Rhode Island Divorce Lawyers | Affordable RI Divorce Lawyer Christopher A. Pearsall

Rhode Island Divorce Lawyers explain Pre-marital Aspects of 401Ks!

Question:  Can My 401K Help Me In this Situation?

    For the sake of this question I'll call myself William.  I have a 401k that I began 10 years before I got married.  It had about $75,000 in it before Tammy and I got married.  We've been married for the past 13 years and my 401k is up to about $285,000.  I'm concerned about being able to pay my attorney's fees.  I'm also concerned because I want to keep the house my wife and I live in.  The house has been in our family for generations.  I don't think I can get a loan to buy out my wife's interest in the house because my credit isn't so good.  We have about $140,000 in equity in the house.  What can I do to save my house?  One attorney has told me that Tammy will get 1/2 of my 401k and that I can't touch my 401k monies while the divorce is pending.  This doesn't seem fair.  It looks like I'm going to lose 1/2 of everything I built.  I know Tammy is entitled to part of everything but it seems like I'm being left with no options but to lose the house and 1/2 of my 401k.  Is there anything I can do here?

    - William  (Coventry, RI)

Answer:  In this situation your 401K's Versatility Could be the Key in your Rhode Island Divorce!

    William, I can tell you that you have more options than you may think.  Ultimately, your 401k plan is the key to resolving your difficulties.  A 401k if much more versatile than a pension, annuity, IRA or any other investment vehicle. 

    First, Check with your 401k Plan Administrator.  Ask whether you are allowed to take a loan up to a certain percentage of your vested 401k balance.  Then confirm the amount of your vested balance and the allowable loan that you could take from your vested balance.  Loans on 401k plans are typical and are usually limited to 50% of your vested balance.

    For the sake of example let's assume this is a typical 401k plan and you can take a loan of up to 50% of your vested balance.  Based upon the numbers you have provided, I would be willing to venture a guess that you may be told that the entire $285,000 is vested and that your maximum allowed loan at 50% would be limited to $142,500.  You should also find out how much interest will be charged on whatever loan you take out and the maximum repayment period.  Of course you will be repaying yourself the interest so this is a considerable benefit to you.  Plus, you can check with your accountant to see if any of the 401k interest is potentially deductible because it is used as a buyout of your wife's interest in the real estate and adds to your adjusted basis in the property.

    Now William, there are a few things to take into consideration but careful planning will eliminate difficulty.  If you are already in the midst of a divorce then your are bound by the Automatic Orders of the Court.  These Orders prevent you from spending, hiding or doing anything out of the ordinary with any assets without the written consent of your spouse.  You may not unreasonably incur any debt that is not in the normal course of your home or running your business except for paying your attorney's fees.

At the outset this looks like it poses a massive hurdle but your case is a bit different.

The Rhode Island Family Court has the power of equitable distribution over the marital estate.  This means the marital assets and debts of the parties.  This does not include pre-marital assets.  You have already disclosed that your 401k had a value of $75,000 before you got married.  This $75,000 is a premarital asset.  These funds are yours.  Additionally, any appreciation relating solely to those $75,000 is also a non-marital asset because they are funds generated purely by virtue of a the pre-marital asset without further contribution from the parties.  Thus if over the 13 years if your 401k averaged 7% per annum return then your $75,000 has roughly appreciated to $180,738.38 making the marital portion of your 401k $285,000 minus $180,738.38 which equals $104,261.62.    The $104,261.62 should roughly be the true marital portion for distribution by the Rhode Island Family court.  It is certainly viable for you and your attorney take the position that this should be undisputed and that $180,738.38 is truly a premarital asset to which your wife is not entitled. 

If you are allowed a 50% loan to vested monies then you have in excess of $90,000 that you can take as a loan for both your attorneys' fees and to buy out your wife's interest in the house.  If your wife's share of the house equity is agreed to be $70,000 then even with poor credit you should be able to secure an equity line of credit or a refinance of the house even if you take out a loan of $40,000 and put $35,000 toward the house and rely upon $35,000 of the house equity to balance out the loan.  This also leaves you with an additional $5,000 for attorneys' fees.

