lawyer fees

What Happens to Debt After Divorce?

Holly Johnson — Fri, 30 Mar 2018 09:30:19 +0000

When you consider that 40-50 percent of marriages in the U.S. end in divorce, it shouldn't surprise you that some marriages end in a financially messy way. Marriage typically involves the joint payment of debts just as it involves collecting joint assets, and everything — both assets and debts — must be distributed in some way when a couple calls it quits. (See also: How to Protect Yourself Financially During Divorce or Separation)

Community property vs. common law states

In a lot of ways, what happens to your debts and assets depends on where you live. If you reside in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) or "opt in" for community property in the state of Alaska, then all debts accumulated during a marriage are the responsibility of both parties no matter how they were held. This means that if your spouse ran up a secret credit card balance during your marriage, that debt is your responsibility as well as theirs in a community property state.

If you live in one of the remaining states, then you live in an equitable distribution state (also known as a common law state). Typically, this means that debt incurred during a marriage is the responsibility of both parties, if both parties were joint owners of an account. If one spouse opens an account in their name only, on the other hand, that debt is their sole responsibility.

What happens to debt incurred during separation?

Note that debt incurred after a couple separates may be treated differently than debt incurred during a marriage. Your liability for such debt usually depends on your state, whether you took out the debt jointly or separately, and whether the debt was used for, say, a spending spree in Las Vegas or necessities for your children such as food and rent.

Since the moment of separation is figured differently in different states, the cutoff for new debt can also vary. In some states you need to legally separate while others consider the moment of separation as starting when you begin living apart. (See also: How to Manage Your Money During a Spousal Separation)

How are debts divided when you divorce?

Sally Boyle, a certified divorce financial analyst and author of Deconstructing Divorce, says that no matter whether you live in a community property or equitable distribution state, debts are divided along with assets during a divorce. This means the court system that handles your divorce will help you figure out ways to split your debts equally and fairly. (See also: 5 Money Moves to Make the Moment You Decide to Get Divorced)

Credit card debt

If a couple has credit card debt that is jointly held, for example, both spouses can try to move the debt into two separate accounts.

"The challenge with joint debt is going back to the lender to split the debt up," says Boyle. It's possible your credit card issuer may not want to help you move part of the debt into a new account in one spouse's name, although they will usually cooperate if both spouses have good enough credit to qualify for an account on their own.

As an alternative, Boyle says a balance transfer card can be a good way to split up credit card debt if at least one spouse can get approved. "It all comes down to whether the card issuer approves or not," says Boyle. (See also: How to Divide Rewards and Keep Your Sanity in Divorce)

Mortgage debt

Mortgage debt is handled similarly to credit card debt, except that there is an asset involved, since mortgage debt is secured by your home. If you own a home together and the debt is in both of your names but you get divorced, then it's possible that one spouse can keep the home. In that case, Boyle says most couples go to their mortgage company and ask it to approve the remaining spouse to refinance the home in their name only.

If there is equity in the home, there are several ways to split it. If one party keeps the house, they could "buy out" the other person with cash. "You could also refinance the home for what it's worth and get cash out," says Boyle.

Another option is for the remaining spouse to get a home-equity loan and use some of the cash to give the other spouse their share of the equity. A final option is to just sell the house and split the proceeds, notes Boyle.

Auto loans

What about cars? Auto loans can work a number of different ways. Many times, each spouse will keep the car they drive and take over the payments even if both spouses are on the loan. However, it often makes sense for each spouse to refinance the car loan into their own names when they don't want to continue sharing a joint debt after divorce.

Student loans

Then there are student loans to contend with. Boyle says that since student loans are taken out by only one spouse most of the time, the debt is often retained by the borrower. However, there are some exceptions.

"I've had situations where a spouse might pay off the other spouse's student loans as part of a broader divorce settlement," she says. "Maybe they were the breadwinner or they had more assets."

Why couples typically split up debts during divorce

Attorney Nicholas Dowgul of Felton Banks in Raleigh, North Carolina says couples there occasionally continue holding debt together after divorce.

Basically, if the parties get a divorce and no equitable distribution action is filed, then equitable distribution (property settlement) is waived by both parties and the debt remains in whomever's name it was, says Dowgul. But if it's joint debt, then it remains the obligation of both spouses.

However, the problem with joint debt after divorce is that one spouse may not stick to the agreement. In that case, the creditor would likely go after both spouses for repayment, regardless of their agreement to remain jointly liable. (See also: What You Need to Know About Divorce and Credit)

For example, imagine there's a court order from a North Carolina court that says the husband is required to pay the credit card held jointly by the parties, but he stops paying his part of the bill. The card issuer will hold both spouses liable for the debt and repayment, meaning the bank will come after the wife as well, even though, according to the divorce decree, she's not responsible for paying that credit card bill.

