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Articles Posted in Financial Issues in Divorce

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The article below highlights some of the issues and concerns that attach to a divorce after a lengthy marriage. Under Illinois law, retirement assets are divisible between the parties; there is a common practice that IRA’s, 401(k)s and pensions are to be valued as of the date of the divorce, and allocated between the divorcing spouses equitably.

A person’s retirement plan is a lifeline to the future. For many, it is their most important asset, even more emotionally valuable than a house or investment account. With this in mind, it is critical that the identification, valuation, and allocation of all marital assets in a divorce be accomplished properly. Law Offices of Michael Roe has on many occasions, with higher asset estates, worked with skilled and cost effective Divorce Financial Planners to effectuate an allocation model that can be submitted to the court. A properly presented plan that is beneficial to our client can often drive the resolution of the case in the right direction. The article states:

AFTER enduring a divorce four years ago, Mike Miller’s vision for a golden retirement got an unexpected makeover. Mr. Miller had been married for more than 30 years, and now he was single. His longtime dream of a shared retirement was shattered. He was also facing another unwelcome outcome: living in a smaller home and taking fewer vacations.

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One of the benefits of practicing Divorce and Custody Law is the opportunity to try cases that involve complex issues, the valuation of a spouse’s business interest in a closely held business being one of those complex issues. Along with my work through the years in the areas of psychology, family systems and custody law, I have utilized my experience from MBA school and working in and with businesses to develop skills in managing business and financial issues in divorce litigation.

assets%20thumb.php.jpgLaw Offices of Michael F. Roe has maintained strong relationships with some highly competent Business Valuation experts, that work as consulting and testifying experts in valuation cases. These experts are skilled at assembling the correct financials, and employing valuation protocols that are generally accepted in the business valuation industry. The goal of the use of such an expert is to provide the trial court with an expert opinion as to the appropriate value of the client’s company or shares as of the time of the divorce trial.

Just as important as having a good expert in a case is the ability of the trial lawyer to cross examine the other spouse’s expert (if there is one) as to that expert’s valuation opinions. In that sense, it is my job as a divorce trial lawyer to become as expert in that business valuation approach as the experts I am working with. My goal: optimizing my client’s outcome.

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Divorce can feel like a full-time job. It can be all-consuming, affecting every aspect of your life. Between the (sometimes) contentious texts with your ex-partner, phone calls to your attorney and figuring out child custody, where you are going to live and how your new life will look, there is almost always a sense of uncertainty or fear just below the surface. And regardless of how affluent the couple is, there is often a great deal of worry about the financial future.

Once separated or divorced, the informed spouse already has the experience and relationships to transition financially, but the other spouse has to start from scratch. In my experiences as a divorce financial planner who has specialized in working with the “out” spouse, three fears have emerged as most common. While some degree of worry and apprehension is to be expected, with a little work and planning, these three common divorce fears can be eliminated and can help the out spouse feel more confident and secure.

1. Fear of not getting a fair share. If your finances are simple, it can be easy to evenly divide the assets, but if your finances are more complex (e.g., multiple homes, employer stock options, closely held business, illiquid investments, separate property), this can become much more difficult. The solution is to answer these two questions: What do we own and what is it worth? If you are concerned that assets are not being disclosed, discuss this with your attorney and consider hiring a forensic accountant — basically a financial detective — to help uncover any undisclosed assets. The next issue is to arrive at a fair value for each asset. This is an area that is ripe for abuse. The valuation of family-owned or other privately held companies is inherently prone to subjectivity and, particularly in the divorce context, manipulation.

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A decade ago, couples that were divorcing could count on a fairly expedient sale of their marital home, and at the time of the closing of the sale of the home, there would be a payout that would leave one or both of the parties with cash to either start over in their new life, or use the cash to fund a downpayment on a new residence.

In recent years, we have seen home values plummet, and home equity values evaporate. People in divorce today speak of their home as the marital “asset,” yet in many cases, the marital residence is a significant marital liability that must be managed with some reasonableness and diligence.

Marital residences that are “under water,” or in other words, worth less than the debt that is secured by the property, most often need to be with sold or managed through a bank workout process. Some of my clients work with professionals who perform property workouts as the major part f their practice. One aspect of the workout is managing the possibility for a deficiency judgment. A bank may seek to have the amount of the mortgage not covered by a short sale assigned as a liability to the owner; this is called a deficiency judgment. In some cases, the bank may be required to be willing to waive the deficiency judgment, and be required to issue a 1099 to the previous owner for the amount of deficiency after the short sale. It’s important for you to know that the lender cannot pursue a deficiency judgment and issue a 1099. They can only do one or the other, not both. If the deficiency is waived as a condition to the short sale, the owners will receive a 1099.

