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FEB. 9, 2019

FEATURE

What You Need to Know About Divorce

(Editor’s Note: This is the third of a three-part series.)

By Sheryll BONILLA, Esq.

Part Three Ė The Spouses

In an uncontested divorce, both parties come to an agreement as to all the issues and how they will fashion the complete and final split between them. In a contested divorce, the easiest matter is what name a spouse will use after the divorce. Other ones are not so easy.

Name Change

A spouse can choose to keep a married name or go back to being known by the name used before marriage.

Spousal Support (Alimony)

Alimony is taxable as income to the receiving spouse and deductible by the paying spouse. While many spouses seek alimony from the other spouse, Hawaii law imposes a duty of self-sufficiency on spouses to bring the marriage to a true end. Spousal support is sometimes awarded in cases where the parties are very wealthy and one can afford to give alimony to the other to maintain the marital living standard. It has also been awarded where the couple was married a very long time with the expectation of support for the non-working or lower-income spouse Ė such as a couple in their 60s who have been married since they were in their 20s, with the wife staying home to raise their children or help her husband in his career.

There are four types of alimony. Temporary alimony is support received while the divorce is pending before the court. Transitional alimony is given for a limited period to the lower-income spouse to adjust to a lower standard of living after the divorce. Rehabilitative alimony provides the lower-income spouse with money for living expenses while he or she acquires skills to re-enter the job market or qualify for higher paying work. Permanent alimony is given for the rest of the life of a less-advantaged spouse. The Family Court does not have rules or guidelines governing the amount or duration of alimony. It will make its determination based on the evidence of the circumstances and abilities of the parties.

Taxes

The spouses can agree to what to do with the tax refunds and liabilities, either sharing it equally or divvying up who gets what and who pays for what. Generally, in the year after the decree, each person is responsible for any tax liabilities and entitled to refunds based on his or her income and deductions. For three years after a divorce, the parties are generally under the obligation to keep each other informed of any tax-related communications he or she receives from the IRS or the State or County Tax Departments. They are also obligated to cooperate with each other with any audits relating to marital returns.

Division of Assets and Debts

Divorcing couples file two financial statements: the Asset and Debt Statement (ADS), and the Income and Expense Statement (IES). Each person files his or her own IES. They can file the ADS separately or jointly.

The Asset & Debt shows the values of all the assets and debts the couple has at the time of divorce. Couples can agree on the division of property and the division of debt. If they cannot agree, Hawaii has a marital partnership model that guides and limits the property division the Family Court can decide. In this model, the non-economic contributions are also deemed valuable. For example, a stay at home parent who takes care of the children enables the working parent to be in the workforce and preserves family finances that would otherwise be spent on child care. Hawaii also recognizes and enforces agreements made by the spouses before and during the marriage. The marital estate is broadly defined and includes trusts, intellectual property, retirement benefits, as well as the more tangible assets such as the home the family lives in, vehicles, bank accounts, securities, life insurance policies, jewelry, and all other property owned by the spouses. While spouses sometimes keep property titled in their name only, if marital assets or income were used for the upkeep, maintenance (payment on loans, for example), or benefit of the property, the court may consider that property to be marital and subject to division.

The spouses can always agree on how to divide their debts. Generally, debts go with the property. If a person takes a car, he or she pays the loan on that car. Credit cards in that personís name usually are paid by that person. Student loans are paid by the student. Home loans are extinguished by the sale of the home, with the net proceeds being split between the spouses. If one spouse decides to buy the share of the house from the other spouse, the loan is refinanced to be in the acquiring spouseís name. Spouses are free to decide who pays for what, but if they cannot decide, the values of the assets and debts will be examined by the courts and an equitable division ordered. In some cases, the court may order an equalization payment if the assets and debts cannot be distributed equitably.

Part Four - Carrying Out the Decree

The marriage ends with the divorce, but the ex-spouses must still tie up loose ends by finalizing the end of their union with all the third parties that recognized their marriage. These are some of the matters that still have to be handled. Remember to ask for at least two or more certified copies of the decree since the certified copy is needed to carry out most of these tasks.

Name Change

A spouse changing his or her name must take the certified copy of the decree to get their driverís license changed or name changed with the Social Security Administration. Insurance policies (health, life, other) may also need to see the decree to change the policy holderís name.

