Many times, people plan for a divorce for a long time. Often one spouse, often the wife, knows very little about the family's finances. Do they have investments? She doesn't know. Do they own stock? She doesn't know. Does her husband have a pension? She doesn't know. Often, valuable assets are not distributed to the wife because she doesn't know they exist and more often then not, the husband or the one hiding the assets, lies about it in the divorce so the assets are not discovered.
Here are some practical ways to see if financial information or assets are being hidden from you or to make sure you know what you have. First, NEVER sign a tax return without reviewing it. How much income is your spouse making? Is there ANY money indicated as income in the "interest and dividend" section? If so, there are investments of some kind. Are there any schedules attached to the tax return that you are not familiar with like Schedule C for businesses or K-1s for partnerships? Make a copy of each years tax return and keep it in a safe place. I suggest you let a family member or friend hold this type of important fnancial information.
Second, review your bank statements. Make sure you understand each transactions. Are regular monthly payments going to an entity you are unfamiliar with? Places like T Rowe Price, Fidelity, E Trade, Vanguard and others may indicate stock or mutual fund purchases. Look at your spouses paychecks. Is he or she investing in anything?
You may think your spouse does not have a pension because you have never seen a statement for it. Most companies do NOT send annual pension statements. They may never send any at all. Yet a pension is often the single most valuable asset in a marriage. If your spouse is entitled to just $500 per month, that amounts to $6,000 per year over an average 20 years or $120,000. One-half of that money may be yours. The marital share is one-half of the amount accumulated over the marriage.
NEVER sign any kind of written agreement without consulting an attorney first. You may be waiving your right to a pension or investment that you don't even know exists. You can google where your spouse works and see if they offera pension. Also, sometimes there is a statement for a pension like with the Virginia Retirement System and it shows a "cash value." Bear in mind that the "cash value" often has little relationship to the actual value. In the example above showing $120,000, the cash value may be $15,000. There is no comparison between the cash value and the pay out amounts, so if it exists you need to know and understand what the pension benefits are before deciding whether you are waiving them or getting your share.
If your spouse is secretive about his or her income or finances, there is usually a reason. If your spouse is self-employed and shows little taxable income but spends a lot paying bills etc. then he or she is probably hiding money. Try to pay attention to the financial aspects of the marriage so you have a good idea of what you own should a divorce or even a death occur. Again, never sign anything without seeing an attorney and finding out what your rights are. I can't emphasize how many hundreds of clients I have counseled that have no idea how much property their spouse has even though they have been married a long time.
Saturday, April 14, 2012
Many people give away property and then see an attorney about filing bankrutpcy. If you give away property or sell it to a relative for less than value and then file bankruptcy, the bankruptcy court will take the property away from the person you gave it to, sell it, and distribute the proceeds to your creditors. The court can go back two years for these kinds of transfers and, in some cases, up to five years. Many times, I can protect your property in bankruptcy if you do not transfer it. Once you give it away or sell it cheap to a family member, it becomes fair game for the creditors, and I cannot protect it for you. If you are thinking of filing bankruptcy, see an attorney BEFORE deciding whether or not to give away property. You may even want to do some long-term planning in this type of situation.
Thursday, April 12, 2012
Sometimes when people have debts discharged in bankruptcy, their creditors send them a 1099 showing the discharged debt as income. I have noticed that many accountants do not know that this is NOT income pursuant to federal law. 26 United States Code Section 108(A) (1) excludes from income debts that are discharged by bankruptcy. It also excludes debts that were forgiven by the creditors, in whole or in part, to the extent the person was insolvent. I constantly see clients with tax returns showing large amounts owed to the IRS or Virginia Department of Taxation after a bankrutpcy discharge for "forgiven debts." These are not forgiven debts. They are discharged debts, and they are NOT TAXABLE. If you have any questions about whether or not your should pay taxes on these kind of debts, ask a bankruptcy attorney, not an accountant. Apparently, many of them are not aware of the law and give incorrect advice.