"That's a lot of baggage!"

Prenuptial agreements (“prenups”) are often misunderstood.  They are not just  for wealthy celebrities who are trying to keep their millions out of reach in the case of a divorce.  The candidate pool for prenups has grown tremendously and often includes we regular people, too. Those who want to plan for the future, make sure they are taken care of and protect their children in the case of their divorce,  are often interested in entering into a prenup prior to marriage.  Here are a few of the emerging groups of prenup candidates:

GROUP 1: Those Choosing to Leave the Workforce.

It may be anticipated that you or your spouse will give up employment, education or career upon marriage.  This decision may have been made for a number of reasons including so that one of you may work in the home or raise children.  In other cases, the marriage may result in one or both of you  out of state, far away from your current employment or out of reach of a job where you can use your  education and training.  In these cases, the party leaving the workforce may wish to enter into a prenuptial agreement, which provides a certain financial support mechanism in the case of a divorce.

GROUP 2:  Those Wishing to Provide for Children and/or Parents.

In other cases, you or your fiance may enter into a marriage with one or more children from a previous relationship.  In this case, you may wish to agree that certain assets pass to the children, in the event of a divorce.  For example, a party who owns a closely held family business may wish for the business to stay in the family at the time of a divorce, rather than having his or her share of the business subject to property distribution.  You or your fiance may also be concerned about elderly parents and wish to set aside assets to provide for their wellbeing at the time of divorce, rather than dividing these assets as part of the marital estate.  Providing for both groups can be accomplished through the execution of a prenup, which protects the parties and full allows for them to plan for the future.

GROUP 3:  Those Wishing to Protect their Individual Work, Products or Heirlooms.

Think about the things that are really, really important to you.  An old locket passed down from a great-grandparent?  A manuscript you have spent countless hours writing and editing?  Art work or pottery which can never be replaced?  At the time of divorce, a number of things can happen to these items.  The parties may just agree that such items are their personal property or the personal property of another, the items may be divided or the items may be sold and the profits divided.  A prenup which clearly describes the items and provides for their distribution at the time of divorce is simply good planning and can provide protection for your most important treasures.

GROUP 4: Those in Debt or Marrying a Party Who is in Debt.

If you enter a marriage with significant assets and your fiance has significant debts, a prenuptial agreement may be advised.  It may protect your assets (in the event of divorce) from your spouse’s creditors.  It may also allow for you to gain full disclosure as to your spouse’s debts prior to marriage.  Given that money is a leading reason that people get divorced, full disclosure and protection are two important tools to have to plan for your future.

GROUP 5:  The Planners.

Some people just like to plan ahead (you know who you are). Prenups are simply a good idea for those who spent time imaging different outcomes, making contingency plans and thinking about the “what-ifs.”   While it is always our hope that clients never utilize their prenuptial agreements, many clients desire some insight into the reality of a divorce.  They want to know who will get what, how much it will cost and whether or not they will be protected.   Entering into a contract which specifically answers these questions can be a great source of comfort.

If you are interesting in learning more about prenuptial agreements, entering into one or having a proposed agreement reviewed by an attorney, contact one of the attorneys at The Divorce Collaborative.

Prenuptial Agreements: Why a Prenup Might be Right for You. By Carolyn Blake Dibbert, Esq. is a post from: The Divorce Collaborative

When a divorcing spouse owns a business, several  factors must be examined as part of the distribution of the marital estate.  The type of business entity in question will obviously play a major role in how the business asset will be valued. One type of business that provides special challenges to an appraiser and the attorneys on the case is a professional practice, such as a medical practice or law firm.

A professional practice is considered by the court (at least here in Massachusetts) as subject to division as part of the marital estate during the divorce process. See Goldman v. Goldman, 28 Mass. App. Ct. 603, 613 (1990).

Although the confidential relationship between professionals and their clients must be protected, the amount of fees paid and accounts receivables due to the professional practice are not protected.  For example, a 1994 case found a lawyer in trouble for failing to disclose the value of a large number of potentially fee-producing cases in his own small law practice during his own divorce.

Discovery

It is important to collect information about a professional practice similar to any other owned  business during a divorce case, thus counsel for the non-business owning spouse will want to obtain items such as:

• Financial Statements for the business;
• Tax returns;
• List of assets owned by the practice, including equipment, accounts receivable, work in progress, automobiles, investments, and the value of goodwill the business has cultivated;
• Financial Records, including bank statements;
• Information about real estate owned by the practice;
• Information on life insurance polices insuring the lives of the principals or the practice;
• Copies of all partnership agreements or other corporate documents;
• Buy-Sell agreements between partners, if any.

Once the different assets belonging to the business are identified, they must be valued.  Tangible assets are normally valued at fair market value, while accounts receivables are discounted based upon their collectibility.  Any unbilled time must also be added to the balance sheet.  Patient or client files can also have a value, mainly to determine the number of ongoing clients.

Goodwill Hunting

Perhaps the most vexing issue relates to the determination of whether goodwill is present in the practice, and then how to establish its value if it in fact exists. Goodwill is the probability that clients will return to the same practice for future business.  Valuing goodwill is not a simple task, and factors ranging from the professional’s earning capacity and reputation in the community to the length of time the business has operated must be weighed.   Additionally, there are even different types of goodwill.

Enterprise goodwill relates to the intangible value in the form of profit that would be available to a prospective buyer.  This should be contrasted with personal goodwill, which is the total of numerous personal attributes, such as character, age, education, and performance that later develop into a professional reputation.  Personal goodwill is specific to an individual, so it cannot be transferred to a potential purchaser.

