February 2022 - Lonich Patton Ehrlich Policastri

Debt During Divorce: Who’s Responsible?

February 23, 2022/in Family Law /by Gina Policastri

A big question often arises in divorce settlements – who is responsible for the debt? It’s a complex question requiring a degree of nuance in determining. In particular, California divorces have unique circumstances relating to community property.

What is community property?

Community property is a critical concept to keep in mind when initiating the divorce process, especially in California, a community property state. Any income of either spouse and real or personal property acquired by either person during the marriage falls under community property – though this does not include gifts or inheritances.

This means that both spouses share equal ownership rights for any earned income or property – but beware that this means debt also falls under community property.

Who is responsible for any jointly accrued debt?

Under California community property law, any financial obligations incurred during your marriage become the responsibility of both spouses during a divorce. Premarital debts brought into the marriage could also become the responsibility of both parties.

There are, however, some exceptions to this. Separate property is acquired before entering the marriage and therefore does not become shared community property. This can be things like a house or vehicle owned before the marriage. As long as the funds for payments on this property come from a separate source and not from income generated during the marriage, the property remains separate.

If funds do become mixed, this is considered co-mingled property and can be tricky to sort out. This can happen in situations where an initial property was considered separate but was sold, and the funds were then used to buy another asset that was partially paid for with community income as well.

How can you protect yourself from liability?

For individuals who are considering nuptials but haven’t yet said “I do,” a pre-nuptial agreement is worth discussing. An agreement like this might outline that both spouses agree to treat their debts and income separately.

While no one wants to think about a future divorce as you plan a wedding, a pre-nuptial agreement can ensure you and your spouse-to-be are on the same page in the event something should happen down the road. This allows you to discuss with a level head, not in the event of a divorce when emotions are running high.

How can an attorney help?

Although community property can be a complicated matter, it doesn’t necessarily mean that you need to appear before a judge to sort out the property division. Often, attorneys can help a divorcing couple come to an agreement, though note that in California, a judge will still need to sign off on the final agreement with a court order to ensure its validity.

If you have questions regarding a division of debt in your divorce, call (408) 553-0801 or click here to schedule a free 30-minute Family Law or Estate Planning consultation. Lonich Patton Ehrlich Policastri’s experienced attorneys specialize in divorce and family law and can help with your divorce-related debt questions. With over 100 years of combined experience, the Family Law group at LPEP can help you navigate even the most complex of family law and estate planning matters in California.

Recently Divorced? Take Advantage of Potential Tax Breaks

February 15, 2022/in Family Law /by Gretchen Boger

For many people, getting divorced is a difficult and life-changing experience. While there are undoubtedly challenges that come with divorce, it’s important to consider that there may also be some potential tax breaks available as both partners go through this process.

Determine your tax filing status

If you were legally married as of December 31, you can file a joint tax return. This allows you to combine your income with your spouse to receive a higher standard deduction.

If you can’t file jointly, you can still consider filing as head of household, which also has the benefit of a bigger standard deduction and more lenient tax brackets. However, only one spouse can file as head of household, and there are several requirements to be eligible: you must have had a dependent living with you for at least half the year, and you must have paid for more than half of the upkeep of your home.

Alimony and Child Support

If you have an alimony agreement put in place before 2018, you can deduct the payments as an above-the-line deduction. However, if you began an agreement after 2018 or changed an existing agreement, the payments will not be considered deductible. The IRS also requires the recipient’s social security number to be reported, so they can track it to make sure it’s reported as received income.

Child support payments are handled in a separate manner. You cannot deduct nor be taxed for any child support payments made or received.

Claiming Dependents

After a divorce is finalized, only the custodial parent can claim children as dependents. The custodial parent is the parent with whom the children live with more nights during the year. This parent can claim the earned income tax credit and other credits such as higher education tax credits.

There is an exception to this – a custodial parent can fill out a Form 8332 waiver and transfer dependent status to the non-custodial parent on a yearly basis. This could make sense in a situation where the non-custodial spouse falls in a higher tax bracket.

Children’s Medical Expenses

If you contribute towards a child’s medical bills, you may also be eligible to include this in your medical expense deductions. This applies even if you aren’t the primary custody holder. However, the expenses would need to exceed 7.5% of your adjusted gross income to be eligible.

Asset Transfers and Sales

It’s important to consider the possible tax implications involved with transfers of assets. While there is no tax responsibility for the recipient when a property is transferred during a divorce, they would be responsible for capital gains taxes on the appreciation of the house if and when it was sold.

You may also decide jointly to sell a home. In this situation, if you have owned the property and lived there for at least two out of the previous five years, both spouses can exclude up to $250K each if filing separately, or $500K if filing jointly.

If you live in the San Jose, CA area and have questions about the tax implications of a pending divorce, call (408) 553-0801 or click here to schedule a complimentary consultation. Lonich Patton Ehrlich Policastri has a team of experienced attorneys specializing in divorce and family law who are ready to help you.

February 2022 LPEP Spotlight: Bethany Brass

February 10, 2022/in 2022, Spotlight /by Lonich Patton Ehrlich Policastri

What Is The Difference Between A Living Will & A Final Will?

