If you are recently separated or divorced it is important to maintain good credit. If you allow your credit score to fall you may have difficulty buying or renting a home, obtaining insurance, buying or leasing a car, or finding a job. So, what can you do to maintain or improve your credit especially when you may feel overwhelmed financially?
Amy and Curtis Arnold, in their Huffington post article, How to Improve your Credit Score After Divorce, have the following suggestions:
Establish New Credit: Closing joint accounts and establishing accounts in your own name is a good step toward maintaining good credit. Initially, your credit score might go down because you have less credit available to you, but if you reestablish credit, that dip should be temporary.
Review your Credit Reports: You are entitled to a free credit report every 12 months from the three credit reporting companies, Equifax, Experian, and TransUnion. Go to annual credit report, to request all three. Once you have the reports, carefully review them and determine which accounts are held in your name and which you are a joint holder. Sometimes a spouse opens an account listing you as a joint or authorized user without your knowledge, which is why it is important to review your credit report.
Pay Bills on Time: If you are considering paying bills late, or worse, not paying at all, you should reconsider. This action could be extremely detrimental to your credit. One missed bill payment or a late mortgage payment could affect your ability to purchase a home and/or open accounts in your own name down the road. If you think you might be late with a payment, contact the lender or creditor, explain your situation, and ask for an extension. While there is no guarantee that they will agree, if they do, your credit will not be damaged, so long as you pay according to any new agreed upon terms.
Work with a Family Law Attorney: Mr. Arnold’s article recommends working with an attorney who focuses on family law. Having an attorney who you trust and who can advocate for you is important at this time when emotionally you may not be able to make rational or reasonable decisions. If you and your spouse are not able to agree on finances, a family law attorney, such as Geraldine Welikson Hess at Hess Family Law, can help you review your options and seek assistance from the Court when necessary.
Educate Yourself: If you were not the spouse in charge of finances, now is the time to educate yourself. Read articles, talk to a financial advisor, and gather information. Knowledge equals empowerment.
Be Wary of Retail Therapy: Divorce can be emotionally difficult. Oftentimes people turn to retail therapy to ease their pain. However, this could lead to significant debt and/or depleting savings. Before making a purchase, determine whether you really need the item. Ask yourself why you are buying the item and think about how it will affect you financially down the road. You may also benefit by talking with your attorney and/or a financial advisor about the pros and cons of spending vs. savings while you are going through the divorce process. Taking a moment to consider options often leads to better financial decisions.
April 15th, the day you must file your tax returns or request an extension, is fast approaching. If you and your spouse separated during 2015, you may be wondering how to file your taxes. If you were not divorced on or before December 31, 2015, the IRS considers you married for 2015, even if you lived separate and apart for the majority of the year. Therefore, you must either file a joint tax return together or you each can file your own married, filing separately tax return. If you entered into an Separation Agreement that addressed how tax returns would be filed then your Agreement will dictate how to file. Absent an Agreement that addresses tax filings, then you likely have a choice whether to file jointly or married filing separately.
For many families, filing a joint return will result in the most tax savings for the family as a whole. However when it comes to cash refunds and cash flow, there may be reasons why it benefits some spouses to file married filing separately. Thus, it is important that you first consult any Agreement you may have, and then consult with your accountant and/or family law attorney to review your options. If you decide to file separate returns, be aware that only one parent can claim head of household and/or dependency exemptions related to the children. Therefore if you do not already have an agreement with regard to these issues it is important to communicate with your spouse just prior to or shortly after filing to avoid you both claiming the exemptions. If both you and your spouse claim the dependency exemptions you may be more likely to be audited. If you both claim the exemptions it is likely that the spouse who filed their return first will get the benefit of the exemptions.
If you file married filing separately, you and your spouse can later on decide to amend to file a joint return. If you file a joint return, you cannot later amend to file married filing separately. But be aware that if on April 15th you file for an extension, rather than filing your actual return, the act of an extension may later prevent you from amending your married filing separately return to a joint return. Before filing for an extension you should consult with your accountant for advice regading any impact the extension will have on your ability to amend your filing later on.
Your tax returns provide us with information about your income and the source of income, income producing assets, and your investments, as well as whether you over or under withhold taxes from your paycheck. This information enables us to provide better advice in regard to division of assets and payment of support. Review of your tax returns is an integral part of your family law case; the attorneys at Hess Family Law ask that you provide us with your past tax returns. How many years of returns will depend on the issues in your case, but almost always we want at a minimum the past three years.
