estate plans and divorce

Estate Plans and Divorce

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Going through a divorce can be an extremely painful and emotionally exhausting experience. Still, it is important to pull yourself together and do what is necessary, so that you can look forward to a better, brighter future.

One of the important steps you need to take after getting a divorce is to revise and update your estate plan. Why is it critical? What kind of changes do you need to make to your plan? Let us take a look.

Importance of Updating Your Estate Plan after Divorce

When you are married, it makes sense to grant your spouse the power of attorney and to name them as your beneficiary so that they could make financial and medical decisions on your behalf if you are not able to and inherit your assets in the event of your death.

Once you get divorced, it makes no sense to allow your ex-spouse to retain the same degree of control of your life. So, you need to update your estate plan so that you can get your ex-spouse out of the picture and designate someone else who can make financial and medical decisions on your behalf – should it come to that.

Updating your estate plan is particularly important if your divorce was contested and if you and your ex-spouse no longer enjoy a cordial relationship.

Moreover, California is a community property state, which means your spouse is theoretically entitled to get 50% of everything you own in the event of a divorce. If you fail to review and update your estate plan, your ex-spouse will inherit more of your assets in the event of your death, which is not what you may want to happen.

What Kind of Changes Do You Need to Make to Your Estate Plan after Divorce?

Updating Your Will

Under California law, any gifts or bequests your will makes to your spouse will be revoked automatically in the event of an annulment or divorce. Still, it’s necessary to update your will after divorce for several reasons.

If you have named your ex-spouse as the primary beneficiary of your assets, you need to remove them to make sure they do not inherit the rest of your assets (what is still left with you after the divorce) in the event of your death.

Similarly, if you have named your ex-spouse as the representative or executor of your estate, you need to remove them and designate someone else.

Apart from this, if your will has provisions for your ex-spouse’s children (from their previous marriage) or their relatives, and if you no longer want them to receive a share of your assets in the event of your death, you need to amend your will accordingly.

Amending Your Trust

Setting up a living trust is undoubtedly one of the best ways to provide for your beneficiaries. But if you have appointed your ex-spouse as the trustee, you need to remove them and appoint a new trustee.

Revoking Your Power of Attorney and Advance Healthcare Directives

If you have designated your ex-spouse as your agent, who can make financial, healthcare, and end-of-life decisions on your behalf, you need to revoke the power of attorney you granted and amend the directive so that you can designate a new agent.

Nominating a Guardian for Your Minor Children

This is a tricky subject, as your ex-spouse might be the other parent of your child(ren) and they have the same rights that you do. However, you need to make sure you nominate a guardian (someone other than your spouse) for your children, so that they can take care of your children in case your ex-spouse is not able to – for one or more of the following reasons:

  • They have a physical or mental disability or illness which makes them incapable of caring for the children.
  • They have a serious alcohol or drug addiction problem.
  • They are unable to or do not want to take care of the children for other, legitimate reasons.

Reviewing and Updating Other Financial Accounts

After the divorce, you need to change beneficiary designations in the following accounts.

  • Bank accounts
  • Retirement accounts
  • Life insurance policies and annuities
  • Pay-on-death accounts
  • Homeowners’ insurance and auto insurance

Looking to Update Your Estate Plan after Divorce? Contact Our Seasoned Southern California Estate Planning Attorneys

Reviewing and amending your estate plan after a divorce is a complicated, time-consuming task which requires a great deal of legal expertise. The attorneys at Garmo & Garmo have over 80 years of combined experience in estate planning and have helped thousands of clients in California over the years with their estate planning needs.

We can review, revise, and update your estate plan according to your needs and make sure your ex-spouse does not too much of a role in making important decisions should you become incapacitated and/or managing your final affairs.

