How to Uncover Your Assets and Financial Situation

Get your Arms Around Your Family Finances

Erin KopelmanErin Kopelman, Principal

One of the most common concerns I hear from my clients is that they do not know their family’s or spouse’s finances. This is more common than you think.  According to some statistics from last year, in 42% of relationships one partner in the relationship handles the finances, and in 46% of marriages the couples have separate bank accounts. This means almost half of married people don’t know their complete financial picture. 

If you don’t know about your family’s finances, and you’re not comfortable asking your spouse or your spouse is non-cooperative, here are eight easy self-help steps you can take to start putting the pieces together. 

  1. Make an inventory of your incomes, assets and debts – just what you know. You can start building from there.
  2. Gather copies of the pay stubs, bank account statements and credit card statements that you can. You can search shared filing cabinets, go online to shared accounts and your individual accounts, or physically to your bank.
  3. Get copies of your income tax returns. Many people don’t know what their spouse earns or where their spouse banks, but they often file joint tax returns. Joint income tax returns will show your combined incomes, and your and your spouse’s interest and dividend income, including the institutions from where it came from, so you will know where you and your spouse bank.  If you don’t have a copy of your income tax returns, you can ask your accountant, or you can request a copy of your tax transcript for several years back online from the IRS at IRs.gov.
  4. Run a credit report on yourself. This will tell you what debts are in your name.
  5. Make an appointment for you, or you and your spouse, with your financial advisor to find out what you have.
  6. Make an appointment for you and your spouse to review or create an estate plan. The first thing most estate attorneys will do is make an inventory of your assets.
  7. See if you can do a Public Records Search on your spouse. A public records search scours the internet for public records that match certain criteria of the individual you are researching and gives you a report of what it finds. There is usually a fee for this. It often shows information about the individual’s court records, social media, addresses and telephone numbers, information from credit bureaus, asset ownership, and business associations.
  8. Open your mail and save everything you get for a full three months. You can just stick it in an envelope or snap a picture of it with your phone. This isn’t helpful if your spouse gets their mail sent to them at their office or electronically. Many of my clients tell me that their spouse always gets the mail. In that case, sign up on the United States Postal Service’s website for Informed Delivery. Informed Delivery is a service that scans and sends you images of the outside of your mail. That way, even if you never tangibly have your mail, you’ll who you and your spouse are receiving mail from.

Getting your arms around your family’s finances is the first step to taking control of your financial future. 

For more information, contact Erin at 301-347-1261 or elkopelman@lerchearly.com.

Should I Borrow or Accept Money from Family While Getting Divorced?

Erin KopelmanErin Kopelman, Principal

Cash flow is a common concern for most people going through separation or divorce. Many clients ask me if they can accept or borrow money from family.

While accepting or borrowing money from family may seem like an economical option because it often does not require a loan agreement, interest, penalties or preapproval, it can actually have unintended and potentially harmful consequences on the remaining aspects of your divorce.

Gifts from Family

Two issues that arise when you receive gifts from your family to pay expenses if you are divorcing are: (1) those gifts can be considered income to you; and (2) that gift, had you not spent it, would be yours to keep in divorce and not divided with your spouse.

First, gifts from your family received during the marriage, especially if given routinely, can be included and counted as your income in divorce.  The gifts can increase your income for purposes of determining alimony and child support, with the potential effect of requiring you to pay more or receive less alimony and/or child support. Also, the gifts can be considered in the equitable division of marital property. Therefore, receiving gifts from family may have a negative impact on you in the outcome of your divorce as it relates to alimony, child support and the equitable division of marital property.

Second, gifts from your family to you individually during the marriage are your sole, separate and non-marital property. Generally, if you can prove the source of the gift is from your family and that it is not comingled with marital property, then you keep gift, and it does not get divided between you and your spouse in divorce. If you receive gifts from your family, you should not spend them. You should instead keep them and not comingle them with marital property. For steps on how to protect gifts from family, check out this article on Steps to Protect Your Inheritance and Gifts Received from Third Parties.