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The “Ask Amy” column today in the Tribune discusses marital affairs and the offended party’s need to tell others, including the children, the reasons for the divorce:

I have been married for 25 years. My wife had an affair early in our marriage and we worked things out with counseling. Two years ago I caught her having another affair but for family and health reasons I did not divorce her at that time. We put on an act for others, including our two children, so no one knows how bad our marriage is. Now my kids are in college and I want a divorce.

Some of my clients first came to my office for an initial consultation with the damage of an affair at the forefront of their concerns. In some of these cases, the custody of the children is an issue. In other cases, there are no minor children of the marriage, and the concern is property division and spousal support.

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Child support in a divorce case is often a contentious issue for divorcing parents. Divorce consultant and author Lee Block discussed child support issues in the Huffington Post’s new Divorce section of this online journal. Ms. Block states:

Child support is always a hot bed of discussion. There are several reasons for this and the main one is, what exactly does child support cover? There are so many questions about child support and frankly no good answers. Child support becomes an emotional issue instead of a financial one, and everyone has a different view and opinion of what it should cover and how much should be paid.

Illinois child support statutes do not make the subject of child support easier to manage. While some of our neighboring states have adopted sophisticated matrices for allocating between both parents the burdens of financial support of children in a divorce, Illinois still requires that (a) the court determine a “residential parent” (ie a winner and loser of custody), and (b) for the “non-residential parent,” a percentage payment based on their net income.

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One of the hallmarks of an impending divorce is a noticeable change in financial status within the family household. Retirement plans get moved to new accounts. Joint checking accounts and credit card accounts begin to show unusual activity, such as unexplained charges or cash withdrawals. Some spouses will defer discussing the desire for a formal divorce until they have, in their mind, secured the family cash and the assets in a hidden account.

Judges will eventually require the return of marital assets to marital accounts, but all of us that work in the court system know that getting these injunction orders takes time and effort. It can be far better to be proactive in protecting marital assets, and securing copies of accounts, once the financial “red flags” of impending divorce start to appear.

I’ve provided a list of 12 items you might gather to ensure that you have most of the critical information in hand before your spouse has a chance to conceal, transfer or sell marital items. These include (but are not limited to) obtaining:

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The following is a hypothetical example, but a very real description of a family dealing with legal issues in a recession:

When Patrick and his wife divorced, they agreed to sell their home. Yet, once a buyer gets close to making an offer, his wife backs off, believing she can buy him out of the house with housing prices (and the equity buy out price) dropping each month.

To complicate matters, Patrick, not his real name, recently lost his job. He is going to go back to court and ask that his child support be reduced. According to legal experts from around the country, Patrick’s tale isn’t unusual. The recession that’s affected every other aspect of America is now affecting family court as well. Clients are returning to court as a way to deal with financial hardships that are affecting their support obligations and property settlement agreements.

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Just as fuel efficient cars become more popular during a period of high fuel prices, cost effective legal representation in divorce cases becomes a welcome path for people looking to end their marriages. The Law Offices of Michael F. Roe has consistently advocated cooperative, mediated, and collaborative divorce as a lower cost, efficient, and low stress means of helping divorcing parties complete their divorce in a financially healthy way, even in a deep recession.

The deepening recession, increased unemployment, and a stalled housing market have negatively impacted most parties’ financial situations. Many divorcing couples’ homes are “under water” because of declining values and high mortgages. Other divorcing couples who are fortunate enough to have equity in their most significant marital asset, their home, cannot sell their house due to the slow real estate market. Combine that with the plummeting values of retirement accounts, and we are looking at marital asset balance sheets that are nothing less than bleak.

Although, historically, divorce rates tend to rise during a bad economy, divorce attorneys nationwide have noticed a change in the legal landscape. Some experts attribute the decline in divorce filings to the severity of the economic downturn. Typically, a recession results in decreased divorce rates for couples with limited financial resources. The prospect of incurring expenses for two households seems overwhelming for those with limited resources. On the other hand, high net-worth clients may seek to take advantage of the diminished value of their homes, stock and investment portfolios, and businesses to decrease their overall financial liability to their soon-to-be ex-spouse.
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1. Hanging onto the house at all costs.

Many couples scrambling to obtain a divorce settlement wish to keep the house at any cost. However, keeping the four bedroom marital home may be a financial undertaking that neithe rparty can absorb in the post-divorce environment. Maintenance and child support to the recipient parent can help fund the mortgage and taxes, but some parties find that the burdens of keeping the marital home post-divorce outweigh the benefits, especially in this current home market/mortgage environment.

2. Failing to make a clean financial break.

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