For those of you contemplating a divorce in New Jersey, you will want to learn more about the equitable distribution of marital assets and liabilities and how this will impact your settlement. We at Equitable Mediation Services follow a three step process in order to help divorcing couples come to an agreement on equitable distribution but be warned: it’s not as simple as just three steps.  There are many factors to consider including:

• Goals: short term or long term?
• Liquidity: do you need cash now or can you wait for a bit to get it?
• Taxes: are the assets you are receiving taxable or non-taxable?

For today’s post, let’s look a little bit at the taxable effect of equitable distribution during a divorce.  For the most part (insert strong legal disclaimer here) I can tell you as a divorce mediator in New Jersey, the distribution of assets which occur due to a divorce action are tax-free; i.e. assets can be transferred from one spouse to another without either of them paying any taxes or penalties.  But (and here’s the important part) once one of you goes to sell or convert those assets after they have been transferred, there may be taxes, and rather substantial ones, on the sale or transfer of that asset so it’s important that you have a good hard look at just exactly what you are getting in your memorandum of understanding and final property settlement agreement.

Take for example the marital home.  Seems like a good idea to keep the house, right?  Consider this: as a married couple, you are entitled to a $500,000 capital gains tax exemption under current tax law.  But if you buy the house out on your own and then go to sell it down the road when you are a single person, you will only get a $250,000 capital gains exemption under current tax law.  This could result in a significant tax hit should you make more than $250,000 on the sale of your home so it’s important you save those receipts from all those projects you did around the house and consult with your accountant to determine strategies that may save you money in the long run.

What about brokerage accounts?  Let’s say you have the choice of a savings account worth $5,000 or $5,000 worth of stock in Google.  Which one would you take given they were worth the same amount of money?  Even if you take it as a part of your property settlement and sell it right away, there may already be gains built into it from when you first bought it.  You may wind up paying taxes on something that did not escalate in value while you owned it alone.  That savings account comes to you tax free since there is no “capital gain” and you would only pay taxes on any interest you earned after you took possession of the account.  And depending on your particular goal, a savings account is liquid and can be used to do anything you want so it’s important to consider your goals as we listed above.  Having a divorce mediator with a masters degree in Finance like I do can certainly come in handy in situations like these as I am acutely aware of the taxable effect of assets and can provide you with the most accurate information to help you make an informed decisions.  And really, isn’t that what mediation is all about anyway?  You controlling your future and getting the settlement that works for both of you?

While this is meant to show a simple example, I encourage you to speak with an accountant or financial planner who can better assist you while going through your divorce and help you make wise equitable distribution decisions.  But if you have any questions about divorce mediation or how mediation can benefit you, please feel free to contact us to schedule a free, no-obligation consultation in one of our six central New Jersey office locations where we will take some time to get to know more about each of you and your situation and see if mediation is right for you.  Of if you’re simply not ready yet, feel free to visit the Equitable Mediation Services website where you’ll find lots of great information about parenting plans, equitable distribution, NJ child support and spousal support / alimony and contact us when you’re ready.  We look forward to helping you get through your divorce peacefully, efficiently and with as little stress on you and your family as possible.

If you’re like most of the couples we see at Equitable Mediation Services, your single biggest asset is your house and especially if you have children, the decision on whether or not to keep it is a big one.  In today’s post, we’ll take a look at some important conversations you should have with your mediator (and yourself) when determining if you should keep the house or not.

The image of home conjures up lots of great memories of holidays, birthdays, family time and the safety and security that owning a home can bring.  But on top of all of that, home ownership can also bring problems including busted pipes at 2 in the morning, leaky roofs, high property taxes and the never ending stream of projects that only seems to grow longer as the seasons unfold.  Let’s face it: maintaining a house is a lot of work.  So should you really fight to keep the house when going through a divorce?  As a New Jersey divorce mediator, you already know that I can’t tell you what to do but I can tell you some things your should consider to help you make an informed and fact-based decision.  It has been my experience as a divorce mediator in NJ that many of the individuals who end up fighting for the marital home aren’t doing it to improve their share of the equitable distribution but rather for emotional reasons which may be hard to quantify now but may cause financial hardship down the road.

If you’ve been paying attention to the news as of late (and who hasn’t given that the message seems to be loud and clear – we’re in a financial meltdown!) you know that many Americans have not been living within their means, spending more than they make and thinking the endless stream of credit and happy times will last forever.  Well my friends, the brakes have been firmly applied and the party is truly over.  But that doesn’t mean that all hope is lost but rather than we need to return to good old fashioned tried and true things that work like budgeting and saving.  Imagine that – budgeting to see if we can actually live on what we make.

