A great deal of people believe if they live together 6 to 10 years they will be considered married in the eyes of the law, but the fact is, it’s not true. There is a difference between common law marriage and cohabitation. In some cases if you are a cohabitant, you could be considered single and in some cases if you are common law married you are considered married as if you did it the traditional way. So the question is how do I know if I am legally married or considered single under the law. Only certain states recognize Common law marriages, including the District of Columbia, Alabama, Colorado, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Utah. If you live in a Common law situation it rests upon you to find out if your state recognizes your relationship as it does legal marriage in the law. If your state recognizes your common law marriage, you and your mate must enter into a written or oral agreement to live as a husband and wife, and appear to others, as you are a married couple. Introduced to others as a wife or a husband and are considered a married couple. How long you have been together will determine if you are recognized under state law. At this time, for the most part Common law marriages typically are limited to heterosexual couples. If you live in a state that recognizes common relationships and do not want the state to consider you as married, you need to see your attorney to draw up a document that establishes the facts and protects the parties involved.

At present, many people have not planned for their potential incompetence. There are number of legal devices that are readily available to assist people in expressing their wishes in advance. Two of these devices include a Durable Power of Attorney for Financial Decisions (General Durable Power of Attorney), and Durable Power of Attorney for Health Care Decisions. A senior citizen may become permanently disabled due to a stroke, or a young adult might be rendered temporarily unconscious as a result of an automobile accident. In both of these scenarios, the trauma thrust upon everyone involved can be overwhelming, especially when interested parties disagree about how to handle the crisis. As with most things in life, planning ahead can help. The two devices, Durable Power of Attorney for Financial Decisions and Durable Power of Attorney for Health Care Decisions, will be discussed separately. A durable power of attorney, is a form of agency. The person who gives the power is the principal, and the person who receives the power is the “attorney-in-fact” or agent. “Durable” in this context means that the agent’s power will survive the principal’s incapacity or disability. As a result Durable Power of Attorney’s, can be used as an alternative to guardianship in some states under certain circumstances, provided the principal executed the document before losing capacity. As a general rule, a General power of attorney is also referred to as a Durable Power of Attorney for Financial Decisions, or simply a Durable Power of Attorney. A Durable Power of Attorney for Health Care Decisions is also a Durable Power of Attorney, but its authority is limited to health care decisions. In Kansas, both powers can be contained in the same document. Because these two documents convey such divergent authority to one person, many seniors choose a different person for each of these powers. The agent’s authority to act for the principal under a Durable Power of Attorney is based on the powers that the principal gives to her. Whether broad, general powers or limited, specific powers are given to the agent is completely determined by the principal. Among other things, the principal may delegate to the agent in the Durable Power of Attorney the authority to make deposits and withdrawals from his checking account, to file his tax returns, and to sell his home. There are a few powers, however, that the principal may not delegate. For example, the agent cannot prepare a will, vote, or seek a divorce on the principal’s behalf. In Kansas, the principal may grant a gifting” power to her agent, but this power generally must be stated with specificity within in the Durable Power of Attorney. Two primary methods exist to determine the effective date of an agent’s power under a Durable Power of Attorney. First, a Durable Power of Attorney may confer power to an agent at the time the documents are executed and delivered. A second method reserves the agent’s power until the principal has become incapacitated or disabled. Upon the occurrence of either of these events, the power springs into effect. This type of Durable Power of Attorney is labeled “springing.” Kansas law provides for both types in the Uniform Durable Power of Attorney Act. Senior citizens’ needs vary; therefore, no solution is best for all people. Many considerations will need to be evaluated in order to determine how the senior’s needs are best meet. A durable power of attorney is revocable by the principal while he still has capacity. If the agent has a financial interest in the subject matter of the power of attorney, the power is generally irrevocable. Most senior citizens who execute Durable Power of Attorney’s are getting assistance with their day to day personal affairs and their agents do not have an ownership interest in the senior’s property which would preclude revocation. In addition, revocation can be by implication, in addition to, destruction of the document or express revocation by the principal. Other modes of termination include: death of the principal or agent, occurrence of a specific event, qualification of a guardian, or the passage of a date of expiration. Generally, after the death of the principal, the agent of a Durable Power of Attorney may bind the principal using a Durable Power of Attorney only if she does not know of the occurrence of this event. The agent binds the principal in accordance with the laws of agency. As a result, the principal is personally liable for contracts made by the agent on the principal’s behalf. The agent should follow the direction of the principal while the principal remains competent. The agent has a duty to act solely for the benefit of the principal, and if she does not, she is subjected to liability for her breach. Although this general principal is true, often the agent may not have any assets for which she may be held accountable. As a result, senior citizens are often advised to select a trustworthy person to be their agent. If the principal’s competency is in question, the agent may need to seek determination of a court prior to acting against the wishes of the principal, or she may be liable to the principal for breach of her fiduciary duty. Kansas law does provide for the recording of any instrument which affects real estate. Recording, however, is not currently required by Kansas law. If the original Durable Power of Attorney was recorded, however, any subsequent revocation should be recorded. Some states do required recording of a Durable Power of Attorney that will affect real estate. The Kansas statutes provide for a Durable Power of Attorney for Health Care Decisions. The same basic concepts explained above for Durable Power of Attorney apply to the Durable Power of Attorney for Health Care Decisions with regard to agency law, effectiveness, revocation, and termination. The key difference between the Durable Power of Attorney and the Durable Power of Attorney for Health Care Decisions is the authority granted. The Durable Power of Attorney for Health Care Decisions specifically grants authority to the agent to make decisions about and relating to medical treatment. For example, the agent make consent to treatment, refuse to consent to treatment, or withdraw consent to treatment. In addition to these decisions directly about medical treatment, the agent may make all arrangements at any hospital or nursing care facility, employ or discharge care personnel, request, receive, and review any information about the personal affairs or physical or mental health of the principal. As a contingency, it is recommended that the principal select a successor to his agent. The successor attorney-in-fact may be designated in the same document as the primary attorney-in-fact. If this does occur, the Durable Power of Attorney will continue, beyond the life of the primary attorney-in-fact, provided the successor is living and competent. A complete discussion of statutory formalities, drafting, and various tax liability is beyond the scope of this summary. It should be noted however, that most states restrict who may be a witness to Durable Power of Attorney or Durable Power of Attorney for Health Care Decisions, and some restrict who may be an Health care agent. This overview of the law is for reference and education only, and is no replacement for competent legal counsel.

