Law Office of Joanne Kleiner

Dividing Debt

Nov 18

How the Pandemic Has Put a Strain on Household Finances

How to Manage Household Debts During the Pandemic

As of October 2020, the unemployment rate in the United States was 7.9%, and the unemployment rate had been as high as 14.4% in May 2020 when the pandemic was at its spring peak. Although eviction moratoriums and other protections have been put in place to help the unemployed, they can’t guarantee that you’ll enjoy financial security now or in the future.

What Happens If a Joint Debt Isn’t Paid as Agreed?

If your name is on an account that is more than 30 days past due, your credit score could fall by anywhere from 60 to 150 points. Furthermore, you may be subject to a barrage of phone calls, letters, or other attempts to collect the past due balance. This may be true even if your estranged or former partner is required to pay off a joint debt per the terms of a separation or divorce agreement.

Typically, your lender is only bound by the terms of the documents that were signed prior to receiving a loan. Ideally, a divorce decree will allow you to transfer debts that your spouse is required to pay to an account in that person’s name only.

In the event that a debt is secured by collateral, you risk losing that collateral unless an effort is made to get current on the loan. For instance, a lender could repossess a family car or foreclose on a family home if payments are not made in a timely manner.

Try to Avoid Using Retirement Funds to Repay Marital Debts

It may be tempting to use retirement savings to pay a joint credit card balance or make a mortgage payment. However, it is worth noting that money that sits inside of an IRA or 401(k) is typically exempt from being seized by creditors or by state or government tax authorities. It is also worth noting that your retirement accounts are generally seen as joint assets even if your name is the only one on them.

Therefore, making a withdrawal prior to filing for a divorce may be used against you during settlement talks or during a divorce trial. This may be true even if the money was used for what you perceived to be a legitimate purpose. A divorce lawyer may be able to provide more insight into what might happen to marital assets just before, during, and after a marriage ends.

Get in Touch With Your Lenders Immediately

In most cases, your lenders will work with you to make it easier to stay current on a loan during a period of economic distress. For example, you may be entitled to a student loan, car, or mortgage forbearance, which might make it possible to skip or postpone one or more monthly payments. If you have positive equity in a car, home, or other assets, it may be worth selling it and using the proceeds to buy food or take care of other necessities.

In some cases, alleviating your financial stress may alleviate issues in your marriage that might have put it on the brink of failure. For instance, getting mortgage forbearance may mean that you don’t have to move your child out of a quality school district or move from a home into a cramped apartment. It might also mean that your spouse doesn’t need to get a job outside of the house that could negatively impact his or her health.

However, if you feel as if your marriage is likely going to come to an end in the near future, it may be in your best interest to speak with a divorce lawyer. He or she might provide more insight into how joint assets and debts are typically divided in a divorce proceeding.

If you are in need of divorce legal services in Jenkintown, contact the Law Office of Joanne Kleiner today by calling 215-886-1266 or by sending a fax to 215-886-2670.

Aug 24

How Debt Allocation Agreements Protect Spouses

Do You Need a Debt Allocation Agreement?

The average Pennsylvanian has about $40,000 in debt, which is lower than the national average but still significant. During divorce proceedings, spouses often find out about thousands of dollars in debt to which they did not agree but may still be on the hook for repaying. Many family lawyers recommend a debt allocation agreement within a prenuptial agreement in order to avoid this scenario.

Pennsylvania Is an Equitable Distribution State

Equitable distribution is a legal concept that governs how marital assets and debts will be divvied. Pennsylvania does recognize a distinction between separate and marital property. If an asset is deemed separate property, the other spouse has no inherent right to it. Examples may include property:

  • Acquired prior to being married
  • Obtained after the couple is separated
  • Explicitly excluded by a contract
  • Received as part of an inheritance

Marital property includes all assets and debts acquired during the marriage. These can include credit card balances, loans, mortgages and so forth. Equitable distribution means that the courts will distribute those items in an equitable manner — in other words, what a judge deems fair and reasonable.

What If Your Distribution Is Not So Equal?

Equitable distribution means fair but not necessarily equal. Unfortunately, a judge’s idea of what is fair may not be the same as yours. This is why prenups are so important in Pennsylvania regardless of what your financial status is at the time you enter the marriage. If your spouse spends thousands on Philadelphia Eagles or Pittsburgh Steelers season tickets without your consent, a judge is not necessarily going to view that outstanding expense in the same negative way you might.

