Minnesota Divorce and Family Law Blog

Selling the House in a Bad Market

One of the dilemmas that divorcing couples are currently faced with in this rough economy is how to deal with the marital homestead. In a depressed real estate market, it is not an optimum time to sell the house.  But selling the house is a necessity for many couples in which neither spouse can afford the house on their own; particularly if the couple is behind on payments and/or the house's current value is LESS than the mortgage balance.

The upside of selling in a bad market is BUYING in a bad market.  If both spouses are going to be able to buy into the bad market, then selling ultimately is not a drawback.  This requires either that the house proceeds - though lower than desired - are still sufficient for each spouse to make a down payment OR the individual spouses may obtain financial backing (from a bank or family member) to make the down payment on a new residence.

For many couples, the answer is to find a way to hold on to the house until the market recovers.  In many cases, that involves one spouse maintaining the homestead, possibly at a deficit; and the other spouse renting, possibly also at a deficit.  It is difficult for the spouse who maintains the homestead to wait - and hope - for the day that the homestead has gained back the lost equity.  It is difficult for the spouse who does not maintain the homestead, because the value of their interest in the home is determined at the time of the divorce, an inopportune time in this economy.

Moving Out of State With Minor Children

One important change in Minnesota law in recent years pertains to changing the state of residence of minor children.  Previously, Minnesota was one of a minority of U.S. states to allow a custodial parent to move with a child to another state unless the non-moving parent proved that the move was contrary to the child's interests.  That is, previously, the non-moving parent had the burden of proof, and if the burden of proof was unmet, the moving parent was granted the right to change the child's state of residence.

The current law in Minnesota now matches the majority of other jurisdictions: the moving parent has the burden of proof, to show that the move is consistent with the child's interests.  Minnesota Statute Section 518.175, subd. 3, provides as follows:

(a) The parent with whom the child resides shall not move the residence of the child to another state except upon order of the court or with the consent of the other parent, if the other parent has been given parenting time by the decree.  If the purpose of the move is to interfere with parenting time given to the other parent by the decree, the court shall not permit the child's residence to be moved to another state. 

(b) The court shall apply a best interests standard when considering the request of the parent with whom the child resides to move the child's residence to another state. The factors the court must consider in determining the child's best interests include, but are not limited to:

 

(1) the nature, quality, extent of involvement, and duration of the child's relationship with the person proposing to relocate and with the nonrelocating person, siblings, and other significant persons in the child's life; 

(2) the age, developmental stage, needs of the child, and the likely impact the relocation will have on the child's physical, educational, and emotional development, taking into consideration special needs of the child;

 

(3) the feasibility of preserving the relationship between the nonrelocating person and the child through suitable parenting time arrangements, considering the logistics and financial circumstances of the parties; 

(4) the child's preference, taking into consideration the age and maturity of the child; 

(5) whether there is an established pattern of conduct of the person seeking the relocation either to promote or thwart the relationship of the child and the nonrelocating person.

It is important to consider that, in many cases, the burden of proof is not dispositive.  If the moving parent has a compelling basis for moving the child, the court would permit the move, whether the moving parent or non-moving parent had the burden of proof.  Conversely, if the moving parent has a weak case for moving, it would not matter whether the moving parent or the non-moving parent had the burden of proof; the request to move would be denied.  The recent shift in the law impacts those cases in which the moving parent arguably has a strong basis for moving the child, but the non-moving parent has an equally strong basis for opposing the move.  

Moreover, as with most other custody and parenting issues, the family court is likely to rely on the observations and recommendations of a custody expert or parenting neutral in determining the relative merits of a moving parent's contentions versus the non-moving parent's oppositions.  

Don't Take (All) the Money and Run

At the outset of a divorce, should you clean out the joint account?  Or should you refrain from cleaning out the joint account, just to see the account cleaned out by your ex?

Suppose there is $10,000 in the account.  If you take the $10,000, your spouse is likely to cry foul, and you may well live to regret what can be perceived as an act of bad faith.  But if you do nothing, can you trust that your spouse won't take all the funds?  Will it be sufficient consolation to you that your spouse has painted himself or herself as a scoundrel?  (That won't pay the rent.)

If you feel like you must take some action, rather than doing nothing, you might consider withdrawing $5,000 (half the balance) and placing it into a separate account solely in your name.  Your spouse has much less reason to cry foul.  But you also pre-empt your spouse from unfairly secreting all of the joint funds without your knowledge.