February 8, 2022/in Estate Planning /by Michael Lonich

Have you ever heard the terms “living will” and “final will” and wondered what the distinction is, exactly? Are you thinking about estate planning and the outline of your own end-of-life plans? Both types of documents help you and your loved ones feel secure knowing that your wishes will be adhered to, but how can they accomplish that?

What Is A Living Will?

A living will is also called an Advanced Health Care Directive. Its purpose is to make sure that, in the event that you cannot articulate your own healthcare preferences, they will still be honored. It allows you to appoint a family member or friend as your medical power of attorney. This person should know you well and be willing to communicate with physicians and other healthcare providers on your behalf. If you have specific preferences and instructions regarding treatments you would or would not want, your living will can lay these out.

You remain in control over your medical decisions even if you have created a living will. An Advanced Health Care Directive would only come into effect if you are deemed medically incapacitated. Once it is in force, any healthcare provider must follow what you have laid out in your living will and listen to your appointed agent. However, it is essential that your family, your doctors, and especially your agent all have access to your living will in the case of an emergency. The state of California also maintains a registry of Advance Health Care Directives so that every relevant party can access and follow your wishes.

What Is A Final Will?

A final will is what you probably imagine upon hearing the term: a last will and testament. It is an estate planning tool that allows you to set forth who shall inherit which parts of your estate, amending the automatic apportionment based on state law. If you do not have a will in California, your spouse receives all of your joint property and part of your separate property, with the remainder divided among your children. If you do not have a spouse or children, your estate is apportioned to your relatives, or, if none are found, it is given to the State of California.

You may choose to use a final will along with a trust, which can allow your assets to avoid the probate court supervision process altogether. However, a final will is critical regardless of your financial situation and it is an important part of your estate plan. It gives you the opportunity to name a guardian for any of your children who are minors and to appoint an executor of your estate. This person is responsible for seeing that the wishes, as you’ve laid out, are carried out properly and your finances are in order. You will also want to keep it up to date. Revisions may be in order after major life changes such as marriage, the birth of a child, divorce, or even a new relationship if you wish for your unmarried partner to receive any of your estate, which they are not automatically entitled to under California law.

Both types of wills give you and your family peace of mind knowing that no matter what, you have a well-thought-out plan in place. For a more in-depth look at wills and estate planning, have a look here. If you are located in or around Santa Clara, contact Lonich Patton Ehrlich Policastri to set up a virtual consultation with one of our estate planning attorneys.

How To Handle Late Alimony Payments

February 2, 2022/in Family Law /by Riley Pennington

One of the most delicate situations caused by divorce is the awarding and collecting of spousal support payments. While the wage garnishment process attempts to alleviate the burden of collecting payments each month, there are situations in which people fall behind on their payments. Late alimony payments are stressful to deal with and it is important that you understand your rights in obtaining your spousal support in California.

While a significant “change in circumstances” can legally and temporarily give the spousal support payor the right to modify spousal support, there are serious consequences for neglecting to pay spousal support and judges typically favor the person receiving the support.

Delay Due to Financial Hardship

If your ex is falling behind on alimony payments, the first thing that you should do is try to understand why. It might be that your ex has suffered from a recent financial hardship such as the loss of a job, and you might want to take that into consideration before you let your frustration drive your decision-making.

If this is the case, and you believe that they will likely find a job soon and continue to pay the alimony payments, then you might want to consider creating a written agreement that modifies or temporarily suspends the required spousal support payments until your ex has a new source of income. If you chose to do this, it is highly advised to hire a spousal support lawyer so that you know that your rights are protected and you will continue to receive your mandated spousal support once the financial hardship is remedied.

Late Payments Due to Neglect

While the wage garnishment process tries to alleviate the burden of collecting payments, people who are self-employed or unemployed are not subject to having their wages garnished to pay spousal support. In these circumstances, you can fight for your spousal support by placing pressure on your ex to either obtain a job that fits their experience and earning capacity or maintain their payment schedule.

The state of California offers support in the form of the Local Child Support Agency (LCSA) (known as DCSS in Santa Clara County) if the parties have children and the spousal support affects the children’s well-being.

If the LCSA is not already involved in your spousal support, and you’re dealing with late alimony payments, then you should hire an attorney to help you in your fight to obtain your spousal support. You may have the following options:

If your ex does not already have their wages garnished, then you can go to court to ask for an earnings assignment from the person’s employer.
If you and your ex created an agreement that the payor would pay without a wage assignment, then you can ask the wage assignment to be reinstated.
If your spouse owes you arrears (past due support), then you can ask a judge to adjust the earnings assignment so that the arrears are factored into the garnishment amount, and subject to 10 percent interest per year.
If your ex has the financial means to meet the payment schedule and simply isn’t making payments, then you might want to go to court to have a judge intervene. Judges have the authority to use the full force of the law to enforce legally-binding alimony payments, and may hold the payor in contempt (fines or jail time) for not meeting their payments.

If the LCSA is already involved in your spousal support, then the organization can assist you with:

Placing a lien on the payor’s bank accounts and real property
Redirect a payor’s tax refunds or public benefits to help assist with the spousal payments
Temporarily suspend a driver’s, business, or professional license

If you are facing difficulty with obtaining spousal support payments from your spouse in California, then it is strongly recommended to speak with a spousal support lawyer. LPEP specializes in divorce and family law and has the resources you need to help you obtain your owed alimony payments. Schedule a free consultation by clicking here or calling us at (408) 553-0801