Assume that you’re getting divorced, there is $50,000 in marital funds, you need to pay bills of $20,000, and your parents give you $20,000. You have two options. In Option A, you spend the $20,000 gift from your parents. In divorce, you and your spouse will equitably divide the remaining marital funds of $50,000, so you and your spouse will each get approximately $25,000 in marital funds. In Option B, you preserve the $20,000 gift from your parents and do not comingle it with marital funds, and you pay the $20,000 in bills from marital funds. In divorce, you and your spouse will equitably divide the remaining marital funds of $30,000, so you and your spouse will each get approximately $15,000 in marital funds, and you will keep $20,000 from your parents. So, while your spouse ends up with $15,000, you end up with $35,000. You are better off with Option B.  Therefore, if you need money, spend marital money first, rather than gifts from family.  Preserve and do not spend the gifts from your family.

Loans from Family

Two issues that arise if you receive loans from your family to pay expenses in divorce are: (1) you may be left solely responsible for those loans; and (2) loans from family may not be given as much weight as other debts.

First, you are likely to be left solely responsible for the debts you incur in your sole name.

Maryland Courts cannot allocate debts, so after divorce you will be solely responsible for the debts in your name. D.C. Courts can distribute debts accumulated during the marriage, but there are no guarantees in court. If you are getting divorce and individually borrow money from your family to pay bills, the remaining and unspent marital property will be equitably divided. While debt is considered in the equitable division of marital property, in Maryland you will be left responsible for the debts in your individual name, and in D.C. you could be. So, when possible, it is better to spend marital property rather than taking a loan.

Assume that you’re getting divorced in Maryland, there is $50,000 in marital funds, and you need $20,000 to pay bills. You have two options. In Option A, you take a loan for $20,000. In this situation, at the time of divorce you and your spouse will each equitably divide the remaining marital funds of $50,000, so in divorce you and your spouse will each likely get $25,000 each, but you have a $20,000 loan that you are solely responsible for. In actuality, this leaves you with only $5,000 net and your spouse with $25,000 net. In Option B, you pay the $20,000 from the $50,000 marital funds. This leaves $30,000 remaining in marital funds, so in the divorce you and your spouse will each likely get $15,000 each. You are better off with Option B. Therefore, if you need money, spend marital money first before you take a loan.

Second, if you are taking a loan, it is up to the Court how much to weigh the evidence in their ultimate decision when equitably dividing the marital property (and in D.C. when also equitably dividing the debts accumulated during the marriage). Courts may be less likely to heavily weigh debts from family, as opposed to debts from banks or on credit cards. Therefore, if incurring a debt is necessary, then consider getting a debt from a bank or putting it on a credit card. If you choose to get a loan from family, then you should at a minimum sign a note or other loan document confirming the money is a loan and the repayment terms.

In summary, you are likely better off spending marital assets, as opposed to spending money from family, whether gifts or loans because whatever marital assets are left will be divided between you and your spouse. If you do need money and cannot access marital funds, then I suggest you take a loan, rather than spending gift money, and check out my article Should I Get a Loan While Getting Divorced? 

Each case is different, so if you find yourself needing money, you should consult a family law attorney. At Lerch, Early & Brewer, we guide our clients through the day-to-day decisions they have to make in the divorce process so that they make decisions that are in their best interests. 

For more information, contact Erin at 301-347-1261 or elkopelman@lerchearly.com.

Decisions, Decisions: Can your spouse make them for you if you lack capacity?

AvatarHeather Collier, Principal

Too often couples find themselves in a situation where due to age, illness, or accident, one spouse no longer has the ability to make decisions or handle life’s responsibilities – in legal terms, that spouse lacks “capacity” – and there is no plan in place.

What happens then? Can your spouse make decisions for you simply because they are your spouse? If not, are they able to obtain authority to make decisions on your behalf even if you are already incapacitated?

My colleague and fellow guardianship practitioner, Jenica E. Cassidy, associate attorney at Lerch, Early & Brewer, joins us as a guest author on this post to answer these questions:  

Can my spouse make decisions for me if I lose capacity just because they are my spouse?

If you become incapacitated, your spouse does not automatically have authority to make all of your decisions and handle your affairs. This can have far-reaching implications, ranging from accessing your bank account and paying your bills to speaking with doctors and consenting to medical procedures. If you don’t already have a power of attorney and an advance healthcare directive in place, your spouse may have no other option but to seek guardianship over you.