This doesn't mean that the husband would be off the hook, however. If he agreed to hold the debt jointly during the divorce settlement, then he could be held in contempt of court unless he pays what was ordered, notes Dowgul. (See also: 4 Myths About Divorce and Money Debunked)

To avoid situations like this one where one spouse stops paying their share, many couples opt to pay off joint debts and close all joint accounts, then refinance remaining debts in one or the other's name only. It's just too risky to remain in an account with an ex-spouse, especially if you can avoid the situation altogether by moving debts into separate accounts.

What can you do to ensure debt is distributed fairly when you divorce?

While Dowgul only practices law in North Carolina and believes people in other states should consult a local divorce lawyer for specific advice, he says he recommends his clients write up a separation agreement once they decide they are going to divorce. A separation agreement should include a basic understanding of who gets what after the divorce, including which person is responsible for each debt accrued up to that point.

In the state of North Carolina, couples have to be separated a year and a day before a divorce is granted, he says. While there's no requirement in his state that couples get their separation in writing, it makes things easier if the parties can at least agree on matters involving debt and assets upfront.

Finally, hire a divorce lawyer who can represent you and ensure you're left with a fair number of assets and no more than your share of the debts once your divorce is final. "The goal of divorce is for each spouse to end with assets of similar value," says Boyle. "It's not always a 50/50 split, but it needs to be a fair split."

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Get Screwed: 3 Surprising Times When You Need a Lawyer

Damian Davila — Wed, 05 Nov 2014 18:00:08 +0000

Lawyers get a bad rap.

From films such as My Cousin Vinny to TV shows such as Ally McBeal, you get the idea that lawyers don't know half the time what they're doing. This is why it seems that taking legal matters in your own hands or using an online legal service is just as good as hiring a lawyer. (See also: 7 Occasions When You Should Definitely Hire a Financial Advisor)

However, there are times that the opportunity cost is too high to tackle the job yourself. And some of them — like the three listed below — might surprise you.

1. Executing an Estate or Administer a Will

Let's imagine that your Uncle Joe passes away and Aunty Jude calls to ask if you could serve as executor of your uncle's estate or administrator of his will. If Uncle Joe meant a lot to you and you feel that is your duty to accept either task, it is a good idea to call a lawyer.

Executing an estate requires a lot of steps and forms. The three primary responsibilities of a person appointed to administer an estate are:

To collect and inventory the assets of the estate of the deceased;
To pay applicable debts, taxes, and liabilities of the estate; and
To distribute the remaining estate to the persons entitled to receive them.

If you have neither the time nor the expertise to do a thorough job, you may miss necessary state estate tax returns or notices (e.g. Notice of Proposed Action). Even worse, you become liable for any potential mismanagement of your uncle's estate. But that's not all. The estate's beneficiaries are most likely your relatives as well. So, you would get sued by your own relatives if you were to perform any wrongdoing, even if unintentional. Do you really need that drama in your life?

A lawyer would guide through the entire process and point out any potential pitfalls. For example, depending on the applicable estate laws, you may not be entitled to serve as an administrator for your uncle's will. A lawyer would check the statutes of descent and distribution to determine the next of kin entitled to serve as administrators.

However, probate attorney's fees are not cheap. The total fee for a "routine" estate with a gross value of $400,000 is about $20,000. You have three options for billing: hourly (ranging from $150 to $200 per hour), flat fee, or percentage of estate (only in certain states, such as California and Florida). Most legal professionals recommend to avoid percentage fees and to get the fee agreement in writing.

2. Forming a Corporation

Given that there are close to 3 million corporations in America, you would think that forming a corporation is a pretty straightforward process. However, forming a corporation is more complicated than setting up an LLC or business partnership. This is another time to pick up the phone and call a lawyer.

While many of the necessary forms are available online, such as the ones for the State of Delaware, you may not have the necessary skills to consider the tax and legal ramifications of how you form the corporation. There are important requirements, such as filing annual reports, filing bylaws, and requesting permission to operate outside the state of incorporation, that only a corporate attorney would know about. After all, you want your corporation to make headlines, but not for making a major legal blunder.

The rates of corporate lawyers to form a corporation fluctuate a lot. They can start as low as $300 and go all the way up to $5,000. Hiring an ultimate pro can run you over $1,000 per hour. Of course, these estimates don't include fees, such as the IRS fee for tax exempt nonprofit corporations.

It's important to shop around and get several quotes to make an informed decision. However, don't rely solely on price. Make sure that the lawyer specializes in corporate law, ask her for recommendations, and check her background with your state and local bar associations. By investing the time in finding the right corporate lawyer, you have completed the necessary legwork when the need rises again for one.

3. Filing a Patent

There are plenty of websites claiming that you can file a patent for just a couple hundred dollars and in under one hour.

