the source of the income and the amount of income received year to date.

4.  Verification of work-related child care expenses.

5.  Verification of cost of health/dental insurance for children’s portion (e.g. difference between cost of single and family plan).

6.  Most recent statement of each bank account.

7.  Most recent brokerage statement or documentation of purchase and/or value for each investment.

8.  Copies of all deeds, mortgages, liens, etc. including current tax assessments for all property.

9.  Declaration page(s) of life insurance policies and documentation of cash surrender value. (This only applies to whole-life policies.  Term policies do not have a cash value.)

10.  Documentation of benefits accrued in pension, profit sharing, 401(k) or other retirement plans, including most recent statements of each such plan and the name, address and phone number of plan administrator.  If any portion was acquired prior to the marriage, provide documentation of the value as of the date of the marriage.

11.  Payoffs of any vehicles and copies of titles.

12.  For each business interest, list name of business, extent of interest or title in business (i.e., owner, shareholder, partner, etc.), provide a copy of last income tax return filed by business and documentation of income earned (or portion received) through business during last twenty-four months.

13.  Provide a list describing any other assets you have an interest in, including any documentation as to the value of the non-marital interest, date asset was acquired, and source of non-marital interest (trace and document non-marital funds used to acquire each asset).

14.  For each asset in which you claim a non-marital interest, provide the basis and approximate value of non-marital claim.  Documentation tracing any non-marital assets shall be produced if available, and if not currently available, shall be produced when available or as specified by separate court order.

15.  For each debt, provide the last statement or documentation of unpaid balance, or explain why documentation is not available.  A short summary of why the debt was incurred would be helpful as well.

16.  For each debt designated as “non-marital,” list the party you think should assume responsibility for said debt and why.

When you deliver this information to your attorney, the more organized you can make the information, the better.  A neatly tabbed three-ring binder is much, much easier to review than a garbage bag full of documents that may or may not have any relevance to your case.  We have had numerous clients show up with garbage bags and shoeboxes full of documents that we have to wade through to get their case prepared for trial.  They then get upset when we have to charge them to do that.  Save yourself the money and the stress, get organized and help your attorney help you.

Photo courtesy of alborzshawn