What is guardianship?

Guardianship is a legal procedure where a court appoints guardian for a person who has been determined to lack capacity to make and communicate responsible decisions for themselves and handle their personal affairs.

The guardian can be appointed to handle financial matters or healthcare and personal matters, or both. The guardian essentially steps into the shoes of the incapacitated person and has control over all aspects of the person’s life. Because of this, the court takes guardianship very seriously. A person seeking guardianship over another must file a detailed petition along with medical certifications verifying the incapacity. They must also provide notice to people close to the incapacitated person. The court will appoint an attorney to represent the incapacitated person and will hold a hearing before appointing a guardian. If anyone objects to the guardianship, the contested matter could proceed to a jury trial.

Suffice it to say, the guardianship process can be emotionally taxing, financially burdensome, and may carry on for many months. On top of that, it requires disclosing deeply personal information to a public record where a judge or jury will make the ultimate decision regarding who has control over your affairs.

What can I do now to make sure I have control over who makes decisions for me if I am not able to make them for myself?

It’s best to avoid guardianship if you can. It’s meant to be a matter of last resort after all other options have been exhausted. The best way to do this is to plan ahead. Prepare the appropriate estate planning documents. Name your spouse or a trusted individual to make decisions for you and handle your affairs should you lose the ability to do so on your own.

What type of lawyer do I look for to help me with these issues?

If you are planning ahead, see an estate planning lawyer to help you prepare the appropriate estate planning documents, including powers of attorney and advance medical directives, designating who has authority to make decisions for you in the event of certain circumstances.

If you are trying to pursue a guardianship over a loved one, see a family law lawyer or elder law lawyer who handles guardianship matters.

For more information, contact family law attorney Heather Collier at hscollier@lerchearly.com or elder law attorney Jenica Cassidy at jecassidy@lerchearly.com.

You May Need These Other Professionals During Your Divorce

AvatarCasey Florance, Principal

Going through a divorce is an extremely stressful time.  There are so many decisions you will need to make, and having the advice and wisdom of a trusted divorce attorney may just be the starting point.  Here is a primer on some of the other professionals you may need during your divorce process, depending on the issues you are facing.

Therapist/Counselor.  Most people in the middle of a divorce would be well-served to have their own therapist or counselor for extra support during the process. Divorce lawyers are not therapists and we don’t take insurance. Get a mental health professional on your side to help make sure you are focused on and able to pursue your own best interests throughout the divorce.  It will be important for you to be able to make confident decisions as you move forward, and having an individual therapist/counselor may be key.    

Real Estate Agent/Appraiser/Mortgage Broker.  If there is a family home (or any other real estate) at issue in your case, you will likely need to know the home’s value, or what kind of work would need to be done in order to maximize the sales price, or even whether you might qualify to re-finance an existing mortgage.  You may also need assistance in locating a new home and figuring out exactly what you can afford to buy or rent after the divorce.  

CPA/Tax Attorney/Financial Adviser.  Many married couples share an accountant and/or a financial planner. For joint assets, joint tax filings, and joint financial goals this may make sense.  During a divorce, however, I encourage my clients to identify and hire their own accountant and/or financial planner, so that their individualized goals are addressed and met, both during the divorce process and thereafter.  There may be decisions about tax filing status, deductions, and other tax matters; as well as how and whether investments can or should be divided during the divorce.  And if the IRS is or may become involved, a solid tax controversy attorney may become necessary.  Having trusted professionals who are solely focused on your needs will help you gather the information you need to make the best decisions now and for your future.    

Other Attorneys: Bankruptcy, Estate Planning, Immigration, Criminal Defense, etc.  Your case may involve any number of legal issues that a divorce attorney is not an expert in, but you will still need advice on those topics in order to make the best decisions possible during your divorce process.  Having more than one lawyer may become important, depending on your case.  And you will be best served to get your estate plan updated once your divorce is complete.   

Private Investigator.  Whether you suspect your spouse is cheating or you want proof of what your co-parent is really up to when he or she has parenting time with your kids, you may find yourself in need of a private investigator during your divorce. 