A living trust can solve many of the problems encountered in Estate Planning. Listed below are some of the situations helped by careful estate planning. Probate Problems. Probate is the system used by the state to deal with your estate. Two main functions of probate are to identify the rightful heirs to the estate and the share size that each heir will receive, and to replace your name with that of your heirs on the legal title of the property. Assuming you don’t have any kind of revocable Living Trust Arrangements, but you do have a will, the state will be able to determine your rightful heirs and the portion of your estate each will receive. If you don’t have even a will, the state will decide on who and what portion each heir will receive, using its own procedures. Unfortunately, after you are gone, the only way your property ownership can be re-titled is through court probate procedures and supervision. Try to avoid probate because it can be a time-consuming and Expensive Process for your heirs. Probate costs can eat away one-tenth of your estate, even a small estate. This creates a burden for your heirs and an emotional drain as well. Sometimes probate leads to litigation that can result in family battles and even disregard your wishes entirely. Probate is also a public event and prevents your family from keeping its business private. Furthermore, it can Continue For Years and not provide the emotional and financial relief you would like to leave behind you at a time when it would be the most helpful to those you care for. A living trust is one good family estate planning tool to avoid probate. A living trust avoids probate by turning over the title of your property to the revocable living trust before our death. The living trust is considered to be the legal owner of the property for title transfer purposes, but you have complete control of the property during your life. When you die, the trustee that you selected during your lifetime will arrange for the transfer or payment to your heirs that you specified in the revocable living trust. As you will see later, you have a great deal of flexibility in specifying the details of these payments and transfers. One great thing about a Revocable Living Trust is that after your death the trustee can handle everything quickly and simply without lawyers, excessive costs, delays, or court supervision. Joint Tenancy Ownership Problems. Married couples and parent-child combinations sometimes choose joint tenancy with rights of survivorship as their method of holding title to both real estate and financial assets. In this method, when one joint owner dies, the surviving joint owner or owners will automatically receive your interest in the property without probate. This technique avoids probate. It does have some possible problems, however. One problem is that you and your joint tenant are mutually responsible for each other’s liabilities and if your other half incurs a judgment or tax lien, you can lose your property as well. Or, if your joint tenant is your child, should that child divorce the spouse, may get your property in the divorce settlement. Furthermore, when you die and leave your assets to your surviving spouse through joint tenancy, your spouse may give away your property to a new souse or lover and leave your children or other heirs with nothing from your estate. It is also possible that probate will not be avoided upon the death of your joint tenant spouse because that person has not done any estate planning to avoid probate. A revocable living trust is one of the best ways to hold property title, because it can avoid all of the problems mentioned above. Incapacitation Problems. Since an incapacitated owner is not capable of conveying title or signing legally binding documents, when a property owner has either sole or joint tenancy ownership and then becomes mentally incapacitated, the property is in a legally indeterminate state. In order to sell or even to lease the property, it is often necessary to obtain an expensive and time delaying court conservatorship procedure. A revocable living trust is the most comprehensive manner to deal with incapacitation issues. A simple device known as a Durable Power of Attorney may also take care of the problem in some