But if you truly have a billion dollar idea, you shouldn't risk it going it on your own. When you have the golden goose, the patent trolls will try their best to take a bite out of it. For example, Apple faced 92 patent lawsuits over a three year period, and Google has faced over 140 patent lawsuits since 2009.

Several inventors recommend that you seek advice from a registered patent attorney or agent when filing your provisional patent application. A professional provides expert advice on what language to use to:

Meet the requirements of 35 U.S. Code 112 for inventions and their connections;
Avoid unnecessary restrictions to your provisional patent;
Provide counsel on additional registration systems (e.g. trademark); and
Achieve the right balance between broad and specific descriptions.

The total cost for a provisional patent application for a mechanical or electrical device is about $2,500 or less. The portion for the cost of attorney time is at least $2,000 and the remaining is for filing fees and applicable expenses, such as drawings. If your product development is successful and you're ready to file a nonprovisional patent application, be ready to spend over $10,000 in legal cost and fees.

Better safe, than pillaged by a patent troll!

What are other times when you need a lawyer? Please share in comments.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

16 Things Your Lawyer Won't Tell You

Will Chen — Wed, 24 Feb 2010 17:00:17 +0000

Link:

http://www.openforum.com/idea-hub/topics/money/article/16-things-your-lawyer-won...

While most lawyers are honest professionals, the legal industry does have its share of rotten apples. From overbilling to downright incompetence, our recent interviews with legal experts revealed 16 dirty secrets bad attorneys don’t want you to know.

1. I use forms but charge you as if I did it from scratch.

Many documents lawyers prepare for clients are slightly edited versions of old templates, according to Steve Brodsky, Esq., of the Brodsky Law Firm.

“Instead of charging for the minor edits, most lawyers charge for a completely new document as if it were created from scratch,” said Brodsky. “There’s nothing wrong with providing edited forms; what’s wrong is the way they are priced.”

2. I hand off work to peons but charge you a lawyer’s rate.

“Much of lawyers’ work is actually done by paralegals, secretaries, and interns,” warned Brodsky. “The lawyer has his paralegal do the work, and charges his regular fee. There is no problem with having well-trained clerks preparing forms—but lawyers should be more honest and not charge $300 per hour for $50-per-hour work.”

3. My Ivy League education doesn’t make me a better lawyer.

“Having an Ivy League degree means their grades were good enough to get into such a school, or their parents were rich enough to pay the tuition,” said Tony Wilson, Esq., associate counsel at Boughton Law Firm and columnist for Toronto’s Globe and Mail. “Don’t get hung up on the schools they went to or the brand of their shoes. Some really mediocre lawyers I know went to the best schools.”

4. I hope you don’t look too closely at the expense report.

Due to their size, large law firms can often get great rates for things like copying services, long distance calls, and legal database subscriptions. But instead of passing on the savings to you, some firms charge you a higher rate and pocket the difference.

One good example is shipping charges, according to Alison Anthoine, Esq., principal at consulting firm Quantum Media. “A firm negotiates a discounted rate, which is reflected at the end of the monthly bill, leaving a higher rate on the statement for the specific shipment, which is the documentation given to the client,” said Anthoine. “So, for example, a $50 waybill [charged to the client] may after discount cost only $45 [for the firm].”

5. You don’t really need me.

“Many basic legal tasks, such as simple contracts, basic wills, uncontested divorce, and standard real estate transactions can often be done on your own, or with the help of paralegals and other non-attorney legal professionals,” said Aaron Street, Esq., publisher of Lawyerist, a leading law practice blog. “Sites like Findlaw, NOLO, and LegalZoom can be great places to start for cheap and free solutions to many common, basic legal issues.”

6. My fee is negotiable.

“All attorneys should be open to negotiating their hourly rate, especially if you have a big project or will pay a cash retainer up front,” said Street. “Better yet, ask them to quote you a flat rate for your project. Most attorneys are still learning how to think about flat- or project-rate billing, so they may need your help in setting the fee, but you will then have complete control over the cost of your representation.”

7. You’re always on the clock.

Your lawyer can bill you for every minute he spends thinking or talking about your case. If you run into your lawyer at the golf course and ask about your case, that conversation is billable. Therefore, every communication you have with an attorney should begin with the question: “Are you billing me for this?”

8. I don’t know much about the law.

The legal system is so complicated that most attorneys are only experts within a very specific niche. Just as you wouldn’t ask a podiatrist to perform open heart surgery, don’t expect your personal injury lawyer to give you sound trademark advice. Your best bet is to find out how long the attorney has practiced in the specific area in which you need help, and what percentage of his practice is in that area, suggested Bradley R. Gammell, Esq., of Gammell & Associates.