At Lerch Early, we are well-versed in, and well-connected to, the additional resources that our clients will need to achieve their goals during a divorce.  We want our clients to be able to make informed, intelligent decisions at every step.  And our goal is always for our clients to be able to move forward with their lives in a positive and productive way.  

For more information, contact Casey at 301-657-0162 or cwflorance@lerchearly.com.

Why Maryland’s New Augmented Estate Law Means You May Need a Prenup

You May Also Need to Revise the One You Already Have

Erin KopelmanErin Kopelman, Principal

Maryland’s new Augmented Estate Law was created to enable a surviving spouse, who was not adequately provided for by his/her deceased spouse, to elect to receive a share of substantially more of the deceased spouse’s assets than ever before.

But, it has the major, and perhaps unintended, consequence of affecting some estate plans and prenuptial and postnuptial agreements already in place.

In Maryland, if a spouse dies without adequately providing for his/her surviving spouse, then unless the surviving spouse has waived an interest in his/her deceased spouse’s estate, the surviving spouse is entitled to receive part of the deceased spouse’s estate.

This entitlement, commonly referred to as the “elective share” is one-third to one-half (depending on whether the deceased spouse has a surviving decedent) of part the deceased spouse’s estate. The purpose of this law is to protect surviving spouses from not being provided for by their spouse upon their spouse’s death.

Previously, the elective share only applied to the part of the deceased spouse’s estate that passed through probate. But, effective October 1, 2020, Maryland’s new “Augmented Estate” Law enables a surviving spouse, upon the death of his/her deceased spouse, to receive a greater share of the deceased spouse’s assets than ever before by applying the elective share to both assets that pass through probate and assets that do not pass through probate. 

Many assets do not pass through probate. Examples of assets that do not pass through probate are: Transfer on Death (TOD) accounts, accounts jointly titled with others; some trusts; and assets with beneficiary designations, such as 401K accounts and life insurance policies.

Previously, unless the deceased spouse set up his/her estate for their surviving spouse to receive assets that do not pass through probate, such as these, then the surviving spouse could not receive an elective share of them upon his/her spouse’s death. 

The new law enables a surviving spouse to receive an elective share of assets that pass through probate and assets that do not pass through probate.  The effect of this new law is that more types of assets are included in those that a surviving spouse may take an elective share of.  Therefore, surviving spouses who are not adequately provided for by their deceased spouse’s estate plans will be entitled to receive an elective share of more types of assets, which, depending on the deceased party’s holdings, likely enables to surviving party to more assets.

Similarly, spouses who did careful estate planning to exclude certain assets from passing through probate so their surviving spouse would not be able to receive an elective share of these assets will need to re-think their strategy. 

Many people want to limit what they leave their spouse upon their death, especially in the event they have children from a prior marriage who they want their assets to go to. By agreement, a spouse can waive his/her rights to make claim to an elective share or to his/her spouse’s estate.

Prenuptial and postnuptial agreements allow you to make binding and enforceable estate provisions, such as a waiver of his/her spouse’s estate or to claim an elective share, or mandate what one spouse receives in the event of their spouse’s death. If you have or want an estate plan that does not leave the majority of your assets to your spouse, you should consider getting a prenuptial or postnuptial agreement.

In addition, if you have a prenuptial or postnuptial agreement that limits what you are giving your spouse in the event of your death, you should revisit that through the lenses of how, if at all, this new law may change the effect of your intentions, and consult a lawyer as to whether you need to amend your agreement accordingly, assuming your significant other is willing.

Not All Dollars Are Equal: Which Assets Are Most Valuable in Divorce?

AvatarErik Arena, Principal

One thing is usually certain in the aftermath of a divorce: You’ll experience a reduction in net worth and in standard of living. This is unavoidable as one household becomes two.

But just because it will happen doesn’t mean you can’t take steps to lessen the blow. By choosing wisely and unemotionally when dividing the marital assets with your spouse, you can minimize the reduction in your net worth post-divorce.