While signing a prenuptial agreement can be one of the all-time romantic turnoffs, for people heading into their second marriage, a prenuptial agreement can give the trade-off of a better relationship through the security of financial and life planning. A prenuptial agreement is a legal contract between two people about to marry, specifying how assets will be distributed in the event of divorce or death. A prenuptial agreement is a good idea, even if you aren’t rich or own a home. It saves future arguments and can even save you money. A prenuptial agreement requires that each partner prepare an inventory of assets owned before the marriage, and it allows you to establish your separate priorities about those assets. Even if you do nothing more than that in your prenuptial agreement, this gives children from a previous marriage a chance to have half of that property and establish what belonged to Mom or Dad before the second marriage, and it establishes what you’re taking with you should you leave the marriage.” Statistically, second or third marriages are more likely to result in divorce than first-time unions. Because of this, a prenuptial agreement is an especially wise idea.
• A prenup is important if one of you is wealthier than the other.
• If you have assets such as a house, stock or retirement funds, you should have a prenup.
• A prenuptial agreement is essential if you own part or all of a business.
• A prenup can discuss your wishes if you may be receiving an inheritance.
• If you have relatives who need to be taken care of, such as disabled children or elderly parents, a prenuptial agreement is very important.
• If you expect to receive a big increase in income because of a growing business, a prenuptial agreement can address this issue.
• A prenuptial agreement is essential if you have children and/or grandchildren from a previous marriage.
We recommend that each partner draw up a list of assets. Furthermore, for professional couples, prenuptial agreements can be the ultimate protection against all-too-common lawsuits or medical malpractice suits. You can’t predict all of your life events, and prenuptial agreements are a means of keeping your own assets safe in the event of any financial problems that your spouse may experience.

An Economist Jay Zagorsky from the University of Ohio (Ohio State) has analyzed the results of a 40-years research project during which he interviewed about 33,000 people. In 1960 researchers started to ask Americans from all over the country, on a no-name’s basis, questions about their private lives, including their attitude toward money. Zagorsky found that many men had disagreements with their own wives concerning money. It was discovered that money was the most popular occasion for family quarrels and divorce. This is because husbands and wives have different representations about the family income and the income of each spouse. Husbands can exaggerate incomes, and to wives their debts. Thus, their spouses think that they make less than they say they do. Husbands and wives have different concepts of each other’s financial worlds.

A legal agreement in anticipation of marriage between future spouses is a prenuptial agreement. It is a legal contract that breaks down how assets will be distributed in the event of divorce or death. These documents have been around for thousands of years and are mentioned in ancient records from biblical times. Popular in the Far East and in European cultures when wealthy families protected their wealth that was build over many years. Today prenuptial agreements are used by all levels of culture and wealth to protect oneself, and are designed to protect what they have worked to achieve. So it is becoming more and more common as divorce is at about 50 percent. One of the reasons prenuptial agreements are becoming so popular is people are becoming more enlightened and they don’t want the courts to decide according to state law, but to their person desires and financial needs. If there are children in you life you will need to protect them, if you anticipate marriage and there are substantial finances involved. Of course if you have nothing, but are marrying into a wealthy family, you don’t want to be in a position where after years of marriage you are left with nothing, which happened more in the past but still continues, if you do not protect yourself. It is not romantic, but a prenuptial agreement can make you feel more loved in the long run, if you are considered with generosity. So you don’t have to worry, what would happen to you if your mate dies or a divorce happens. One of the problems with prenuptial agreements if you are the one with the financial resources is bringing it up, to your possible spouse. It is a very touchy situation, but only a fool with considerable resources would marry without one. It could kill the romance and could end the relationship. But if it does, you are better off and have only lost a possible gold digger. You must weigh your words carefully and if your possible spouse really loves you they will understand. A friend of mine anticipating marriage popped the information to his girlfriend and explained he believed they would be together forever, but in case he was wrong he must protect himself, and if he was right and they spent their life together, she would get it all in the end. It is an insurance policy to help reduce problems that could arise if things don’t work out. She signed a generous prenuptial agreement, which increased in its generosity over the years, if they stayed together.

Sometimes people do stupid things, but someone who disobeys a court order is one of the craziest things one can do. In Divorce Court and family custody matters sometimes lawyers try to convince the judge that because of all the pressure of a divorce his client has acted in an unrational way, unfortunately judges rarely fell compassion when their orders are disregarded. Divorce attorneys and their clients often use the same tall tales to ignoring court orders. One excuse is the other party also did it or the court’s order was based on inaccurate information. These excuses rarely work. One of the most common excuses is He or she started it! It works as well as any silly nonsense does, it does not work at all. To say someone else is disobeying the law does not help you in your excuse for disobeying the court. We are all responsible for our own actions. If you state the court order was wrong or unfair because of some mistake or a lie, is also worthless. If the court made a mistake there are avenues to address it, and the court can be asked to reconsider it. Only a court has the ability to change the court order. Until the court changes the order you are bound by the current order and it will be strictly observed. If the court order is violated as bad as things seemed to be will only get worse. A man was back in court because his wife said he had not paid is child support that he was ordered to pay. His attorney as well as himself stated he had not paid the child support because his ex wife had lied about her expenses and he felt he had a right to hold back payments because she had lied. He had not asked the court to review the case but made his own decision not based on the law but his anger that was unsupported by the court. By the time he came before the judge he was deeply in debt with back support. As it turned out the man was wrong about the expenses but even if he was right he was wrong, and as a result he violated the court order and caused more hardship for himself. He was forced to pay back support plus interest and to make things worse he had to pay his entire wife’s legal expenses, which included airfare to come to court and an extra 3,000. There are only two excuses for not obeying a court order: Either the party didn’t know about it or it was not possible to obey. Not inconvenient, impossible, or difficult! If you have any other reasons for disobeying the court, it will be a costly unpleasant mistake.