To find out more about updating your estate plan, call us today at 619-441-2500 or contact us online to schedule a free consultation with a member of our legal team. 

divorce lawyer in La Mesa

Divorces Likely to Increase due to the Coronavirus Pandemic

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The COVID-19 crisis has caused a major disruption to all of our lives. California and most other states have a “stay-at-home” order in place to keep citizens distanced from each other until the pandemic subsides, and this has resulted in the closure of countless “nonessential” businesses, causing millions to suddenly lose their jobs. The kids are going to school from home, and those of us who are still working are doing so out of our homes as well.

The end result of all this is that most Americans have been cooped up in their homes together for an extended period of time. Unless you are an essential front-line worker, you can only leave your home to go to the grocery store, pharmacy, to take a walk, and a few other limited activities.

It is difficult to predict what the effects of the coronavirus pandemic will be on couples who have been quarantined together for several weeks. This is an unprecedented situation, and how the pandemic will impact married couples is one of numerous questions that we will not know the answer to until long after this is over.

Some couples will certainly see COVID-19 as a welcome disruption to their normal routine and an opportunity to spend more time with each other. For others, it could bring tensions that have been simmering underneath the surface to a boil. A lot depends on what the health of the relationship was before all this started, how each spouse is handling the shutdown, their attitudes and worldviews, compatibility in closed quarters without much time apart, and other specific factors.

So, will the coronavirus pandemic trigger a spike in divorces, or will we see another baby boom? Only time will tell. Here are a few reasons why there is a good chance that the number of divorces will increase after COVID-19 is over:

  • People Need Space: It is a widely accepted truth that marriages benefit from spouses having time for themselves. No matter how much two people love and care for each other, being together constantly can be very unhealthy for a relationship. People need time for themselves to pursue their own interests and hobbies, maintain their individual identities, or just relax. Also, when people spend some time apart from each other, they tend to be happier and less stressed when they do get to see each other. Given these natural tendencies, couples who find themselves stuck together because of the coronavirus outbreak will need to work extra hard to keep their relationship healthy and fresh.
  • Record Numbers of Households Face Financial Distress: Money is one of the top reasons couples get divorced, and COVID-19 has created a huge amount of financial stress for many families. Being in the same home together along with tighter finances could be drive many couples over the edge and cause them to end their marriage.
  • The Increase in Domestic Violence Cases: One of the saddest unintended consequences of the coronavirus lockdown has been the rise in domestic violence cases. Law enforcement agencies across the country have reported a spike in domestic violence calls, which experts believe is largely due to the tension and stress couples and families are under being cooped up together. This tragic development could be a preview of what will happen with the divorce rate.
  • China’s Divorce Rate has risen Since the Start of COVID-19: China, the country in which the coronavirus originated, has seen a sharp rise in divorce rates since the quarantines ended. They also had a spike in domestic violence cases when they were under lockdown. China is obviously a different country than ours with a vastly different and unique culture, but higher divorce rates there could be an indication of what is to come in the Western world. We will need to keep an eye on other countries like Japan, South Korea, and Italy where the pandemic hit before it arrived here to see if this trend continues.

Whatever your Legal Needs, Garmo & Garmo is Here to Help

At Garmo & Garmo, we hope everyone is staying safe and healthy as we go through the coronavirus pandemic and deal with its aftereffects once it is over. We also hope you are taking steps to keep the valued relationships with your loved ones healthy as well. This is one of those rare shared experiences where we can truly say “we are all in this together”, and this will all be over hopefully sooner rather than later.

In the meantime, we want you to know that we are here for you if you need legal help. We are taking all the precautions and following all of the social distancing guidelines, and most of our work is being done remotely these days. The court also has limited access right now, but they are still available for emergency proceedings. Despite the current challenges, we have the technology and resources to run a fully functional practice and continue providing the experienced and skilled representation our clients have always received.