Why Mediation Is a Good Idea

Family law mediation is a forum in which a neutral party (the mediator) meets with parties to help facilitate a settlement of the disputed issues or, in the alternative, to rule out settlement exhaustively, and help the parties reach an impasse.  The mediator has no authority to make a decision or impose something upon one of the parties against their will; and the process is confidential.

There are three basic reasons that family law mediation is a good idea.  (Only one has to do with settling the case short of trial in family court.)  First, if the mediator is successful in facilitating a resolution, the case concludes without protracted litigation.  Second, most family court judges will insist that there be efforts to settle the case out of court before proceeding with trial.  Third, it is a helpful trial preparation tool. 

It is important to note that the latter two reasons are applicable if mediation is unsuccessful, that there is more to proceeding with mediation than getting the case settled.  If you appear before the family court for trial, you are likely to be in better standing with the family court judge if the judge knows that the court's decision is necessary, and the dispute is compelling enough not to have been resolved in mediation. The impasse reached in mediation is more meaningful than the impasse reached when a couple with communication problems stops speaking to each other.  

Finally, for purposes of trial preparation, mediation allows the courtroom disputes to be narrowed, and more sharply defined.  The confidential communications, while inadmissible in court, do provide some insight about the strengths and weaknesses of your case and the opposing party's case.  The family court judge who decides the case is likely to navigate through similar logic, questions and considerations that play out in the mediation sessions.  The trial of a case in which mediate was unsuccessfully attempted is more effective for the parties and the court than a trial proceeding that transpires from "square one."  

 

  

Dividing Personal Property

When a couple divorces, the personal property must be divided.  That includes households goods and furnishings, and general "stuff" in the home.  While the division of items can often be a contentious subject, family court judges discourage spouses from devoting too much time and emotion (and expense) to it.  

In many cases, the spouses divide the personal property when they establish separate households.  But in other cases, a spouse who has departed from the marital home may have living arrangements that are temporary, or lack sufficient space to accommodate half of the couple's belongings.  If one spouse has all (or nearly all) the personal property, there are several common resolutions, other than renting storage space.  The spouses may agree to an itemized division, memorialized in writing, to be implemented on a certain date, or within a certain time period.  It may be agreed that one spouse is keeping all, or nearly all, the property items (because the other spouse doesn't really want a lot of "stuff" anyway), the parties agree on a reasonable value for the items, and that value is accounted for in the overall division of assets and liabilities.  In some cases, a mediator or arbitrator is appointed to oversee the parties taking turns choosing items, one by one.  A garage sale, and division of proceeds, is a common idea that is not commonly implemented.  (The property items usually have more value to one or both spouses than they do to any third-party willing-buyers.)  

If the spouses must incur legal fees in a dispute about personal property, there may be a danger of spending more in legal fees than one would spend in replacing the disputed property items.  

There are family court anecdotes about judges unhappy with couples bickering over the stuff -- such as ordering one party to divide the items into two groups and allowing the OTHER party to choose one of the groups of items.  Or threatening to toss a disputed item out a fourth story window if the parties do not quickly resolve the dispute on their own.  In the end, it is better if the division of personal property is resolved without the need for the family court to make a ruling.   

The House: Yesterday's Asset is Today's Liability

In a divorce, when Spouse A leaves the marital homestead in the hands of Spouse B, typically Spouse B must buy out the marital interest of Spouse A.  At least, that is how things used to be, before the current era of the depressed housing market.  Today, it is not unusual for Spouse A to leave the house behind,and not to be bought out by Spouse B at all.  The departing spouse is likely to be only too happy to leave the mortgage payment behind as well, and to get out from underneath the burden of a big house payment and shrinking home equity.  

If a family is struggling in this economy to stay current on a hefty house payment, that concern grows exponentially in the midst of a divorce.  It has always been difficult to support the two individual households of a separated couple on the same income as before the separation.  Add to that the fact that home values that are not appreciating, and it is nearly impossible for a family to stay afloat financially.  

Selling the house tends to be an even drearier prospect.  One is likely to lose money on the sale, with so many families encumbered by a second mortgage or home equity line of credit.  Renting typically costs the same, or more, than a house payment.  Most importantly, it is a very bad time to market a residential property without the home being "priced to sell."  Most financial planners will suggest that someone stay put where they are, and ride out the bad housing market (which could take years).  

If a divorcing couple sees fit to sell the marital homestead in this unfriendly market, it is likely an effort to tap into the opportunity to purchase a downsized residence.  The upside of a bad market for selling, after all, is a good market for buying.

For now, and for the next few years, breaking even on one's home equity is the best that most divorcing couples can hope for.   These sobering realities, and realistic expectations, will carry the day until the housing market recovers.   