Prenuptial Agreements

A prenup or premarital contract is a contract agreed upon by two partners before entering marriage. It can protect those individuals during the union and if it ends in divorce. These agreements are governed by general federal, state and local contract rules and must be in writing and signed by both partners. Prenups will usually cover any items found within a divorce order, such as:

  • Right to property
  • Distribution of assets and debts
  • Spousal support
  • Family business management
  • Insurance policy benefits

Debt Allocation Agreements

When many people consider prenups, they think of them in terms of assets. There is a stereotype about wealthy individuals using prenups to protect themselves from dishonorable partners entering marriages for all the wrong reasons. But prenups help you to protect your future no matter how wealthy you are. A debt allocation agreement is an aspect of a prenuptial agreement in which both parties are free of any debt that was not made jointly or lacks a signed document asserting the joint status. Many home-related loans require joint status, but if your spouse were to open up a credit line you did not know about and go on a huge spending spree, this agreement would protect you from those actions.

Is a Pennsylvania Court Required to Uphold a Prenup?

The Uniform Premarital Agreement Act was introduced to give individuals confidence that a prenup would be enforced while still allowing judges some leeway. Pennsylvania has not yet enacted or even introduced the act, so judges have much greater leeway. Still, courts will generally enforce prenups unless a spouse can prove the agreement was not entered into voluntarily, he or she had insufficient knowledge of the other spouse’s finances and behaviors during the marriage or the other spouse did not fully disclose assets and debts.

Protect Your Future

If you’re considering marriage or in the process of being married, we strongly recommend that you seek legal representation and take steps to protect your future. Many people have an impression that prenups are just for the rich, but this is not the case at all. At Joanne Kleiner & Associates, we focus on Pennsylvania family and divorce law and welcome the opportunity to consult with you on such matters. Set up your consultation with a family lawyer today by contacting us online or calling our Jenkintown office at 215-886-1266.

Nov 12, 2017

Basics of Pennsylvania Divorce Property Division

 

Divorce Property Division Lawyer

Dividing the property an important consideration when a marriage ends. But before you or the courts decide how to divide the assets, you will need to determine the type and value any of the assets you acquired when you were married. Since property division will heavily influence your financial life after divorce, it’s worth talking things over with a lawyer and bringing a full list of your assets and liabilities that may be up for division.

Make sure that you understand your rights and responsibilities when doing so by hiring an experienced Pennsylvania divorce attorney to help walk you through the process and give you a better understanding of what is involved.

The first step you need to take involves the identification of property. You will need to create a list. Include everything because you can always remove items later. Your assets are tangible items including boats, homes, furniture, businesses, and collectibles. Furthermore, you might also wish to include intangible which include stock options, patents, bank accounts, retirement plans, copyrights, trusts and insurance policies.
You will need to then identify each the type of each asset. An asset will be classified as non-marital or marital.

The characterization of an asset plays a crucial role in diving and determining the value of the property in divorce. Marital assets in Pennsylvania include all assets acquired by either spouse during the marriage. Non-marital property includes assets either spouse had before the marriage, assets that are inherited or gifts, and those assets acquired after couple separated. The courts are authorized to distribute and divide marital property between the spouses in the divorce. Both spouses keep their separate property in the majority of cases.

The characterization of property is also impacted by when the couple separated. This is usually the date when the couple began to live separately. This means they do not present themselves as a couple. The spouses do not need to maintain separate households but it will be more challenging when settling the divorce case.

After you have identified the separation date, the next phase is to identify the dates that the assets were purchased. Property acquired before the marriage are considered separate property. If the spouse brought an item into the marriage, that item belongs to the spouse separately.