For a free consultation with one of our attorneys, message us online or call us today at (619) 441-2500. We look forward to serving you!

divorce and taxes in California

How Divorce Affects Taxes in California

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The marriage dissolution process has a lot of financial implications. There are issues such as child support, alimony/spousal support, division of marital assets, and many others. These issues will affect your finances in many ways, and one area that many divorcing couples do not put enough thought into is the tax implications once the divorce is finalized. 

No matter how long you have been married, if you decide to get a divorce, it will impact your tax situation. And if you do not look at the tax consequences ahead of time, you may end up with some very unpleasant surprises when it comes time to file your taxes. 

As the 2019 tax filing season comes to an end, this is a good time to look at divorce and taxes, and how a marriage dissolution can affect your tax situation.

Tax Filing Status Changes

After a divorce, your tax filing status will change. However, the filing status you use depends largely on when your divorce was finalized. If you finalized your divorce any time before December 31st, you are considered to be unmarried for the entire year. This means your tax filing options would be “single” or “head of household”.

In general, it is more advantageous to file “head of household”. However, you must meet certain qualifications to be eligible for this status. You must have paid for the upkeep of your home for at least half of the year, and you must have had at least one dependent living with you for at least half the year to claim the “head of household” status.

If you were still married as of the first of the year, your filing status options would be “married filing jointly” or “married filing separately”, or “head of household” if you lived apart from your spouse for the last six months of the year and meet other qualifications for this status.

“Married filing jointly” generally provides better tax benefits than the “married filing separately” status, although this is not always the case. That said, there are other reasons you may want to consider filing a separate return rather than filing jointly with your ex-spouse. One major reason is if your ex is untrustworthy or uncooperative or you have other reasons to believe that filing a joint return will in any way jeopardize your financial and/or tax situation.

Division of Assets

The division of the marital property is generally a tax-neutral event. However, there are some couples that have significant assets and more complicated finances. In these types of cases, various activities could result in tax consequences. For example, if you are liquidating certain assets (such as selling real estate property that does not qualify for an exemption), you may be responsible for capital gains taxes.

Another area in which there could be tax complications is with the division of retirement accounts. Portions of a retirement account that were added or appreciated during the course of a marriage are generally considered part of the marital estate. However, in order to divide these assets without being penalized by the IRS, you will most likely need a Qualified Domestic Relations Order (QDRO). QDROs are complex documents that are required for many types of retirement accounts. These documents must be drafted carefully and precisely in order to meet the required specifications to make them legally enforceable. Consult your attorney for more details on QDROs and if you will need one for your situation.

Who Claims the Children on their Taxes?

The question of who can claim the children as dependents on their taxes used to be an important issue that was often negotiated during divorce proceedings. Generally, the custodial parent is the one who has the right to claim the children unless they sign a written release on their tax return giving the other parent the right to claim the children. However, the Tax Cut and Jobs Act of 2017 got rid of personal exemptions and raised the standard deduction to make up for it. This means that there is no longer any direct financial benefit to claiming children as dependents until this provision expires in 2025.

Claiming the children as dependents is important for other reasons, however. For the custodial parent, they must have at least one dependent for at least half of the year to claim “head of household” and receive the potential benefits of this tax filing status. Having children to claim may also make you eligible for the Child Tax Credit or Child and Dependent Care Credit, and it could help you qualify for a higher Earned Income Tax Credit.

Child Support and Alimony

Child support is tax-neutral; the payor cannot deduct payments on their taxes, and the payee does not have to claim this support as income. Alimony/spousal support payments are deductible for the payor and taxable as income for the payee if your divorce was finalized on or before December 31, 2018. Under the Tax Cut and Jobs Act of 2017, however, for all divorces finalized on or after January 1, 2019, spousal support payments are now tax-neutral.

Speak with a Seasoned Divorce and Family Law Attorney in San Diego

If you are facing a divorce, there will be many issues that will need to be dealt with, many of which concern your finances and taxes. For this reason, you need a lawyer with extensive knowledge of this area of the law, and an in-depth understanding of how these issues will apply to your personal situation. 