We can obtain copies of tax returns through the court discovery process if you do not have them. Other ways of obtaining copies of your tax return may include asking your tax preparer to provide copies, or obtaining copies from the IRS. To obtain a copy of your previously filed and processed tax return with all attachments, including Form W-2, you should complete Form 4506, Request for Copy of Tax Return, along with a $50.00 fee for each tax return requested. You have to allow 75 calendar days for the IRS to process your request. Tax Returns are generally available for returns filed for the current and past six years. On jointly filed tax returns, either spouse may request a copy and only one signature is required.
Oftentimes we don’t want to wait 75 days for the tax return to arrive, and/or it is cost prohibitive to pay $50 per tax return. The solution may be to order a Tax Return Transcript instead of the actual Tax Return using Form 4506-T. You can request your tax return transcript online directly from the IRS rather than making a request by mail. For a short time the IRS allowed individuals to obtain immediate transcripts of prior tax returns, by online download. However, due to security measures the ability to download a copy of your tax transcript has been suspected. It should take between 5 and 10 days to receive your tax transcript through the mail. Click here to learn how to obtain your tax transcript.
If you have a child applying to college or currently in college then you have probably assisted them in applying for financial aid. There are two major financial aid forms: the Free Application for Federal Student Aid (FAFSA) and the CSS Profile. The FAFSA requires financial information only from the custodial parent, which for purposes of the FAFSA application is defined as the parent that the child lives with more than 50% of the time. This applies to students whose parents are divorced or have been separated for at least six months prior to filing the FAFSA application. However, if the custodial parent remarries, the stepparent’s financial information must be included for financial aid purposes. Additionally, any child support that a parent receives is considered income for both the FAFSA and CSS Profile.
Divorced or separated parents should note that most but not all colleges that require the CSS Profile expect the noncustodial parent to complete a noncustodial Profile form. Both the custodial and noncustodial parents’ income is considered. However, the total family contribution from both parents is usually slightly less than if the parents were still married, because colleges take into consideration the added cost of maintaining two households. If both parents income is considered by the college then a stepparent’s income is not usually included; however if the college only requires the custodial parent to report income and that parent is remarried, the stepparent’s income will also be considered.
If a 529 college savings plan is owned by the non-custodial parent, you may want to consider changing the account owner to be the custodial parent. A 529 plan that is owned by the custodial parent is reported as a parent asset on the FAFSA (worst case impact, a reduction in aid equal to 5.64 percent of the account’s value) but distributions are ignored. If the 529 plan is owned by the non-custodial parent, it is ignored as an asset, but distributions count as untaxed income to the beneficiary on the FAFSA (reducing aid eligibility by as much as 50 percent of the distribution). Having a 529 plan owned by the custodial parent will reduce the impact on eligibility for need-based aid.
Generally speaking, a child of divorced parents will qualify for more financial aid if the custodial parent is the parent who earns the lesser income. This may be a factor that parents want to consider when determing custody of their older almost college bound children. However, if parents live in different school districts and the children attend public school it may be suspect for the custodial parent to live in one school district and the minor child attends school in the non-custodial parent’s school district. Also, know that you may be asked to provide a court order demonstrating custody and/or a custody agreement so you need to make sure you take care of obtaining agreements and court orders before applying for financial aid. Attorney Geraldine Welikson Hess and Hess Family Law can assist clients with any initial or modification of custody needs.
While January has traditionally been the month when FAFSA applications can begin to be filed, starting with the 2017-2018 school year the FAFSA application can be completed as early as October 1st of the previous year. Click here for more information regarding changes to the FAFSA during 2016. If you have questions about the FAFSA or CSS Profile you should contact a financial aid expert or FAFSA directly.
Sources: Paul Bishop February 12, 2016 Want More Financial Aid? Get a Divorce
Emma Johnson September 9, 2015 College Financial Aid Advice for Divorced Families
When the rich and famous get divorced their divorce settlements usually involve millions. Slice.ca lists 20 of the costliest celebrity divorce settlements of all time. For example, according to The Guardian, media mogul Rupert Murdoch's divorce from his second wife Anna Torv cost him $1.7 billion. The Daily Mail reported that Mel Gibson’s wife and mother of their seven children received approximately $850 million as part of their divorce settlement. Wondering what other celebrities had to pay large settlements, click here.
Many of the celebrities cited in the article were married before they became rich and famous. Those that married after their financial success may have avoided some of the emotional and financial fallout of their divorce if they had entered into a Prenuptial Agreement prior to their marriage. It appears that all of these famous couples did enter into settlement agreements, enabling the couples to decide on the terms of their marital dissolultion rather than letting a judge decide the terms of their marital dissolution during a public trial.