Prenuptial agreements are like insurance policies. You do the paperwork, then hope you’ll never need it. However, since half of marriages end in divorce within the first seven years, you may want to consider a prenuptial agreement before you walk down the aisle and say, “I do.” Since you could later be engaged in a nasty, costly, and emotionally draining divorce some day, you should consider a prenuptial agreement as a precaution. Below we have given you some information on what is in a prenuptial agreement and whether it could be useful for you. A prenuptial or antenuptial agreement is a document signed by two people who intend to be married. It describes their rights and obligations should they get divorced. A prenuptial agreement informs the court how they want their assets and property divided up. Divorces become messy when parties cannot agree on the distribution of property, such things as the house, the house, stocks, and bonds and whether one party should pay the other alimony, now known as “maintenance” in most states. Assume that the husband has $1,000,000 in his own name prior to the marriage. A properly drafted prenuptial agreement can award that same $1,000,000 to him after a divorce, notwithstanding what he does with the money, such as purchasing a home in joint tenancy or shifting the money into other accounts. Without a prenuptial agreement, the wife might be entitled to one-half of the $1,000,000 or more, depending on the financial circumstances of the parties at the time of the divorce. The prenuptial agreement is a powerful and valuable tool that can favor the husband, protect the wife, or serve both of them fairly. It is a question of circumstances and intentions. Candidates for prenuptial agreements used to be just older individuals with huge estates that they wanted to protect from gold diggers for their children from previous marriages. Since more millionaires are born every day, the candidate pool is growing by leaps and bounds. Now everybody has something to protect: an unpublished author, the budding inventor, anybody with a lucrative profession or a good idea. So, before you dismiss the idea of a prenuptial agreement, assess your situation in life and your long-term future in deciding whether a prenuptial agreement is right for you. Consider at length the nature and extent of your present and possible future assets. A prenuptial agreement can be a very simple document running only a few pages that segregates each party’s assets owned before the marriage, or it can be a very complicated document that runs dozens of pages because it deals with income and assets acquired during the marriage, the payment of debts, attorneys’ fees, alimony/maintenance, and other financial matters. The next hurdle is raising the issue with your intended spouse, a very unromantic event. It helps to get it over with early. Perhaps you could blame it on someone else, such as your parents who may want to involve you in a family business, or possible business partners. If you have no one to hold responsible, just be honest. Tell your future spouse that you intend to be open, fair, and honest, and the fact that you will be revealing all your assets is a sign of trust. Assure your intended that he or she will be protected during the negotiation procedure and in the prenuptial agreement, and stress that the document is something you feel is necessary and wise before you get married. The most important thing is to discuss it earlier instead of later, so that the degree of pressure before the wedding is mitigated. Couples do not usually break engagements because of disputes over prenuptial agreements. In almost every instance, the agreement is signed and the parties are married. It is also completely appropriate to state that you will not get married without a prenuptial agreement; case law has indicated that this will not invalidate an agreement if made before the wedding. The best way to avoid charges of duress or coercion is to tell your future spouse early on that you want the prenuptial agreement. Sometimes, such documents are signed shortly before the wedding, but have been the subject of negotiation for months. A well-drafted agreement will recite the fact that, even though it was signed shortly before or on the wedding date, negotiations began much earlier. It is for clauses like this that you consult experts. Eventually, a prenuptial agreement will be fashioned so that you and your future spouse both accept it. The terms may not be what you initially envisioned and may not be what your intended would want. but that is the nature of compromise.

