Archive for divorce finances

Is Your Child College-Bound? Who’s Paying For It?

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For most couples getting divorced, their children are their single highest priority. Child support and child custody are their immediate concerns. When you go through the court system in California and in other states, the judge applies a formula to determine the amount of child support. Courts consider income as well as the tax effects of the parties’ various income.  They then  apply the state mandatory child support guidelines. If this decision goes in front of a judge, he or she has to follow the guidelines to the letter. If you do it on your own, there is flexibility to reach a more creative and equitable solution for your unique situation.

What couples don’t often consider are expenses which seem to be a long way off such as the costs of a college education. This can be one of the single most expensive mistakes couples make if it gets overlooked.

College expenses can be something the parties agree on, but the California Family Code does not require this. The Family Code is only concerned about what happens to your minor children until they reach age 18, or are no longer high school students. This is when child support ends.

Courts will not order parents to pay for college unless the parties agree. Most of my clients don’t choose to include orders in their marital settlement agreements relating to payments for college. You can imagine the problems if something goes wrong. What if the time comes, and you can’t afford to pay for college due to unemployment or disability – but you have a court order that says you must pay? If this occurs, your own child might have a legal cause against you.  That’s not exactly healthy for family relationships.

Most of my clients opt out of having a college expenses provision included in their divorce decree. Sometimes, the parties agree to contribute to a 529 college savings fund, which has certain tax advantages.

Have a conversation about college funding as part of your divorce

Whatever you decide, it’s important to have a conversation about college funding. Sometimes, this might mean you agree to meet at a future time, closer to your child’s decision about college. The choice of college can be crucial. What if one parent is paying for college, and the other is encouraging the child to go to a private, out-of-state college that’s not necessarily affordable?

Simply because the family court isn’t going to order a couple to do something in the future doesn’t mean the expense isn’t going to come up. Discussing everyone’s individual expectations is crucial. Parents and their children may have different values about the college choice and the college expenses.

We recently worked with divorcing parents who had completely opposite opinions about college financing. One parent said, “I had to work and scrimp and save and take out loans, and I appreciated my college education more for it.”  The other parent said, “No, this is our responsibility as parents to take care of our child’s college education.” This is an important conversation they needed to work through.

It’s often helpful to bring in a mental health professional to work with the parents when they have different values about what’s going to happen with college expenses. That’s exactly what we did, and in the end, the parents were able to reach an agreement.

Get expert advice on college expenses from a financial professional

For practical reasons, couples may also want to confer with a financial professional about their financing options. Does it make sense to set up a 529 account? Are loans or grants practical? What can they truly afford? What is the best vehicle to save for college?

Alternative dispute resolution options such as mediation or Collaborative Practice are ideal when divorcing parents need to work through complex financial decisions which may affect their family in the future, even years into the future. As any parent of a college student will tell you, those years pass by much more quickly than you realize. It’s best to talk now and come up with a plan.

Call on Weber Dispute Resolution for help in starting your family’s conversation about making college possible and practical for your children even after divorce.

READ MORE: How Much Is Child Support In California?

 

Does Divorce Mediation Work for Complicated Financial Issues?

Complicated financial issues can make a divorce complicated. Mediation can help you sort out your issues.

Complicated financial issues can make a divorce seem complicated. Mediation can help you sort out your issues.

One common myth about divorce mediation deserves a debunking:  You can’t mediate when there are complicated financial issues. This advice is completely wrong. The opposite is true. The more complex your divorce finances, mediation offers the best way to sort them out without resorting to expensive litigation.

Comparing costly, stressful divorce litigation in court, and the same divorce process using mediation, these are the reasons why mediation can be a better choice for complicated fiancial situations.

Financial disclosure same for mediation as in court

Financial declarations in divorce cases are the same no matter whether you go to court, or pursue alternative dispute resolution.

Financial declarations in divorce cases are the same no matter whether you go to court, or pursue alternative dispute resolution.

Courts require the identical forms used in mediation. Parties complete an Income and Expense Declaration (FL-150) and a Schedule of Assets and Debts (FL-142). The law requires disclosure of all material facts and circumstances related to money – whether asked for or not.