“You want someone who knows most things without having to look it up,” said Gammell. “This is important not only for the cost, but also to ensure you hire someone with enough experience to identify the legal issues involved. If possible, select an attorney who has focused on the specific area for at least 5 years, with at least 50% of his or her practice in that area for that time. If it is a case with a lot at stake, consider a board certified attorney. He or she will cost more, but the quality of the representation will almost always be as good or better.”

9. I don’t refer you to the best lawyers.

Because most attorneys are only experts in specialized niches, they often have to refer clients to other attorneys who are more qualified in the client’s area of need. In many jurisdictions lawyers are allowed to pay each other referral fees as long as the fee is properly disclosed to the client. While technically legal, this practice creates a bad incentive for lawyers to focus more on the size of the kickback than on the welfare of their clients.

10. Your bill is only a guesstimate.

Attorneys bill clients in six-minute intervals. But don’t let this level of precision fool you—not all lawyers are fanatically staring at their stopwatches to ensure you are not getting overbilled.

“Clients should look out for projects that always last the same amount of time,” warned Tim Davis, Esq., of Grasch & Gudalis. “For instance, telephone conferences that always last four tenths of an hour—every time—or attorney conferences that always take an hour. That would seem like the bill is more of an estimation than a true reflection of the work performed.”

11. I don’t have to tell you how I screwed up in the past.

“As far as I know, lawyers don’t have to disclose to their clients a history of sanctions or other disciplinary actions,” said Philip Segal, Esq., head of Charles Griffin Intelligence, a litigation consulting firm. “Some disciplinary history is a matter of public record, but you have to go to the relevant state authority that licenses lawyers to do your search. Sometimes there will be a record of disciplinary action, but the authorities won’t specify what the action was for. Other times, you can find out why the lawyer was disciplined or perhaps just reprimanded.”

12. I put on a tough act but that won’t actually help your case.

If TV legal dramas have taught us anything, it’s that litigation is won by testosterone-filled lawyers who shout down their opponents and break down witnesses into puddles of tears.

“Much of the grandstanding and posturing is only an act to impress their client,” said Laurie Giles, Esq., of LaurieGiles.com. “Judges and other attorneys are not taking them seriously.”

In fact, the most aggressive lawyers will end up costing you the most money, warned Belinda Rachman, Esq., who specializes in peaceful divorce mediations. “Do not go looking for the nastiest shark or you will pay dearly,” said Rachman. “You don’t need or want a shark in most cases.”

13. Mediation might be the better choice.

“Litigation is a sinkhole,” declared Alison Anthoine. “Mediation gets the principals in a room together with a facilitator, the principals get to speak for themselves (rather than paying lawyers to posture for them). Most importantly, the facilitator gives the principals the neutral listener that they hope to get from their ‘day in court.’ They are empowered to reach their own resolution without any legal mumbo jumbo. If all cases were mediated, there would be no work for litigators, and there is an inherent disincentive for lawyers to encourage mediation.”

14. I can’t easily fire you as a client.

“Many lawyers threaten their clients, indicating that if they don’t pay or sign documents that they will not represent them any longer,” said Alexis A. Moore, a second-year law student and president of Survivors In Action, an advocacy group for crime victims. “Albeit it is possible for a lawyer to discontinue to represent a client for a variety of reasons, there are rules regulating when a lawyer may do so and they are important for clients to know. All clients should read the rules of professional conduct regulating lawyers in their state by visiting their state bar web site, so that the client may have a better idea of what is permissible behavior by a lawyer.”

15. I’m training junior attorneys on your dime.

Very often the lawyer you hired is not the one you will work with. While the seasoned attorneys are used to lure in clients, your matter might be delegated to young attorneys fresh out of law school.

“This is fine if your matter can be done more efficiently by another person with a lower billing rate,” said Kirk J. Halpin, Esq., from Law Offices of Kirk Halpin. “However, law firms sometimes involve many more people than necessary on a matter to help ensure that all of the people in the firm stay busy.

“A junior lawyer that is handling your matter may spend 10 hours doing something that a more experienced attorney could do in 1 hour. Make sure that you are not being charged for the same time when multiple people within a firm are handling a matter unless this is made explicitly clear at the time of the initial engagement. If a senior partner delegates your matter to a junior partner, you shouldn’t be charged for both the senior partner’s time in explaining the matter to the junior partner and the junior partner’s time in meeting with the senior partner.”

16. I’m a dime a dozen.

While 45,000 law students graduate from law school each year, fewer than 30,000 attorney positions are available for these graduates, reported Mark Greenbaum of the Los Angeles Times. To make matters worse, one-third of graduating law students owe about $120,000 in student loans.

This oversupply of debt-laden lawyers puts you in the driver’s seat. Next time you catch your lawyer’s hand in the cookie jar, report him to the state bar and hire one of the many great attorneys waiting in the unemployment line.

Do you trust your attorney? Please share your thoughts and legal horror stories in the comments.

This article is from Will Chen of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: