Informational guide to how a divorce may impact your business from Scottsdale divorce lawyer, Tracey Van Wickler.
Informational video on how a business is divided in an Arizona divorce by Scottsdale divorce attorney, Tracey Van Wickler.
Joint account(s) During your marriage, you and your spouse likely had a joint account(s) from which household bills were paid. Once one of you files for divorce, withdrawals from these accounts may be legally restricted through an Automatic Temporary Restraining Order (ATRO). This is a court order prohibiting either spouse from making certain financial changes once a divorce action begins. So, if you're about to file for divorce (or you think your husband may be), planning for your immediate financial needs becomes a question of timing. You will likely want to withdraw money from joint accounts and set it aside for your needs. When, and how much should you withdraw? Clients generally have a right to one-half of the value of the jointly titled funds. In New York or California, the ATRO restriction prevails so prior to any divorce papers being filed, you can withdraw any amount you would like up to 50%. The problem is, the other spouse may have reimbursement claims etc. Try to talk prior to withdrawing Another approach to the joint accounts is to try to talk prior to withdrawing from it. You can speak to your spouse about closing the account and equally dividing the monies. If that is not possible and you cannot communicate, you should not take more than 50% since you will likely not be entitled to no more that amount. Advising your spouse and communicating prior to removing monies from joint accounts is more advisable than depleting the accounts without the other spouse's knowledge. Even though the spouse is acting merely to safeguard some funds for security purposes, the other spouse will interpret it as an initiative to liquidate and dissipate assets and act in kind. Then the game playing starts. While I agree that on a conceptual basis, communicating and discussing what to do with joint accounts and other assets prior to filing the divorce paper is the "nice" thing to do, there may be self-protective measures that may be practical under certain circumstances.
Once a divorce is filed, the division of marital assets will eventually have to be addressed. These assets might include bank accounts, stocks, bonds, real estate, 401Ks, IRAs (or other retirement programs), tax refunds, boats, and more. However, how complex this division of assets is depends upon the assets acquired during and before marriage. Additionally, some states make a distinction between pre-marital assets and those acquired during the marriage. In most cases, however, all assets—and some property increases—are considered martial property. Following is a guide to understanding how property is divided during a divorce. Separate property Whether it’s a car, a house, or clothes, you bring property into a marriage which, prior to the marriage, is considered separate property. However, what is separate before the marriage can eventually become marital property. If you merge (or “comingle”) any property by adding your spouse’s name, or deposit any funds from an inheritance into a joint account, it’s possible that it might be ruled as martial property. Marital property Generally speaking, any property that is acquired during the course of the marriage is considered marital property, but there are exceptions. Additionally, how martial property is divided will depend on whether you reside in a community property state or an equitable distribution state. Community property states vs. equitable distribution states In a community property state such as California or Arizona, assets are usually divided evenly (50/50), even if the assets were separate property. In equitable distribution states, the emphasis doesn’t rest on a fair and equitable division of the assets. Instead, the judge will make a decision based on the standard of living established during the course of the marriage, the length of the marriage, the financial needs of the custodial parent (if children are involved), income earning potential, and other factors. If your property value has increased, this could also impact the division of marital assets. Additionally, long-term and short-term valued assets are usually weighed. Long-term value vs. short-term value Liquid assets such as bank accounts, investments, and cash tend to be the easiest property to divide. Assets can be broken down into two types: long-term value and short-term value. Examples of long-term value assets are stocks, bonds, equipment, or other capital assets. A short-term value asset is any item that carries a fast return, such as a life insurance policy, mutual funds, or some certificates of deposits. These items can be quickly turned into cash, which can easily be divided. Liquidity, cost basis (the original value of an asset for tax purposes), and tax implications come into play as well (tax returns are usually considered liquid). Another consideration is active or passive appreciation of property. Active vs. passive appreciation An active appreciation is best described as an asset that increases in value due to outside forces, such as marketing, or building a business on the property. Conversely, a passive appreciation increases in value with no external help, and usually is not subject to marital division. If you own a business, it may be necessary to hire a business valuation analyst, whose job it is to provide a quality analysis of the property’s active and passive appreciation. Occasionally, the process may be complicated due to the vested interests in other co-owners or managers. Negotiating with your spouse Dividing marital assets is a necessary part of the divorce process. Although your state has its own laws regarding the division of assets, many individuals have been able to work with their spouse to find an equitable solution to fairly deal with asset distribution. In fact, 95 percent of divorces actually settled out of court, which means that many couples are able to come to an agreement about their division of property. If a divorce settlement is in your best interests, it’s possible to create a post-marital agreement, which you can work out with your spouse. Consult with a family law attorney to ensure that your interests are protected.