Where the Children Should Go to School

When divorced or separated parents need to make a decision about where their child or children will attend school in the fall, it can turn into a legal dispute. Regardless of the custodial arrangement that the children live by, it is preferable if the parents can be in agreement about school enrollment. If the parents disagree, then the designation as to legal custody may be important. Parents with joint legal custody share the authority to make a decision about school enrollment. If each parent with joint legal custody has a different school arrangement in mind for the child, then the issue likely needs to be resolved by the family court or a parenting neutral.

Unfortunately, in many instances, the family court judge would rather not make a decision without the input of a parenting neutral, and there may not be time before the beginning of the school year for a parenting neutral to investigate the situation.

When a child's parents do not share joint legal custody, then there is less likely to be a legal issue regarding school choice. The parents' disagreement about the choice of school may defer to the decision of the parent with sole legal custody. But the school decision must be made in a manner that is consistent with the best interests of the child.

If the decision is whether to keep the child at the same school, or change the school the child attends, the child is likely to stay attending the same school unless the parents agree to a different school, or there is a compelling reason for the child to change schools over the objection of one of the parents.

Credit Card Companies Don't Care What the Divorce Decree Says

When a couple gets divorced, and the divorce decree makes one spouse responsible for credit card debt (or other debt), the other spouse should not have to worry about the credit card company contacting them for payment, right? Wrong. The divorce decree determines rights and responsibilities as between the spouses; but in most circumstances, the divorce decree does not affect the rights of third parties.

So, if the credit card company cannot collect from spouse A, the company may try to get payment from spouse B, even if the divorce decree gives spouse A sole responsibility for the debt. If the credit card company obtains payment from spouse B, spouse B's recourse is to get relief through the family court in the form of reimbursement from spouse A for the amount the credit card company got from spouse B.

The family court has the authority to grant that relief because, while the credit card company's collection from spouse B does not technically violate the terms of the decree, spouse A's default on the debt payment, in effect, does violate the terms of the decree, and the family court can remedy that defect.

Transfers Incident to Divorce - 401(k)'s and IRA's

When someone's 401(k) interest is divided in a divorce, neither party must suffer a tax consequence or an early withdrawal penalty. The funds from the 401(k) transferred from one spouse to the other may be rolled over, without consequence, provided that the rollover is completed within sixty days. For example, if spouse A receives $50,000 from spouse B's 401(k) account pursuant to the terms of the divorce, spouse A may park the funds in a generic bank account temporarily -- for instance, while spouse A sets up a new account -- but the funds must land in a proper, tax-qualified account within sixty days of the date the funds left spouse B's 401(k) account.

The receiving spouse may opt against rolling over the funds into a tax-qualified account without paying the early-withdrawal penalty. But the transfer does count as a taxable event during the tax year that the transfer occurs, so the receiving spouse needs to plan accordingly. That is, the receiving spouse would be wise to pay estimated taxes on the transfer.

When someone liquidates funds from an IRA (individual retirement account) before age 59 1/2, there is a ten percent penalty. However, when an IRA is divided between spouses in a divorce, the transfer of funds incident to the divorce are not subject to the early-withdrawal penalty. In order to avoid the penalty, the receiving spouse must roll over the funds into an IRA or other tax-qualified account within sixty days.

The manner in which the 401(k) interest is divided is a court order called a Qualified Domestic Relations Order (QDRO). The QDRO contains terms that direct the plan administrator in the proper division of the 401(k) account. A QDRO is NOT USED for an IRA transfer. The banks handling an IRA transfer may have specific requirements, such as specific account information for the destination of the transferred funds; but for the IRA transfer, a QDRO is unnecessary.

The House You Owned Before The Marriage

If a married couple gets divorced, and one of the spouses owned their home before the marriage, the house is part marital property and part nonmarital property.

The value of the house at the time of the divorce can be divided into several categories:

(1) the equity the owning spouse had in the home at the time of the marriage (nonmarital);

(2) the amount the couple paid off on mortgage principal while living together as husband and wife (marital);

(3) the appreciation in the value of the house over the course of the marriage that can be attributed to the owning spouse's premarital equity (nonmarital);

(4) the appreciation in the value of the house over the course of the marriage that CANNOT be attributed to the owning spouse's premarital equity (marital); and

(5) the increase in value of the house that can be attributed to home improvements that the parties made during the marriage (marital).

Most of the time, the components of the house's value cannot be objectively determined or fixed without either the reasonable compromise of the spouses or the expertise of a neutral appraiser.