For skilled guidance with divorce and other family legal matters in San Diego, El Cajon, and throughout Southern California, call Garmo and Garmo today at 619-441-2500 or message us through our online contact form to schedule a consultation.

how divorce affects your credit

Will a Divorce Negatively Impact my Credit Score?

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Filing for a divorce is one of the most consequential decisions anyone ever has to make. There are many factors to consider, and emotions always run high. Getting a divorce will impact you in numerous ways. Your marital assets will be divided (hopefully in a fair and equitable manner), and if there are children involved, you will need to work out issues such as child support, child custody and visitation. There are also financial implications beyond just the division of assets.

For example, there are now two households to support with the same overall income. This means double the housing payments, leaving less disposable income and a lower standard of living for everyone. There may also be tax implications that couples are not aware of.

Another possible area of concern during a divorce is your credit. Your ability to borrow money for the best interest rates and most favorable terms and conditions could be extremely important, especially during the transition from being married to becoming single again. One question divorcing spouses often ask is “will a divorce negatively impact my credit score?”

There are actually two answers to this question. The short answer is “no”, the act of filing for divorce does not have any direct impact on your credit score, because your marital status has nothing to do with your creditworthiness. So, if all other factors remained the same, dissolving your marriage could leave you with the same credit rating you had before you filed for divorce. That said, things do not remain static when you are going through a divorce, and there are some indirect ways your credit score could be negatively impacted by the process.

Here are two of the most common ways a divorce could negatively impact your credit score:

Inability to Pay your Bills

As mentioned earlier, divorce can have a major financial impact on the household. When spouses are living apart, they now have more bills to pay with the same amount of income. Not to mention that divorcing spouses often need to come up with thousands of dollars to cover their legal fees. The financial cost of the divorce could cause you to get behind on one or more of your credit accounts. And since on time payments are one of the major factors that go into your credit score, even a few late payments could cause your score to drop significantly. There is no easy solution to this issue. You will either need to live on less or earn more. Ideally, you should try to do both.

Spouse Doesn’t Pay Joint Accounts

During the course of the marriage, it is highly likely that you and your spouse opened some credit accounts together. As the marriage comes to an end, these accounts need to be dealt with. There may be some accounts that you are responsible to pay, and there may be some accounts that your spouse is responsible to pay. Just because a court rules that your spouse is responsible for a certain debt, however, this does not mean you are off the hook. If your name is on an account, you made a contract with the lender to make payments per the terms and conditions of the loan. This means that if your spouse does not make timely payments on those joint accounts, or refuses to pay them at all, it will affect both your credit scores.

There are a few ways to deal with this potential situation. First of all, once you become aware that you are getting a divorce, close all joint accounts that have no outstanding balances. This will limit the amount of financial damage that could be done, which is especially important if you have a spouse who is a spendthrift and/or has a tendency to be vindictive. Also, do everything possible to limit the number of joint accounts that your spouse will be responsible for when the divorce is finalized. For example, if your spouse is taking ownership of the marital home, insist that it is refinanced and placed in their name only. If they are not willing to do this, do not relinquish ownership of your portion of the property.

If there are joint accounts that cannot be closed, be sure to monitor them closely and make sure that your ex-spouse is paying them as agreed. To protect yourself even further, insist on and indemnity clause being written into the final divorce decree. An indemnity clause gives you the right to file a civil claim against your ex-spouse in the event that they do not pay the debts they are supposed to, and you decided to pay them to protect your credit.

Speak with a Compassionate San Diego Family Law Attorney

If you are facing a divorce, there are many ways that it will affect your life, and it is important to have skilled counsel by your side to provide legal guidance and moral support. At Garmo & Garmo, we understand how divorce impacts our clients, and we work closely with them to provide the strong personalized representation they need and deserve. For a consultation with one of our attorneys, call us today at 619-441-2500 or send us a message through our web contact form.