Financial Accounts, Loans, and Credit Cards

Financial accounts should be changed according to the division of property in the decree so that each spouse is the sole owner of what was awarded to him or her, and the other no longer has access to the funds. This includes stocks, bonds, other investments, and checking and savings accounts. Make sure to close out all credit card and revolving accounts so that either spouse cannot add to the debt with post-divorce charges or borrowing. Make sure all loans are refinanced so that the spouse taking the debt is the only one responsible and the spouse who is not liable for the debt is removed from the loan or credit card.

Transfers of Ownership

Make sure that all transfers of property, especially those relating to those debts are done: insurance policies, the Department of Motor Vehicles, financial institutions and stock brokerages, and so forth.

Estate Planning

A divorce nullifies any provision in a will or trust that relates to that spouse, so the gift of property has to be given to someone else. Most married couples name the other spouse as his or her personal representative or successor trustee. Wills and trusts must be updated with new persons designated as personal representative or successor trustee, and new beneficiaries named to receive the property.

Most married couples also name the other as their agent in a power of attorney or advance directive for health care. Couples having these documents should revoke them and replace them with updated ones designating new agents. If there are copies left at financial institutions or doctorís offices, the old documents should be retrieved and replaced with updated documents.

Business Registration

If the spouses divide the business as part of their divorce, and one spouse is taken off the business, he or she may want to make sure that his or her name is removed from business registrations and business bank accounts. In case the business takes an economic nosedive or is sued for any reason, the innocent spouse who is no longer involved in operating the business could find him- or herself named in a lawsuit or have their property attached to pay business debts. Extricating oneís self from a later lawsuit can be costly, so it is cheaper to handle the administrative tasks soon after the divorce for that clean break.

Deed

Usually a marital residence is sold and the net sale proceeds are divided between the spouses. If a spouse wants to continue living in the house and can afford to buy out the otherís share, a deed conveying oneís share to the other has to be prepared, signed by both spouses, and recorded at the Bureau of Conveyances. Otherwise both remain as owners of the property. Husbands and wives usually own their homes as tenants by the entirety (TBE), which is a special category of ownership with special protections. Under tenants by the entirety ownership, the property is protected so that it is only subject to collection for debts in the names of both spouses, that is, the mortgage, home equity loans, and taxes. Divorce severs that tenancy and changes it to tenants in common status. The loss of TBE protection makes the property open to risk that creditors of one spouse now can sue that ex-spouse to collect on a debt and get at the house because after a divorce, each spouse now owns one-half. Most divorce lawyers do not prepare deeds, and spouses must find another lawyer to do one if their divorce lawyers donít.

Retirement Pay

Most people believe that the decree automatically divides the retirement pay. It does not because divorces are between the two spouses, and the retirement plan is not a party to the divorce, so is not subject to the decree. Separate orders have to be prepared to accomplish this. While there are divorce lawyers who prepare this separate division order, many lawyers do not. Retirement pay orders are called by different names depending on the type of retirement. Thrift Savings Plans are covered by Retirement Benefits Court Orders. Military and federal plans are covered by Court Orders Acceptable for Processing. Pensions and annuities are covered by Qualified Domestic Relations Orders. The language for each type is specific to the type of order and for private plans, even to the specific companyís plan administrator.

It is highly recommended that while the divorce is pending, the retirement orders be prepared so that these are signed concurrently with the decree. Private retirement plans must approve an order before a judge signs it. Having the orders drafted while the divorce is pending helps so that these are ready to be signed at the same time as the decree. While divorcing parties donít want to spend even more money getting the order done, it is often harder to get the order signed after the divorce is over. It is cleaner and more efficient to simply get the order done at the same time as the decree.

Remarriage is a big reason to have the order signed at the same time as the decree. The next spouse acquires rights in the retirement benefits, so that even if the benefits were divided by the decree, the retirement plan administrator may require the next spouse to sign off of benefits for the former spouse. Death is another reason. A plan administrator may not honor benefits awarded to a former spouse if an order is not in place while the employee is still alive. Waiting a long time after the divorce also gives the spouses another chance to stick it to each other through non-cooperation in signing the order. If the order is signed at the same time as the decree, it gives the spouses a clean break and finality. It is more prudent to spend that extra money to get the order prepared and signed concurrent with the decree.

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