Houses are expensive and they cost a lot more than the mortgage payment.  I know you really want to keep the house but ask yourself this one question:  “can I really afford to keep the house up in the manner of which I am accustomed to living?”  We’ve all heard the stories about people who buy these large McMansions in the burbs only to leave them empty inside as they can’t afford furniture.  Can you afford furniture?  Then you’re probably better off than most folks but what if something goes wrong?  Will you be able to fix it?  To answer that I say: do a budget.

In a recent article I read, the author kept track of her “additional expenses” she incurred over a four year-period of owning a modest home in the mid-west.  She put the average additional cost of owning this home over a four year period at around $47,800 which equates to roughly $12,000 per year so basically on top of your monthly mortgage payment expect to pay about another $1000 per month. Where does that go you ask?  How about:

1. Property Taxes – subject to the whim of your local government, naturally.
2. Utilities - look at the recent spike in gas and oil prices and see what it did to your bill.
3. Lawn Care - even if you cut your own grass and put down your own fertilizer, that stuff is expensive!
4. Snow Removal – one good blizzard or two and you’ll be putting away your shovel for good and either hiring someone or buying a snow blower.
5. Pest Control – termites don’t care if you can afford to get rid of them or not.
6. Appliance Replacement & Repair – with everything electronic today, expect repairs to cost much more than they used to.
7. Home Maintenance & Improvements – painting, carpeting, new sheets, towels, replacing broken glasses, etc. because we all know kids do some serious damage!
8. Capital Repairs – new roof, new hot water heater, etc.

If you’re living from check to check and one of the major expenses pops up, what will you do?  Live without hot water until you can afford to fix it? Not exactly the best for your mental health or the health of your children should they be living with you at the time.  Don’t underestimate the stress and strain of not being able to afford to live can bring so ask yourself again: “can I really afford to keep the house up in the manner of which I am accustomed to living?” If you accurately budget the items above based on your particular situation, then you will have a much better chance at answering this question.

So what if after you do the budget the answer comes back and it’s no, you cannot afford to keep the house?  Let me be the first to tell you a secret: that’s OK!  Let me assuage you of the guilt that not being able to keep your children in the house they grew up in brings as kids are resilient (I’m a child of divorce so I know of what I write) and they will survive.  To them, mom and dad are home, not the four walls that surround them.  And if you’re so busy working three jobs to pay for the house you can’t afford and stressing out over all the projects you’ll have to do yourself since you can’t afford to pay someone to do them, then what kind of time will you spend with your children? How will they live or know that they are loved and you really do want to spend time with them if you’re too busy with the house?  So what do you do? Repeat after me: do a budget!

Now that you’ve taken a serious look at your housing expenses and all other expenses that you will incur post-divorce and you now have a good idea of what your income stream and payments will look like through employment, child support and perhaps spousal support, you will have a much better idea of how much you can afford for housing.  With today’s market being what it is, you will be surprised at what you might be able to afford as it may have been out of reach just a few short years ago so don’t give up hope of owning a home just yet, just be open to the idea that it may not be the home you lived your married life in.

Then again, a fresh start isn’t necessarily a bad thing.

If you have any questions about divorce mediation or how mediation can benefit you, please feel free to contact us to schedule a free, no-obligation consultation in one of our six central New Jersey office locations where we will take some time to get to know more about you and your situation and see if mediation is right for you.  Of if you’re simply not ready yet, feel free to visit the Equitable Mediation Services website where you’ll find lots of great information about parenting plans, equitable distribution, NJ child support and spousal support / alimony and contact us when you’re ready.  We look forward to helping you get through your divorce peacefully, efficiently and with as little stress on you and your family as possible.

Lately, many of the clients we see at Equitable Mediation Services are coming to us with one question: how am I going to live after I get divorced?  And while this question is not new, given the state of today’s economy, it’s one worth considering carefully as in this unique climate, unorthodox arrangements may be necessary in order to survive not only your divorce, but your life after divorce as well.   With the unemployment rate at its highest since 1983, more and more people are  finding it difficult to land a job or if they already have one, are concerned their future is uncertain at it and they may lose that position any minute.  Oh and those bonuses they were promised that represent 35% of their base salary?  Good luck collecting on that.  So with all this financial uncertainty, how does this impact the conversations around spousal support / alimony?  Once again, mediation to the rescue!