A couple recently divorced. Their Divorce Decree stated that the husband would pay the balances on their three joint credit card accounts. Months later, after he neglected to pay off these accounts, all three creditors contacted the wife for payment. She referred them to the divorce decree, insisting that she was not responsible for the accounts. The creditors correctly stated that they were not parties to the decree and that the wife was still legally responsible for paying off the couple’s joint accounts. She later found out that the late payments appeared on her credit report. You may want to look closely at issues involving credit if you’ve recently been through a divorce - or are contemplating one. Understanding the Different Kinds of credit accounts opened during a marriage may help show you the potential benefits and pitfalls of each. There are two types of credit accounts: individual and joint. You can permit authorized persons to use the account with either. When you apply for credit-whether a charge card or a mortgage loan - you’ll be asked to select either an individual or a joint account. Individual Account The creditor considers your income, assets, and credit history. Whether you are married or single, you alone are responsible for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any authorized user. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) the individual debts of one spouse may appear on the credit report of the other. Advantages/Disadvantages If you’re not employed outside the home, work part-time, or have a low-paying job, it may be difficult to demonstrate a strong financial picture without your spouse’s income. But if you open an account in your name and are responsible, no one can negatively affect your credit record. Joint Account The income, financial assets, and credit history of you and your spouse are considerations for a joint account. No matter who handles the household bills, you and your spouse are responsible for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names (if the account was opened after June 1, 1977). Advantages/Disadvantages: An application combining the financial resources of two people may present a stronger case to a creditor who is Granting a Loan or credit card. But because two people applied together for the credit, each is responsible for the debt. This rule continues to rule your credit score, even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don’t pay them can hurt their ex-partner’s credit histories on jointly held accounts. Account Users If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, it will be reported in both of your names if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user. Advantages/Disadvantages: User accounts often are opened for convenience. They benefit people who might not qualify for credit on their own, such as students or homemakers. While these people may use the account, you yourself are contractually liable for paying the debt. If you are Thinking About Divorce, examine the status of your credit accounts, because if you maintain joint accounts during this time, it’s important to make regular payments so your credit record won’t suffer. Remember that if there’s an Outstanding Balance on a joint account, you and your spouse are responsible for it. Therefore, if divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. You could also ask the creditor to Convert These Accounts to individual accounts. By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor also is not required to change joint accounts to individual accounts and could require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to Require Refinancingto remove a spouse from the obligation.

It is essential that the parties entering into an agreement be advised of Tax Ramifications of property transfers made pursuant to the agreement, and that the agreement be examined from time to time to be sure that the results are reflected in the current tax law. While merely executing a prenuptial agreement usually does not result in any Immediate Tax Consequences, taxes will become an issue later upon divorce or death for all transfers made prior to the marriage, during the marriage, and upon the cessation of the marriage. Prior To and During Marriage

Since the issue in a prenuptial agreement is to transfer property rights in exchange for release of marital rights or against a will, the tax consequences will depend on when the transfer takes place. Generally, property transfers made before the marriage may have adverse income and gift tax results, while they will not incur gift tax or income tax if made during the marriage. Therefore, the prenuptial agreement should stipulate that any transfer of property occur after the wedding. Prior to the enactment of Sec. 1041, the Supreme Court ruled that the transferor Recognized Gain for income tax purposes equal to the difference between the fair market value of the property transferred and its adjusted basis when such property is transferred in exchange for the release of property rights. No income tax was recognized by the party who released the marital rights, as both the IRS and the courts have held that for income tax purposes, the value of marital rights is equal to the value of the property received. However, for estate and gift tax purposes, Marital Rights are not considered full and adequate consideration, and consequently, the transfer of property is treated as a gift (Sec. 2043(b); Reg. Sec. 25.2512-8). Sec. 1041 was entered to override the court’s decision to tax the gain on property transferred between spouses and former spouses when the transfer is made incident to divorce. Transfers within six years after divorce that are pursuant to the terms of a divorce decree are deemed to be incident to divorce. A transfer between Prospective Spouses, however, is still treated as a sale and the transferor will recognize gain if the value of the property exceeds his or her adjusted basis. For example, a man and woman are Contemplating Marriage. She has substantial assets she wishes to protect in the event of divorce or death; therefore, she and her fiancée execute a prenuptial agreement that allows her to transfer $250,000 to him in exchange for his release of all marital claims against any of her property in the event of divorce or death. One month before the wedding, she transfers stock worth $250,000 to him. Since she had purchased the stock several years ago for $50,000, the transfer of the stock causes her to have a taxable gain for income tax purposes of $200,000. In addition, she has made a gift (subject to the gift tax rules) of $250,000 and his basis in the stock is $250,000. If the Transfer of The Stock had occurred after the wedding, then she would have not recognized gain on the transfer, as Sec. 1041(a) provides that property transfers between spouses do not result in recognition of gain or loss. Neither would she have been subject to gift tax because Sec. 2523(a) provides for an unlimited marital deduction for gifts between spouses. Therefore, the prenuptial agreement should provide for property transfers to occur after the wedding. If terms of the Prenuptial Agreement provide for a series of payments by one spouse in return for the other spouse’s release against the transferor’s assets in the event of divorce or death, then no income or gift tax consequences result as long as the couple is married during the entire stream of payments. If the couple divorces before the last payment, remaining payments may constitute gifts made outside marriage. After Cessation of the Marriage