The next phase of this process is to identify what the assets are worth. This can be challenging as there are numerous different factors involved and you may wish to retain the services of a professional. Typically, courts will use the current assessment of the item at the time of the separation. The marital property could have another component that needs to be computed as it relates to comingled assets. You can deduct contributions from a separate party from current value and consider interest that could have accrued.
Divorcing couples will follow these steps to agree and decide how to split their property on their own but they might not be able to come to an agreement. This means it goes before a judge for consideration.
Courts in Pennsylvania consider numerous factors when deciding the division of the property, including each spouses’ needs, their vocational skills and job prospects, how long they were married, whether either spouse has been previously married, the spouse’s ability to obtain assets and earn income in the future, the standard of living enjoyed over the course of the marriage, and the amount and value of each spouse’s assets.
Courts do not consider marital misconduct in Pennsylvania but consulting with your experienced Pennsylvania divorce attorney can give you a better perspective on what is involved and how to best protect your interest

Aug 12, 2013

When the house mortgage is underwater and you’re divorcing

One of the major marital assets is the home. Typically, when a couple goes through a divorce and they own equity in a home with a mortgage, one of two scenarios occurs. The first scenario is that one person is awarded the home in exchange for other financial stipulations or considerations in the divorce agreement. If so, the mortgage is usually refinanced into that person’s name individually. On the other hand, the house is sold, and the proceeds from the sale are divided among the couple. Unfortunately these scenarios become a little more complicated when the mortgage is underwater. In that event, the home is a liability rather than an asset, and the couple is faced with how to deal with overcoming the debt. There are several options available in this situation, including, but not limited to, refinancing (with programs designed to help underwater homeowners, such as Home Affordable Refinance Program – HARP), short sale, foreclosure, or deed in lieu of foreclosure. As a final option, you could also stay together in the home, despite the divorce, until the mortgage payments are under control. If you are going through a divorce and are currently struggling with an underwater mortgage, be sure to speak with an experienced attorney to determine which option is the best for your individual situation. Ultimately, underwater mortgages only cause the divorce process to become more difficult.

For additional information about Pennsylvania family law or the divorce process, or to discuss your particular situation and learn about your options, please schedule a confidential consultation with attorney Joanne Kleiner by calling us at 215-886-1266. Or, fill out our intake form and we will contact you. The decisions you make today really will affect your future. Let us help you make those decisions intelligent and informed.

Feb 07, 2013

Dividing Debt in a Divorce

Jenkintown Debt Division Divorce Attorney

The division of marital debt is, in many ways, as important as the division of marital assets. While most people facing divorce are quick to ask their divorce lawyer how their 401k, IRA accounts, savings, and real and personal property will likely be divided, too often scant attention is paid to the division of marital debt. Here, it’s important to remember you’re contractually responsible for any credit card, loan, or line of credit your name is on, regardless of whether or not you use a particular account. Consequently, if you co-signed on your spouse’s car loan or have a joint credit card with him or her, you’re responsible for any outstanding debt on it.

Marital Debt and Your Divorce Agreement

Confusion arises when people mistakenly think their divorce agreement takes precedence over or nullifies their financial obligations in regard to joint credit cards, unsecured loans, medical bills, or joint lines of credit. What cannot be emphasized enough is the fact that your divorce agreement has nothing to do with your financial obligations in regard to lines of credit your name is on. When you take out a joint credit card, loan, or line of credit you are contractually bound to adhere to the terms of the line of credit in question.

Consequently, even if your spouse had exclusive use of a credit card or loan, if your name is on the account you can be held financially responsible for it should he or she fail to pay off it off. Thus, even if your divorce agreement indicates your spouse is responsible for it, creditors can still (and will!) initiate collection actions against you if your ex-spouse fails to pay off the debt. Telling a creditor or collection agency that your spouse is responsible for the account under the terms of your divorce agreement will not relieve you of your contractual obligations if your ex-spouse fails to discharge the debt.

Dividing Marital Debt – How to Protect Yourself

What steps can you take, then, to protect yourself? If possible, the best way to discharge marital debt is accounting for it in the division of marital assets. For example, suppose you and your spouse owe $5,000 on a joint credit card. When assets or savings are divided, include in your divorce agreement provisions that indicate which spouse will pay the credit card off and apportion $5,000 to him or her for that explicit purpose. If he or she fails to discharge the debt, you can then initiate a contempt of court order against them in order to collect any money you end up paying as a result. While it may take some time, the court has the power to garnish wages and use other means to ensure you are compensated accordingly.

Don’t Ruin Your Credit – Divide Your Marital Debt and Protect Yourself

Failure to properly divide or discharge marital debt can harm your credit report should accounts go delinquent. That’s why it’s important to take steps to protect yourself in your divorce agreement. To learn how we can help you, contact Jenkintown marital debt division attorneys at Joanne E. Kleiner & Associates today.