Today I read this article about a millionaire couple that were in court fighting over what was the marital lifestyle and how much spousal support / alimony the ex should get.  And while I am no millionaire and sadly, perhaps you aren’t either, it did shed light on how important it is to have a realistic view on your post marital lifestyle when using it to discuss spousal support / alimony obligations post-divorce.   It seems that this couple had gone the usual route and hired attorneys to represent them in their divorce case and sure enough, back into court they went because they continued to argue their points as a matter of what they felt was the law rather than taking a realistic look at how they lived while married and how it may have been a bit unrealistic.  And while it is hard to feel bad for these folks, you know with the husband buying a $200,00 Lamborghini in cash and all, it did bring to light and important point and that is: what lifestyle should each of the parties have after they are divorced versus when they were married and how realistic was the marital lifestyle?

In our debt driven society, many of the couples we see are living well beyond their means, fueling their lifestyle with credit cards, home equity loans and lines of credit against their house.  By doing so, they’ve created a distorted view of what exactly the marital lifestyle is and in turn, have unrealistic expectations of what their life will be like after they are divorced and the appropriate spousal support / alimony payment they should receive.  In the case of our wealthy friends in the article, nice for you that you can buy and expensive car in cash while the rest of us have to get a loan for 7 years just to buy a minivan but in reality, we’re all doing more than just buying the minivan.  We’re eating out a lot, buying that big screen TV, going on vacations that are a bit out of our range and shopping for new clothes like crazy.  All this adds up to an unrealistic view of just how we should live after we divorce.  So how can using a divorce mediation service help?

In our mediation sessions we will ask each of you to prepare a budget that represents your budget as a married couple (and your children if applicable) and take a look at what your marital lifestyle looks like compared to your monthly net income.  Are you expenses higher than the revenue you bring in?  If so, let’s check those credit card statement and home equity line of credit and see where you’re getting that money from and have an honest conversation about it as we all know the party can’t last forever.  Next, we’ll ask each of you to prepare a budget that represents you as a single person and ask that you paint a fair but realistic picture of where you will live and what your life will look like once you are separated.  It’s difficult thinking about all of this, isn’t it?  But that’s where mediation is different.  In mediation, we aren’t afraid to have the difficult conversations because as a New Jersey divorce mediator, I know that once you both leave my office, it is each of you, not me, that is going to have to live with the decisions you make in mediation sessions so it’s important that you paint a realistic picture of your life after you are divorced so that you can actually live within your means.  Will your post-marital lifestyle be lower than your marital lifestyle?  Absolutely because as we’ve said before, running two households is more expensive than one but that doesn’t mean one of you will be poor and one of you will be fine.  That’s where spousal support / alimony comes in.

I want to make it clear that spousal support / alimony is not intended to punish someone nor is it to enrich someone at another’s expensive.  It is merely a payment from one party to the other so that each of them can enjoy a relatively similar post-marital lifestyle.  Notice I didn’t say so that each of them can enjoy the same lifestyle apart as they enjoyed together as we know based on our budgeting exercise above, that isn’t going to happen. In that budget process, we whittle away the items that some may consider frivolous and these items vary from person to person. Perhaps you are someone who puts stock in playing golf once a week or going to the salon to get their nails done but after you are divorced, these items may need to be scaled back some to make accommodations for your more realistic post-marital lifestyle.   When you were married, did you ever save any money or contribute to a retirement fund?  You may want to start thinking about that as well even thought it may be difficult at first.  All these things are discussed in mediation and will factor in to what a spousal support / alimony payment might look like.   The point of such a payment is make sure that each party can live after they are divorced.  Not necessarily go on expensive vacations and buy a new car every year but live.  By having these conversations, taking a realistic look at the budgets pre and post divorce and having a honest conversation about spending habits, we can help you put together the plan that works for each of you as that’s what is most important that it work for each of you.  Not me, not a judge, not your lawyer, but you.   Could you go to court and fight it out to get another $25 a month?  Maybe but is it worth the risk and more importantly the $50,000 it would cost in legal fees to get that $25 a month?  Talk about a poor return on investment.

In conclusion, think about these important factors:

1. Carefully examine your marital lifestyle to see if you are living beyond your means
2. Paint a realistic picture of what your life will look like after you are divorce and realize you may have to cut back or eliminate altogether certain extraneous expenses.
3. Talk to your spouse about what you need to live and realize that you may need to compromise to make it work for both of you.
4. Avoid going to court at all costs!

If you have any questions about divorce mediation or how mediation can benefit you, please feel free to contact us to schedule a free, no-obligation consultation in one of our six central New Jersey office locations where we will take some time to get to know more about you and your situation and see if mediation is right for you.  Of if you’re simply not ready yet, feel free to visit the Equitable Mediation Services website where you’ll find lots of great information about parenting plans, equitable distribution, NJ child support and spousal support / alimony and contact us when you’re ready.  We look forward to helping you get through your divorce peacefully, efficiently and with as little stress on you and your family as possible.