If the marriage ends in divorce, the prenuptial agreement often spells out the property rights and obligations of both parties. Property transfers between former spouses pursuant to a prenuptial agreement are classified as property settlements, alimony, or child support. Alimony is taxable to the recipient and deductible by the payer, but property settlements and child support are neither taxable to the recipient nor deductible by the payer. Alimony is objectively defined because the payer spouse benefits from payments being classified as alimony, while the payee spouse benefits from payments being classified as either Child Support or a property settlement, for federal income tax purposes. All payments meeting the seven objective criteria are classified as alimony payments, regardless of the parties’ intent, even if the payments do not satisfy the payer’s support obligation under state law. Similarly, payments that do not meet the objective criteria for alimony for tax purposes are not deductible to the payer, even if such payments qualify as alimony under state law or the parties intend for them to qualify as alimony. Alimony Payments

To be deductible for tax purposes, alimony payments must meet the seven objective criteria provided in IRC Sec. 71. Payments that do not meet these criteria are recharacterized as either child support or a property settlement. Consequently, if the parties wish to have certain payments qualify as alimony, it is essential that the terms of the prenuptial agreement be structured so all criteria are satisfied. Each of the objective criteria is provided below. 1. Payments must be made in cash. 2. Payments must be received by or on behalf of a spouse under a divorce or separation instrument. Further, if the parties have entered into a prenuptial agreement providing for the Support of Either Spouse and, the divorce decree or written separation instrument refers to the prenuptial agreement for the determination of alimony, then the prenuptial agreement will be treated as pursuant to a divorce instrument. 3. The payer’s obligation to make payments must end with the death of the payee spouse. 4. The instrument must not specifically designate that the payments are not alimony. 5. The filing of a joint tax return is prohibited. 6. In the case of legally separated spouses, the Payor and Payee spouses must not be members of the same household at the time of the payment. 7. Payments cannot be fixed as child support or treated as fixed as child support. Keep each of the seven criteria in mind when reviewing the tax consequences of the terms provided in a prenuptial agreement. Some of the common problems encountered causing alimony payments to be classified as a property settlement for tax purposes are discussed below. First, Non-Cash Spousal Support payments made pursuant to the terms of a prenuptial agreement, even those that satisfy the payer’s obligation for alimony under state law, are not deductible. The prenuptial agreement should specify that all alimony is to be paid in cash. Second, the terms of the prenuptial agreement should be structured so the payer spouse has no obligation to make any payments after the payee spouse’s death. If such payments are permitted to occur, then none of the payments, even those made before the death of the payee spouse, qualify as alimony. For example, the husband is required to pay his wife $20,000 per year for 15 years or until her death, whichever is earlier. The agreement also provides that if she dies before the end of 15 years, he will pay her estate the difference between the $300,000 that she would have received over the 15 years, less the amount that she actually received. The fact that he is required to make a lump sum payment to the estate upon her death suggests all payments are a substitute for a $300,000 lump sum payment. Consequently, none of the annual $20,000 payments qualify as alimony. When the prenuptial agreement does not address this issue, state law determines whether the payee spouse has any continuing obligation to make payments. In most states, support payments automatically cease upon the payee’s death; however, it is possible for payments that were not classified as alimony, for state purposes, to have qualified as alimony for federal income tax purposes. Such payments would not cease upon the payee’s death and all payments, even those made before the payee’s death, would be recharacterized as property settlements.To ensure that payments are characterized as alimony for federal income tax purposes, the prenuptial agreement should contain a formal statement that the obligation to make payments terminates at the recipient spouse’s death. Third, if the parties wish to treat cash payments as something other than alimony, the prenuptial agreement must state which payments the parties do not want treated as alimony. For federal income tax purposes, all payments that qualify as alimony will be treated as such unless the payments are specifically designated as child support or a property settlement. It is a good idea for the prenuptial agreement to contain a provision that allows the spouses to change the designation of those payments from non-alimony to alimony in future years. This gives the parties some flexibility in case the circumstances of the parties change in Future Years. Finally, the terms of the prenuptial agreement should be structured to avoid any language that could be construed as representing child support. If it is possible to determine, by reference to the prenuptial agreement, what portion of a payment was intended as child support, then that portion of the payment will be treated as child support and only the remainder will be considered alimony. Payments are treated as child support to the extent that they are subject to reduction on the happening of a contingency specified in the instrument relating to the child; or at a time that can be clearly associated with a contingency related to the child. Contingencies relating to a child include, but are not limited to, the child attaining a specific age or income level; the child marrying, dying, or gaining employment, and the child leaving school or the spouse’s household Reg. Sec. 1.71-1T(c), Q&A-17. A Payment Reduction associated with a contingency with respect to a child is a much more ambiguous standard and depends on an analysis of the facts and circumstances of the situation. See