Attorney Geraldine Hess, and Hess Family Law can assist clients with the negotation and preparation of Prenuptial Agreements or Settlement Agreements.
Texting is a great way to stay in touch with your spouse, ex-spouse and/or your kids, especially if you are separated or divorced. In some cases, parties that are separated or divorced have difficulty communicating. Anger, stress, and frustration can cause parties to dread phone or face-to-face communication. By sending short text messages, parties can communicate efficiently without having to engage in lengthy conversations. However, you should be mindful that unlike phone conversations, there is a record of your text message conversations and just like emails; text messages can end up in the courtroom during your divorce or custody dispute.
How common is this? According to a survey by the American Association of Matrimonial Lawyers® (AAML), 94% of the respondents cited an overall rise in the use of text messages as evidence during a trial. In fact, text messages were the most common forms of evidence taken from smart phones holding the top spot at 62%, e-mails follow at 23%, phone numbers and call histories at 13%, with GPS and Internet search histories each sharing 1%. Why the increase in text messages as evidence in divorce and/or custody cases? Unlike phone conversations, text messages are a written record of a dialogue between spouses, ex-spouses or children. They can be used to highlight problems such as parenting issues, irresponsible behavior, and even contradict sworn testimony.
If text messages may end up in Court, what are your options? As I discussed in Technology Makes Communication Easier, if you cannot verbally communicate, it is better to use email and/or text messaging then to not communicate at all. But, never send an email or text message in the heat of an argument. And, never send an email or text message that you would not want a Judge to read. While technology has its drawbacks, if used properly, it can make managing two households a lot easier.
Although some believe that shared custody arrangements expose children to additional stress due to constantly moving from house to house, a Swedish study indicates that the potential stress from living in two homes is outweighed by the positive effects of close contact with both parents. Despite the hassles of living in two homes, most children in the survey stated that a close relationship with both their parents was most important.
The study, Fifty moves a year: is there an association between joint physical custody and psychosomatic problems in children? published in the Journal of Epidemiology and Community Health suggests that kids fare better when they spend equal living time with both parents. The study compared children in joint physical custody arrangements, with those living only or mostly with one parent and those living in nuclear families. Based on a national survey of nearly 150,000 Swedish children aged 12 and 15 years, the study found that children who live equally with both parents after a parental separation suffered from less psychosomatic problems such as sleep problems, difficulty concentrating, loss of appetite, headaches, stomachaches and feeling tense, sad or dizzy than those living mostly or only with one parent. However, children in joint custody arrangements still reported more psychosomatic problems than those in non-separated or divorced nuclear families.
For more information on Child Custody, please click here.
Divorce filings rise in the month of January because couples tend to wait until after the holidays to separate. James McLaren, past president of the American Academy of Matrimonial Lawyers commented that in the month of January “we see a significant increase in people seeking out divorce advice and, ultimately, filing. The number of filings is one-third more than normal.” Similar trends are seen in the U.K.: 1 in 5 couples plan to divorce after the holidays, according to a recent survey of 2,000 spouses by legal firm Irwin Mitchell. The survey also found that instructions to lawyers to file for divorce are also up 27% so far this month compared with an average month.
Many theorize that the rise in filings at the beginning of the year is due to couples not wanting to dampen the holidays with news of a divorce. Those hoping for an amicable resolution once the divorce proceedings are filed may consider whether their spouse will be so eager to settle if the holidays are marred by a separation and talk of divorce. Additionally, there may be concern that a disgruntled spouse could use the divorce as an excuse to spend more on gifts then he/she otherwise would have spent. While running up credit cards and draining bank accounts can happen at anytime of the year, a spouse may be less likely to do so after the holidays.
Waiting until after the craziness of the holidays has passed gives parties more time to plan and prepare. In order for an attorney to have a clear understanding of income, assets, and expenses parties will need to begin collecting financial documents. End of the year statements are an important piece to the financial picture. Many of these documents are not available until the end of December or the beginning of January.
If you are considering divorce, Hess Family Law can provide advice based on your particular situation and goals.
Source: Reuters, Considering divorce? Good reasons to wait for January, Geoff Williams, December 4, 2015
Marketwatch.com, Why January is a popular month to file for divorce, Quentin Fottrell, January 6, 2015
Ms. Hess has again been selected to the Maryland Super Lawyers list that can be found in the Maryland 2016 edition of Super Lawyers Magazine. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process includes independent research, peer nominations and peer evaluations. Ms. Hess has received the honor of appearing on the Super Lawyers list since 2009.