During divorce, the debt and asset division will need to be finalized before the final divorce decree can be approved by the court. When dividing joint accounts, the divorce court will also look at any assets or debt incurred by the couple and determine how to divide it. Joint accounts will eventually be liquidated and divided between the couple. Each state has individual laws governing the closing of accounts. A local divorce attorney could explain the divorce laws in your state and how you might be affected. Before the accounts are closed, both spouses are still responsible for any transactions made on the accounts, regardless of who did it. If one spouse doesn't pay a bill or rings up a bunch of items on a credit card and doesn't pay, the other spouse's credit will suffer too.
Looking at the Financial Picture - What did you bring into the marriage? What is the marital estate worth today? Marital worth is defined as assets - liabilities = financial net worth. The Courts try to arrive at a "fair and equitable" distribution of the marital assets. Assets typically considered are: equity in the marital residence; value of the vehicles; value of pensions, 401(k)s, IRAs, self-employment programs; cash in the bank; brokerage accounts; household items; antique collections; etc. What becomes of inheritances? Inheritances are added to the marital net worth. However, at the discretion of the Court, the inheritance may be set off to the receiving party. For example, if you inherited a family farm, kept the farm separate in your name alone, there is a distinct possibility that even though the farm is included in the marital net worth, it would be set off to you prior to division of the marital assets. Likewise, if you inherited money and subsequently bought a house in both names, and co-mingled the money over the course of the years, that inheritance may be considered a marital asset and divided by two. The simplest example I can give on the division of marital assets would be if the husband came into the marriage with $2 and the wife came into the marriage with $1, the day they walk down the aisle they were worth $3. Assuming five years later they have a net worth of $6. All things being equal, it would be expected that the husband would get his $2 and the wife would get her $1 and the remaining $3 appreciation would be divided 50/50 between the parties. Again, the division of the marital estate is at the discretion of the Court. On the other hand, in the case of a highly compensated individual, it is not unreasonable that the Court may award the other spouse 60% or 70% of the marital estate. Again, the issue is wrapped around the words "fair and equitable." If you have one individual making in excess of $250,000 and the other spouse is making minimum wage, it is not inconceivable that more assets may be set off to the economically challenged spouse. Liabilities are just that - liabilities. Those would typically include the mortgage on the marital residence, the loans on the vehicles, and the credit card balances. On occasion people get into the issue of whether credit card debt is a martial debt. If the debt was incurred for marital items such as groceries, clothes for the children, or joint vacations, it would typically be considered marital debt. Non-marital debt would be considered a vacation that you or your spouse took with their/your "new friend." This would normally be labeled dissipation of marital assets. If your spouse decides to buy his/her new girlfriend/boyfriend a new wardrobe, a fancy ring, watch, vacation, etc. you should not be penalized and have to pay one-half of that debt.
Frequently, one party or the other has acquired a pension or retirement interest of some kind during the marriage. The portion of such a retirement interest that was acquired during the marriage is marital property, and becomes part of the marital estate subject to a “just and equitable" (usually 50-50) apportionment. In cases where a retirement account is partly marital and partly non-marital, an accountant will normally need to be retained to determine the marital versus non-marital values. If there are not enough other marital assets to compensate the other spouse for half of the marital value of the retirement interest, then the Court will order the distribution through what is known as a Qualified Domestic Relations Order, or QDRO (pronounced “quadro," in legal jargon). This is a way of dividing a tax-sheltered retirement account between divorcing spouses without incurring any adverse tax consequences as a result of the division. If there is a need for either party to immediately obtain distributions from a retirement account, a QDRO is a way to accomplish this in divorce proceedings without incurring the normal 10% early withdrawal penalty (although you’ll still be liable for income tax on the withdrawal).  Note that this only applies to qualified retirement accounts such as 401(k)s, 403(b)s, etc.  It does not apply to IRAs or pensions. Footnotes: 26 USCS section 72(t)(2)(C). 26 USCS section 72(t)(1).
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