Reg. Sec. 1.71-1T(c), Q&A-18, for specific instances that are deemed to be associated with a contingency with respect to a child. Example: Scott agrees to pay Debbie $2,000 per month until she dies. Debbie has custody of their child, Eric. The agreement states that upon Eric attaining the age of 16, the monthly payment will be reduced to $1,200. Of each $2,000 payment, $1,200 is alimony and the remaining $800 is treated as child support. Alimony Recapture. Payments that would otherwise qualify as alimony that decreases rapidly in the first three years following separation or divorce, may be recharacterized as a property settlement. After the terms of the prenuptial agreement have been analyzed to determine which payments qualify as Alimony for tax purposes, it is necessary to check whether the alimony recapture provisions apply. Recapture does not apply to payments reduced due to death of either spouse; the remarriage of the payee spouse where payments cease under the terms of the divorce decree; temporary support payments; or fluctuating payments from a pre- existing formula (e.g., percentage of gross income from a business), when the formula is fixed under the terms of the divorce or separation instrument and is effective for at least three years. If the recapture rules apply, then before signing the prenuptial agreement the parties need to revise the terms of the agreement so payments are not subject to alimony recapture. Payments recharacterized under the alimony recapture rules become income to the payor spouse and a deduction to the recipient spouse. Alimony Recapture, if applicable, occurs in the third post-separation year and is the sum of the excess payments made in both the first and second post-separation years. The second-year excess payment is determined first and is calculated as the amount by which the second year’s payment exceeds the third-year payment plus $15,000. The first- year excess payment is then calculated as being the amount by which the first-year payment exceeds the average of the adjusted payments from the second year and the payments from the third year, plus $15,000. The recapture rules apply only to excess payments made in the first three post-separation years. Consequently, payments made after the third year may be reduced without recapture. Payments increasing from year to year do not trigger recapture. Property Settlements When the parties intend to use a prenuptial agreement to designate each spouse’s property rights and obligations in the event of divorce and want to ensure that all transfers made after divorce avoid both income and gift tax, the prenuptial agreement should include a provision that makes all payments conditional on their being included as part of the divorce decree. Sec. 1041 provides that no gain or loss is recognized for income tax purposes on the transfer of property incident to divorce and that such transfers are treated as gifts. In situations where there is nonresident alien spouse, extreme caution is necessary as the benefits of Sec. 1041 are sharply curtailed Sec. 1041(d). The code also states that transfers occurring within one year after the cessation of marriage are deemed to be incident to divorce, and the regulations provide that transfers made within six years after a divorce are deemed to be incident to divorce, only if the transfers are made pursuant to the terms of the divorce or separation instrument Reg. Sec. 1.71-1T(b), Q&A-7. Child Support. If the parties intend for certain payments to qualify as child support, rather than alimony, then the amount of the payment constituting child support should be specifically stated in the terms of the agreement. In situations where payments are reduced in violation of the terms of the agreement (i.e., the payor spouse is delinquent), payments are first treated as child support payments before any alimony income is reported by the recipient.14 Example: Under terms of the separation agreement, Jack is required to pay Lisa $1,000 per month, $600 of which is designated in the agreement as support for their minor child. If Jack only pays Lisa $9,000 during 1992, then $7,200 will be considered child support and the remaining $1,800 will qualify as alimony. In situations where the prenuptial agreement requires a specific payment for both alimony and child support without separately stating the amount of each, the entire payment will be treated as alimony. Example: Hal agrees to pay Wanda $600 per month until she dies. Wanda has Custody of Their Child, Chris. The agreement states that as long as Hal continues to make monthly payments to Wanda, he is relieved of all support obligations for Chris. Even if Wanda can show that the entire amount was used to support Chris, the entire $600 qualifies as alimony since it cannot be determined from the agreement how much of each payment is for child support. In the Event of Death When a prenuptial agreement takes effect due to the death of a spouse, the property is included in the decedent’s gross estate and the recipient spouse takes a basis in the property equal to its fair market value Sec. 2043(b). As previously discussed, most states give the surviving spouse the right to elect against what was provided in the will and instead takes a set percentage of the deceased spouse’s assets. This problem is eliminated when the parties address the issue in an enforceable prenuptial agreement. Example: Richard and Molly are contemplating marriage. Richard, who was previously married, has accumulated a considerable amount of wealth that he wishes to leave to his children. Richard and Molly enter into a prenuptial agreement wherein Molly agrees to waive any claims against Richard’s assets upon his death. In return, Richard agrees to transfer, at the time of his death, a percentage of his assets into trust with the income to go to Molly for the remainder of her life and the property to go to his children Upon Her Death. The remainder of Richard’s estate goes directly to his children. In the event of Richard’s death, Molly would be unable to elect against the will provisions and the executor of Richard’s estate could elect to treat the trust as a QTIP trust, since the property in the trust is qualified terminable interest property and Molly is entitled to the income from the property for life. Thus, the estate would receive a marital deduction for the value of the trust assets Sec. 2056(b)(7).

