Question

My wife and I separated two years ago.  We met with a mediator and worked out a written separation agreement regarding finances and arrangements for our two children.  We both signed the agreement in front of a notary.  Now that we have decided to go forward with a divorce, she says that she wants a new residential schedule for the kids.  Isn’t she bound by what it says in the separation agreement?

Answer

The short answer is “no.”  Washington law generally encourages separation agreements as a way for couples to settle their disputes without litigation.  Those agreements will generally be upheld so far as money and property is concerned.  But when it comes to parenting arrangements, the court does not have to follow what the parents have previously agreed to do. 

This applies to any agreement about the children, whether it’s an informal deal worked out through a couple of emails, or a professionally drafted separation agreement negotiated with the help of a mediator and signed in front of a notary.  The court can certainly consider the previous agreement, as well as evidence about how well those arrangements have been working for your children.  The court’s job ultimately is to enter a parenting plan which is in the best interests of your children, which might or might not be the same as the plan you agreed to two years ago.

Question

My husband and I decided 6 months ago to get divorced.  Since then he has started dating and now has a girlfriend.  I am miserable and desperate to split up, but I don’t see how we can afford it.

We bought our house in 2007.  We could probably just about sell it for what we paid for it, but we would have to pay the realtor and the closing costs out of our own pocket.  I’m willing to just move out and give him the house, if he can give me enough money out of his 401(k) to allow me to start over with a new place, but he says his 401(k) has declined so much that he can’t afford to give me more than a few thousand dollars.

I feel like I’m in prison – help!

Answer

Historically, economic decline and the pressures that go along with it leads to an increase in divorces.  In the recession of the 1970′s divorce rates nationally increased by nearly 20%.  The flip side of the coin is that divorce itself can be an expensive process:  it costs money to divide up assets, to move, and to establish two households with the same income which used to support just one.

The housing market doldrums makes this especially challenging, especially in a place like Seattle where couples have traditionally invested heavily in their homes, thinking that this was a smart economic move.  When real estate prices fall, many divorcing couples are stuck with a large mortgage debt as well as a principle asset of little (or even negative) value.

There is no easy fix for this problem.  The key is to think creatively.

Dealing With a House That Has Little or No Equity

This is not a great time for either of you to be getting out of the real estate market, so what are the alternatives?  Find out what your house would rent for.  Especially if you do not have children, it may feasible for both of you to re-house yourselves as cheaply as you can (for example, moving back in with parents, sharing a house with friend, renting a studio in a less-expensive neighborhood) and let rental income cover most of your monthly mortgage payment.

You could then either each continue to pay towards the monthly mortgage shortfall, or even negotiate with your mortgage company to see if they will grant you a temporary reduction in your monthly payments because of your separation.  The advantage to arrangements like this is that you buy yourselves time to let the value of the house increase prior to a sale and division of the proceeds.

If one of you has enough income to cover the mortgage alone, it is possible for the other spouse to move out now, with a secure guarantee of a buy out at a later date.  Let’s assume that your husband can cover the monthly mortgage payments on his own, but he can’t re-fi right now and he can’t afford to buy out your interest in any other way.  The two of you agree that a fair settlement on the house would be for him to pay you $10,000.00 in no more than 2 years.

How can you move out and feel confident that he really will pay you? You can transfer the house to his sole name with a quit claim deed, he can sign a promissory note setting out the money he will pay you and when, and you secure the promissory note with a deed of trust which you register just like a mortgage.

This is a theoretically simple procedure which only protects the interests of both parties if it is done absolutely correctly; it is essential to have these documents professionally drafted by an attorney.  This is one area where, even in a recession, you cannot cut corners.

If you do have children, then there is all the more reason for one parent to try to stay in the house with the kids, at least for a few years.  If the parent with whom the children will live  primarily is the lower-earning spouse, then the higher earning spouse may be in the unenviable position of having to move out AND keep paying towards the mortgage.

One option in this case is for the higher earning spouse to take a fair share of assets from other sources like savings, retirement accounts and vehicles to achieve an equitable balance, with the lower-earning spouse getting the house.  If there are not enough assets apart from the house to balance the ledger, then the higher earning spouse may have to accept getting a share of the house when it is sold at some distant date: after the kids finish high school, for example.

Dividing Up Retirement Assets Without Liquidating

Another point to keep in mind is the fact that retirement accounts like 401(k)’s and pensions do not have to be liquidated to be split.  In fact, closing or pulling money out of these accounts early will almost always land you with administrative charges, penalties and  a load of deferred taxes.

A much smarter option is to divide the accounts via a Qualified Domestic Relations Order (QDRO).  This order will segregate the funds in the account between you and your ex, while leaving the money where it is.  Once the QDRO is entered and approved by the pension company, you will each own a separate part of the account.  You can each independently withdraw money if you have to (but will have to pay penalties just as if you were not getting divorced), or just leave the account intact in the expectation that the value will increase when the economy improves.

Question

My husband and I split up at the end of September.  He says that we can’t file a joint tax return, because we are living apart and I have already filed for divorce.

He thinks that he will be better off by filing separately.  But I still have taxes withheld from my pay checks based on a joint return.  I don’t want to get in trouble with the IRS, but if I file separately I’m going to have a pretty huge tax bill for last year.

What can I do?

Answer

You and your husband were still married on the last day of the tax year – December 31st.  That means that so far as the IRS is concerned, you may file a joint return if you wish to do so. Only a CPA who is familiar with all the details of your tax position can give you detailed advice about your particular return.  However, in general terms their are several reasons that couples who are separated but not yet divorced should consider filing a joint return for the year of their separation.