Additionally, parties can have financial disclosures reviewed by counsel before agreeing to anything. Whether your divorce is simple or you have profoundly complicated financial issues, your divorce process will require full disclosure. There is no difference between mediation and litigation in the level of detail.

Because mediation relies on informal discovery rather than formal and expensive discovery, people actually tend to get more information in mediation than in litigation.

Lawyers know the name of the game when served with discovery in a litigated case is to provide as little information as legally possible.  It’s even more the case when there are complicated financial issues.  But in a mediation, the information tends to be more forthcomingbecause people are not being forced into tedious formal discovery processes.  This may seem counterintuitive, but actually it’s human nature.  When people are forced to do things they tend not to cooperate.  When things are more voluntary, people are less threatened and more likely to do what they are supposed to do.

Use a neutral financial specialist in mediation

The financial specialist can help gather information when there are complicated financial issues. Sometimes the parties may not know which questions to ask relating to the divorce finances.  The financial specialist can help know what questions need to be asked and can also alert parties to red flags.  This is especially helpful when the parties are at different levels of knowledge relating to the finances.  The financial specialist helps bring people to a level playing field.  Reports that the financial specialists produce can be very helpful in uncovering options and finding pathways to settlement.

Mediation lets you be creative with solutions for your divorce finances

Judges must follow the law. The law isn’t flexible. Judges have limited options to offer you. But when people mediate, they are free to create a settlement best for the family.

I have seen many “outside-the-box” settlements in mediation. Most are far better for the family than what a court could ever provide.

Get independent legal and financial advice

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There is no risk in mediation. Parties are not required or pressured to enter into any agreements without the option to talk with a lawyer before signing. You can have an agreement reviewed by your own financial professional at any point.  This ensures parties are not left to their own devices when considering challenging money questions.

Avoid shark attorneys who discourage mediation

Shark type attorneys will discourage you from mediating. They might tell you court is your only option. Be skeptical. If you have significant assets, they want your case. This serves their interests, not yours. They know they can make a ton more money if they can fight over your financial issues.

Don’t get sucked into a litigated case when you don’t need to. You might believe your case is so difficult, only a judge can sort things out. In today’s family courts, judges do not have the time to spend on complicated details. Those details important to you can be lost. A skilled mediator can handle any issue you present. Mediators take all the time you need to be sure you address and resolve each detail to your satisfaction.

Make sure your mediator possesses the training and experience necessary. When things get complicated, he or she should be willing to bring in additional experts. Ask whether he or she has worked with couples in circumstances similar to yours. Your mediator should be able to offer examples. Don’t work with someone getting on the job training during your case.

Read more about money and mediation:

Mediating Your Divorce When The Other Party Is a Bully

We Don’t Get Along Very Well. How Can We Possibly Mediate Our Divorce?

Will I Be Able to Keep the House?

Failure to follow California’s strict disclosure rules can be very expensive in divorce cases.

California Duty of Disclosure

In California, it is essential in every dissolution, divorce, nullity or legal separation case to make a full and complete disclosure.

Young black man filling out income and expense declaration fl-150 and schedule of assets and debts fl-142

California Family Code § 721 requires full disclosure in divorce cases.

California Family Code § 721

The duties of disclosure are largely controlled by California Family Code § 721, which describes the fiduciary duties between spouses. It provides, in part:

[A] husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.

California Family Code § 721 (b).

The statute goes further to subscribe to marriages the same sort of fiduciary duties that exist between business partners. It indicates that, as with business partners, the confidential relationship between spouses is

(b)…a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following:

(1)Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.

(2)Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.

(3)Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.

Id.

Family Code § 2102

With this in mind, the California Family Code has specific disclosure rules. Per Family Code § 2102, parties are subject to the § 721 fiduciary standards.  This goes from the time of separation until the distribution of the community assets. Section 2102 requires the following:

(1)The accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation and all current earnings, accumulations, and expenses, including an immediate, full, and accurate update or augmentation to the extent there have been any material changes.