An expert business appraiser should examine these factors in detail,  a number of theories and formulas are employed to determine the value of goodwill. Professional business evaluations can quickly get expensive. There are many variables and subjective factors that can lead to disagreements and competing experts making the valuation of a professional practice a complicated part of property division during a Massachusetts divorce.

Valuation Issues Surrounding Professional Practices at Divorce, by Steve McDonough, Esq. is a post from: The Divorce Collaborative

I have received couple of questions on how divorce may affect social security benefits over the past week, so I thought a post on this topic might be helpful.

First, a good point to remember is that social security is a federal system, and is thus controlled by federal regulations.   Social Security benefits cannot be bargained like other assets or retirement accounts since the receipt of social security benefits, how they are paid, and to whom are all controlled by federal law.   This is why you don’t see sections on social security benefits in divorce agreements.

A divorced spouse may be entitled to social security benefits, but this really depends on the eligibility of the person that they were divorced from.  In order to be eligible for retirement or disability payments, the marriage to the retired or disabled person must have lasted at least ten years, and the spouse applying for such benefits must not be remarried.   If a subsequent marriage ends by another divorce or due to death, then eligibility may then be re-established.  A divorced spouse may then be eligible to receive up to 50% of the worker’s payments or up to 100% of a deceased worker’s payments after the age of 62.

The maximum family limit does not apply in the case of a divorced spouse who qualifies.

There are a number of other provisions to consider depending on your specific circumstances.  For instance, if a divorced spouse is eligible for social security benefits on their own record, that amount will be paid first; but if the benefit paid to the other spouse is higher, the divorced spouse may get a combination of benefits that equals the higher amount.  Finally, the amount the divorced spouse receives does not change the benefits the worker and any new spouse receives.

Another good source for additional information on this issue is the Social Security Administration website.  I also found this article on the Kiplinger.com website which you may find helpful.

Social Security and Divorce is a post from: The Divorce Collaborative

An important part of a divorce case is identifying and dividing up a couple’s marital property.  Within the marital estate, retirement plans frequently are one of the most valuable asset classes.   A qualified retirement plan is one that satisfies numerous requirements set forth by the IRS and ERISA, the Employee Retirement Income and Security Act of  1974.  Qualified plans take advantage of a number of tax benefits.  The two main categories of qualified plans are the defined contribution plan and the defined benefit plan.

A defined benefit plan is what we consider the typical company pension plan, although these plans are joining the endangered species list for many Americans, sort of like capitalism and personal responsibility.  Employees do not make individual contributions to these plans, leaving the employer to make all contributions and administer the investments.  Employer contributions are usually determined by factors such as years of employment, wages, and age.  Benefits are not normally paid until regular retirement age, and are distributed in the form of a lifetime annuity, although some plans allow the option of a lump sum distribution.  This type of plan is more involved to accurately value, requiring a formula and usually the services of a pension expert or actuary.

Defined contribution plans have a contribution which is defined, or set, but the final benefit is unknown.  In these plans, such as a 401(k) or 403(b), each participant has an individual account.  Factors such as the amount contributed by the employee and the amount of company match, if any, and the investment performance over time determine the plan balance over the years.  In this type of plan, investment risk may rest squarely on the shoulders of the individual employee since most plans have a number of different investment options.

Both types of plans are subject to equitable division during divorce in Massachusetts under Mass. Gen. Laws c. 208 s. 34.  Now, when you fill out your court financial form you will know what is meant by the terms “defined benefit” and “defined contribution.”  Too bad there is not a box to request “retirement plan stimulus funds.”  That would be nice.

Retirement Plans – Defined Benefit vs. Defined Contribution is a post from: The Divorce Collaborative

It's not just a movie, it is an important part of your Massachusetts divorce.

One of the most important documents filed as part of a Massachusetts divorce is the ever-popular court financial statement.  The rules surrounding financial statements are governed by Supplemental Probate Court Rule 401, or as I like to call it, Supplemental Probate Court Rule 401.   There are two versions of the form, a “short form” for those with income of $75k or less, and a (much) longer form for those with – you guessed it – income over $75k.  The forms are filed with the court on a lovely shade of pink paper to make it easier for Judges and court personnel to locate them in a specific case file.  I had a client who first thought the Wife’s financial statement went on pink paper and the Husband’s on blue, but no. The forms are also used in post-divorce cases, such as a contempt or modification actions related to child support for example.

In a court-based case, lawyers are supposed to deliver their client’s financial statement to the other side within 45 days.  Although it would be nice if this always happened, it would also be nice if the sun would come out for more than a couple of hours.  Sometimes it takes clients some additional time to gather the required information, so completing the form within that time frame is oftentimes a stretch.  If one side is particularly slow with providing the financial statement, a motion may be filed that requires the financial statement to be produced within ten days.  The financial statement is impounded by the court, meaning that it is not available to the public, like other parts of a case file.

There are too many details to cover here regarding the court financial statements, but they must be filled out carefully and reviewed by your attorney, if you have one.  When in the divorce mediator role, I also review the client’s financial forms and make sure they are prepared properly so the court does not reject them.  It is a rare event to receive a financial statement from a client that does not require corrections or additions.

It is important to note that the financial statements are signed by the client and the client’s lawyer under the pains and penalties of perjury.   I think this means that you can be placed in the stockade or crushed by stones, as demonstrated at the Salem, MA Witch Museum.  Nevertheless, the point is that these forms must be filled out completely and accurately.  They are certainly not something to rush through, and they warrant a significant amount of time by both the client and their attorney.  Any falsified or omitted information can lead to sanctions by the court, or even charges of criminal contempt.

If the title of this post is making you a little nostalgic, then you can check this video out.

Here is a link to the long-form financial statement.  The above link is more entertaining however.

Pretty in Pink – The Massachusetts Divorce Financial Statement is a post from: The Divorce Collaborative