Not all Dollars Should be Valued Equally in Divorce

Although all asset transfers between spouses (incident to divorce) are tax-free events, some of those assets may later be subject to sizeable income and/or capital gains taxes that must be paid entirely by the receiving spouse, significantly diminishing their net value. It is imperative that these consequences be known and understood by you and your attorney so that you don’t end up with less than your fair share of the net assets.

Which Assets and/or Dollars are Most Valuable?

Value means many different things to many different people. When dividing assets between spouses, it is important to keep in mind the classes of assets identified below, which vary in net present value. If you and your spouse are trading assets from different classes, adjustments may need to be made to ensure you are not losing fair value.

  1. Cash is king! It is both liquid and not subject to any further taxes. It doesn’t get any better than that!
  • Cash, funds in checking and savings accounts, and the money market portion of any investment accounts.
  • Home sale proceeds. If the family home is sold as part of the divorce, those proceeds are also liquid and not subject to further tax (as any capital gains due will be paid at the time of sale, after application of your combined spousal $500,000 capital gains exclusion).

2. Other assets not subject to any further tax. Generally speaking, the replacement cost for these items exceed their private re-sale value. Retaining those items as part of your divorce will mean less dollars spent by you post-divorce to get yourself situated.

  • Furniture and home furnishings.
  • Automobiles.

3. Assets subject to capital gain but not income taxes. These assets will fluctuate in value and will be subject to capital gain taxes if you need to sell them to generate cash. The order of priority in each case will vary depending upon the tax basis of each asset or holding:

  • Stock and/or mutual fund holdings in investment accounts. These may also throw off interest and/or dividends, which, in some cases, is taxable income to you.
  • The family home. Depending upon the home’s tax basis, you may face a hefty capital gains bill if you assume ownership and then sell it later. Further, at the time of that sale, you’ll only be able to use your own $250,000 capital gains exclusion, as opposed to the combined $500,000 exclusion for spouses.
  • Other real property not used as primary residence. Any capital gains problem is compounded with these properties because there is no applicable capital gains exclusion.
  • Stock options
  • Vested restricted stock
  • Some artwork

4. Assets subject to income tax at the time of exercise or withdrawal. These assets will also fluctuate in value. However, when it comes time to withdraw from them, you’ll be taxed on those withdrawals and/or distributions at your ordinary income tax rate in the year in which you take the distributions. Accordingly, the present value of retirement assets, when compared to cash assets, must be adjusted for both present value (as cash is available to you now, whereas retirement, if drawn early, is subject to an additional 10% penalty tax) and after-tax value.

  • Most employer sponsored retirement plans (note: IMF and World Bank pensions are not taxable)
  • IRAs
  • Certain pension plans
  • Retirement annuities

Each divorce is different and there can be legitimate reasons why assets are divided a certain way. The information above is intended to inform and educate you, so you can use that knowledge to move forward in a strategic fashion.

Are You a Stay-at-Home Parent?

In a Divorce, You Should Consider These Five Tips

AvatarDonna E. Van Scoy, Principal

In the event of a divorce, the stay-at-home parent often feels the negative impact of the decision of who stays with the kids.

Marriage is hard and requires continued work to be successful. Even with hard work and commitment, not every marriage succeeds. According to Earth & World, 46% of marriages in the United States fail. If you are going to be the stay-at-home parent who becomes the financially dependent spouse, consider the following tips to protect your future (and your children’s future).

  1. Manage the family money/assets or at the very least be fully aware of the family money/assets. Communicate regularly about the finances and assets (monthly or quarterly is best).
  2. Where possible be sure all assets are joint assets with both names appearing on accounts, titles, and deeds.
    1. Find a vehicle to establish a retirement account for yourself.
    2. If your family works with a financial planner, establish at the beginning that all communication are to be sent to both you and your spouse and that you both will be involved in any meetings (including phone calls/texts).
  3. Read and fully understand your state and federal tax returns before they are submitted. If you have questions, make sure they are answered.
  4. If you have a profession, take the steps to remain relevant in your field.
  5. Maintain or create contacts outside of your spouse. Be aware of your spouse’s work world and participate where appropriate.

Being an active spouse in the financial part of your marriage helps to ensure you have the necessary knowledge to assist your attorney, allows you to contribute to settlement discussions, and ensures your ability to move forward in the event of a divorce.