Most often a divorce is contested when the man and women cannot find a common consensus. Most of the disagreements concern the Children, Visitation and how to divide the assets of the marriage along with Child Support, Alimony, How to deal with Family Debts, and who will pay for the Education of the Children and Possible College expenses, Insurance and Tax Problems After a divorce case is filed, you are given a number and depending on how many people filed before you, will determine how long it will take to come to trial. Generally unless you know someone the cases are determined in the order of your number. When your number comes up you are called, either by phone or mail. Depending on where you live it can be on the spot. Divorces are all Contested until both parties can come to an agreement and the attorneys can come to a consensus on all relevant issues. Then they can address the Court that it is no longer a Contested Divorce but now an Uncontested Divorce. When this happens there will be a hearing that will consider both parties that sometimes requires proof of claims made by either party. If the laws of the court and the state are considered and are acceptable, the court will approve the settlement and enter a divorce Judgment on that the same day or in the near future.

In divorce, a common question is, “what is the alimony formula”. Well, there really is no set alimony formula for divorce. This is in complete contrast to child support, which is decided based upon a specific formulas in each state. Alimony is based on factors and those factors are decided through divorce negotiation or by a divorce judge. But, there is no alimony formula available to your divorce attorney or you to determine in advance what alimony will be paid in your case.

It should thus be apparent that in divorce, there can be no easy alimony forumla, no matter what state you live in. It is impossible to plug these and other factors into a mathematical equation to arrive at a “correct” alimony formula. It is necessary that the divorce court, or the divorce attorneys review how these varied and different factors affect both parties in the divorce and then arrive at a solution that encompasses all of the divorce issues, including property settlement and alimony. They cannot simply set up an alimony formula that would work for all parties.

is a critical decision making process. The person who you hire will be responsible for obtaining or maintaining your custody rights to your children, your property interests, and depending upon the side you are one, either minimizing or maximizing your support rights.

After you have completed all of the consultations and reviewed the answers to all of your questions, decide which divorce attorney you felt most comfortable with and which one you believe will work with you to get the type of results that you want.results that you want.

While each person’s situation is unique, there are steps to follow that are common to all in the event that you and/or your spouse decide to file for divorce. Here is some general divorce advice:

Developing a rapport with your attorney is an important step in understanding the entire divorce process. The more knowledge you have, the better-informed your decisions will be.

This article is designed to give someone who is considering or planning for the possibility of divorce an idea of what documents are needed. Even if you believe your case is ultimately agreed to and settled without a trial, you will be in a much better position if you already have the relevant documents in your possession. Better safe than sorry.

You should locate the relevant documents, make copies, and keep them somewhere secure, like your office or with a friend. You will then have access when it is needed.

Here are the most important seven categories of documents you should focus on.

1. Income Documents

Your spouse’s income is relevant to a number of issues in a divorce case. At a minimum, get your spouse’s last paycheck statement and your most recent tax return. Ideally, you would have access to all tax returns filed during the marriage, along with all supporting documents and schedules.

2. Bank Records

The monthly bank statements are very important and can lead you to other documents (cancelled checks, deposit slips, registers, etc.) that you also may need to obtain. Get at least the most recent statement for each account that is either held in your name, your spouse’s name, or jointly. If possible, get copies of all statements going back to the date of marriage. In most cases this volume of records is not required, but in some cases these records can be very helpful and even necessary to analyze the case.

3. Retirement and Other Investment Records

Often the biggest asset a couple will own will be a 401k or pension account. So you will definitely want the most recent account statement and ideally all statements dating back to the time of marriage. Also, the last statement prior to marriage can be very significant (especially in community property states) to show the pre-marriage balance.

4. Credit Card statements

Again the most recent statements are a necessity, but a lot of important evidence can be garnered from the historical statements. In some cases, the credit card statements will show questionable transactions that can be of real evidentiary value. For example, they might show evidence of gifts or dinners purchased for paramours, questionable hotel rentals, or other dubious purchases.

5. Real estate documents

The most important real estate documents are the Deed of Trust and Warranty Deed for any property you currently own. If you have the entire file from (the giant stack of paper you got after the closing) for each real estate purchase or refinance transaction during the marriage it can be helpful. Additionally, documents evidencing real estate owned by either spouse prior to marriage can be significant, especially in community property states.

6. Mortgage statements & any Other Debts

You should get the most recent statements showing the current payoff balance for any other debts. For those debts that have only a coupon book with no regularly generated statements showing the current balance, you will probably need to contact the creditor by phone for the current payoff information.

7. Relevant emails or other correspondence

Correspondence or emails can be extremely helpful (or damaging, depending on your viewpoint) pieces of evidence in the case. Whether the communication is between spouses or between a spouse and some third-party, the communication is potentially relevant. Two common examples would be where your spouse makes a damaging admission about some issue in the case, or communications with paramours.

Conclusion

Determining which documents you need to obtain for your divorce case can be a very time-consuming and daunting task. Use this list as a starting point and discuss your situation with a quality divorce attorney. This person should be able to advise you specifically on the documents you need to obtain in order to protect your interests.

Divorce can be a very touchy subject but is one we should address none the less. There are steps to take and many things to consider. Be sure you have thought through all aspects before you even think about making a decision.