(2)The accurate and complete written disclosure of any investment opportunity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, significant business activity outside the ordinary course of business, or other income-producing opportunity of either spouse from the date of marriage to the date of separation, inclusive. The written disclosure shall be made in sufficient time for the other spouse to make an informed decision as to whether he or she desires to participate in the investment opportunity, business, or other potential income-producing opportunity, and for the court to resolve any dispute regarding the right of the other spouse to participate in the opportunity. In the event of nondisclosure of an investment opportunity, the division of any gain resulting from that opportunity is governed by the standard provided in Section 2556.

(3)The operation or management of a business or an interest in a business in which the community may have an interest.

Family Code § 2102(a).

Duty to Update and Augment Disclosures

It is important to note that the code not only requires a complete disclosure, but it also requires “immediate, full, and accurate update or augmentation to that extent that there have been material changes.” Id [emphasis added]. This means that after you provide your first disclosure, you must update the other party when there are changes.

Preliminary and Final Declarations of Disclosure

Before the court will grant a judgment for divorce, the parties must exchange preliminary and final declarations of disclosure. Parties can waive the final declaration of disclosure by written stipulation of the parties.  But, they can’t waive the preliminary disclosures.  See Family Code §§ 2104 and 2105. The statute requires that the parties use specified forms for the disclosures. They are:

Declaration of Disclosure (Judicial Counsel Form FL-140)

Complete this form and sign under penalty of perjury to indicate that you have made a complete and accurate disclosure.  Don’t file this form.  Rather, just serve it on the other party.

Income and Expense Declaration (Judicial Counsel Form FL-150)

On form Fl-150 you provide all of your income and expense data.  You show everything you earn and everything you spend.  It’s kind of a “budgety” type form.  This aids the court and the spouses in determining the best choices for child support and alimony.  You only need to file the form FL-150 if support is at issue at a court hearing.  Otherwise, just serve it with your Declaration of Disclosure form.

Schedule of Assets and Debts (Judicial Counsel Form FL-142)

On form FL-142 you list all of your assets and debts.  In essence, it shows everything you own and everything you owe.  Be sure to list EVERYTHING.  There can be consequences if you leave something off.  So, when in doubt, disclose.  You don’t file form FL-142 at court.  Instead, just serve it on the other party with your Declaration of Disclosure.

Declaration Regarding Service of Declaration of Disclosure (Judicial Counsel Form FL-141)

This form indicates to the court that you completed your declaration of disclosure and served it on the other spouse.  File this one at court.

Importantly, you only need to file the Declaration Regarding Service of Declaration of Disclosure form at court. Rather than filing, you simply serve the other documents on the other party. However, despite not filing them at court, it is essential to take these forms seriously and to be complete and truthful. The court can be very harsh with people who are inaccurate or incomplete in their disclosures.  So, get this one right too.

Sanctions for Failure to Comply with Disclosure Requirements

Family Code § 2107(c) requires monetary sanctions and reasonable attorney fees if a party fails to comply with the spouse’s California Family Code § 721 fiduciary duty of disclosure during dissolution proceedings. Family Code §271(a) provides authority to order attorney fees and costs in the nature of a sanction if conduct “frustrates the policy of the law to promote settlement of litigation.”

In summary, the disclosure required by California Family Code § 721 is not a topic to mess around with. The court must impose Draconian penalties and sanctions on parties who do not comply with the disclosure statutes. Hence, the best advice is to err on the side of caution. Disclose everything and anything to the other side even if you think it is unimportant. Do it early and thoroughly.  What’s more, Augment and update routinely.  I have seen even the smallest technicality lead a court to set aside a judgment or order stiff sanctions. So, it is simply best to play it safe and disclose it all. Withholding information, whether it is inadvertent or an attempt to be sneaky or cute, can lead to devastating results. If you are not sure if you have disclosed everything necessary, then talk to an attorney and get it right.

For more information, read:

How California Child Support Works

Early intervention: Why mediation early in a family law case can save a fortune in fees and stress.

Pre-Mediation Information Packet