Most analysts agree that married couples enjoy a more favorable basis of assessment under IRS rules than do singles – that means lower adjusted gross income figures for marrieds filing jointly.  A joint return also avoids conflicts over who gets to claim the mortgage interest exemption and the exemptions for any children. One of the biggest reasons that divorcing couples should give serious consideration to filing a joint return is that doing so may  avoid the creation of a new community debt.

Since you and your husband only separated at the end of September, you were a marital community for nine months out of the year.  That means that 9/12ths (3/4) of  your combined income is a community asset, and the taxes on that community income is a community debt. Your husband might think that filing separately is smart if his own separate return gets him a refund.  But he won’t necessarily be better off if your marital community winds up with a big tax bill on your (separate) return.

Most of your tax bill (3/4ths) will be on the table as a debt to be divided in your divorce, just like the car loan and the credit cards. Similarly, 3/4ths of any refund that either of you get is a community asset to be divided in the divorce.

And as any lawyer can tell you, dividing assets is a lot easier than dividing tax debts.

Question

My husband and I are divorcing after 18 years of marriage.  I stayed at home with our kids for nearly eight years, and even after I went back to work I never made nearly as much as he did.  We are dividing our other retirement accounts, but our divorce decree says nothing about social security.  Am I entitled to some of his social security, and do I lose this if it is not mentioned in the decree?

older.woman

Answer

You may indeed be entitled to higher Social Security benefits based on your ex-spouse’s earnings; and it is not necessary to put this provision in your divorce decree.

Social Security Administration  rules allow many lower-earning ex-spouses to receive higher benefits based on their ex-spouse’s higher incomes.  The current rules require you to have been married for at least ten years; to be currently unmarried; to have been divorced for at least two years and to be at least 62 years old.  Your ex-spouse needs to be retired, eligible to retire, or deceased.

These additional benefits are not paid automatically. Your local Social Security Office can tell you how to apply.  In general, your benefit will be greatest if your ex-spouse has died, but any divorced person who was the lower earner during a marriage of at least 10 years should apply.

Generally Social Security benefits are not mentioned in divorce decrees at all, since their payment depends on SSA rules, rather than court orders.

For more information, see “If you are divorced” from the Social Security Administration.


Question

My wife and I always agreed that we would send our daughter to private school.  Now that we’re splitting up, she says that she can’t afford it – even though she earns the same salary.  Will the court make her stick to her promise?

private school girl

Answer

Maybe.

An Order of Child support sets out the financial obligations that both parents owe to their children.   This will include special expenses like uninsured medical costs, daycare and (if appropriate for that particular family) private school.

There are no hard and fast rules about whether the court will order parents to pay for private school.  If the child is already attending private school and has been enrolled there for several years, it is more likely that the court will try to see if there is any realistic way to keep the child there.

The same is true for a child who has special educational needs or special aptitudes that make a private school a better choice.

private school girl smiling

On the other hand, usually everyone in a divorcing family has to cut costs.  The money which used to run one household now has to run two.  Giving the kids the same material standard of living as they had before the divorce is a great idea, but for most families it just isn’t possible.

So you’ll have to show the court more than just promises your spouse made when you’re family was in tact.  You need to sit down and do the math so that you can show the court where the money is going to come from.

The Child Relocation Statute (RCW 26.09.430-560) requires the parent with whom the child resides primarily to give the other parent 60 days notice of any plan to move outside his or her present school district. If you can’t give 60 days notice (for example, because you did not know about the move in time) you need to give notice as soon as you can, and in any case within five days of learning of the move.

boy in box

Use the correct form (“Notice of Intended Relocation of a Child”), and fill it out to the best of your ability. It is especially important to say when you plan to move with the child, where the child is going, and how you and the child can be contacted after the move. You can get the form from the Washington State Courts website here: http://www.courts.wa.gov/forms/index.cfm?fa=forms.contribute&formID=6
The other parent then has 30 days to object to the move. That objection also requires a special form (“Objection to Relocation”) which you can find here: http://www.courts.wa.gov/forms/index.cfm?fa=forms.contribute&formID=57

A local move (one which is just inside the present school district) does not require any special formalities: the law says that you have to give the other parent “actual notice by any reasonable means.” It’s common sense to put this notice in writing and to keep a copy for your records, even though you don’t have to use any particular form. The other parent can’t object to a move within the present school district.

girl moving pictures

If you are not the parent with whom the child resides primarily, then the notice requirements don’t apply to you. You don’t have to give the other parent notice if you intend to move. However, many parenting plans include provisions requiring both parents to keep each other informed of their residential address and contact telephone number at all times. If your parenting plan has such a provision, you should follow it.

If you want to know what happens after an objection is filed, and what factors the court considers when deciding whether a child can move, read the relocation statute here: http://apps.leg.wa.gov/RCW/default.aspx?cite=26.09.430

Washington State child support orders set out each parent’s responsibility for the child’s Extraordinary Medical Expenses.

This provision is found at paragraph 3.19 of the pattern form child support order.

teddy-bear-bandaid

An extraordinary medical expense is a medical expense which in one month amounts to more than 5% of the child support transfer payment.

If you are the parent receiving child support, you are expected to spend up to 5% of the money you receive each month on uninsured medical expenses for the child:  co-pays, deductibles, or any other medical expense that is not covered by health insurance.

If you are the parent paying support, then you are expected to contribute towards uninsured medical costs, IF they total more than 5% of your usual monthly payment.

Here’s a simple example:
  • Dad pays child support of $400 per month.
  • In June, the child has $100 in uninsured medical expenses.Mom pays the first $20, because that amounts to 5% of the usual child support payment ($400 x 5% = $20).
  • The additional $80 are extraordinary medical expenses.
  • Dad and Mom split the extra $80 between them according to the percentages stated at paragraph 3.19 of their child support order.