If you take out a loan of $35,000 as suggested, then you still have $145,738.38 that should remain a pre-marital asset that you are entitled to claim as a pre-marital asset.

Keep in mind that this is an arguable position.  Technically, it is a judge's role to determine whether an asset is marital, non-marital, premarital or otherwise exempt from the court's equitable distribution power.  However, when the issue is as clear cut as this in accordance with the statutes, most judges will not penalize an individual for following the advice of his attorney in order to settle a matter on the judge's calendar.

If the judge disapproves of the manner in which you proceed and finds the circumstances to require the court's authority, the most likely conclusion is that the Judge will consider any disproportionate amount as an offset to your spouse against the marital estate.  However, pursuant to the Rhode Island General Laws this is an arguable position that you should be able to take and use without the written permission of the other party or an order of the court, especially if it is used in an effort to settle the case. 

However, if the funds are used for purposes other than settling the case, be prepared for the court to take more appropriate actions to punish you as an abusing party even if you are within your legal rights.

Authored By:

  Christopher A. Pearsall
Attorney-at-Law
70 Dogwood Drive, Suite 304
West Warwick, RI 02893

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RI Engagement Rings - Divorce Assets or Not?

Engagement rings in Rhode Island Divorce proceedings are not typically a source of contention between the spouses.   Typically an engagement ring is not considered a marital asset. Therefore it is not subject to the Rhode Island family court's power of equitable distribution (i.e. power to divide the marital portion of assets between the divorcing parties).  In fact, the vast majority of cases where the wife's engagement ring is seriously debated occurs usually when the engagement ring has a substantial value and something changed about to the ring after the marriage.

The theory is understandable.  A marriage is a contract though it is seldom seen in that light by the parties.  For instance, when a man asks a woman to marry him and offers an engagement ring, the ring is the consideration for one contract.  In that case, the man is asks the woman to marry him and offers the ring to essentially "seal the deal" so to speak.  However, it then falls to the woman to decide if she will say "yes" and accept the offered ring.  If the woman says "yes" and accepts the offered ring, then a contract has been formed.  The man has made and offer and in return for that offer has asked for a promise that she will marry him and an acceptance of the ring.

Let's assume that the man no longer wants to marry the woman and changes his mind.  The man has now broken the engagement contract.  If he demands the ring back, the woman has no obligation to return the ring so long as she has still been prepared to marry the man and hold up her end of the "bargain."

However, if the woman no longer wants to marry the man and changes her mind, she is obligated to return the ring because she has broken their engagement contract and she is generally not allowed to profit from her own breach of the engagement contract which is exactly what would occur if she were to break the engagement contract AND keep the man's offered ring as well.  If it were otherwise, this would lead to women accepting men's proposals just to get the ring and not because they even intended to marry the man and simply tell the man she has changed her mind shortly thereafter and keep the ring.

When a marriage occurs, it is a separate and distinct contract made at the time of the ceremony where both parties perform as they promised rather than simply exchanging an offer for a promise.  In that case the wedding rings themselves seal that contract of marriage as well as the promises they make to each other for the duration of the marriage. 

Therefore, if nothing happens to the engagement ring during the marriage, it should be considered pre-marital or at least non-marital in nature because it existed and belonged to the woman before the marriage contract was formed.  Thus, it should not be within the power of the Rhode Island Divorce and Family Court to distribute it.  It was the woman's property before the marriage and simply wearing the ring during the marriage does not make it marital in nature.

The issue arises when something happens to the ring during the marriage.  Consider for example that a stone in the ring becomes chipped and as a result it loses value.  Let's say that marital income from either the husband, wife or both is used to purchase homeowner's insurance.  Now, if an insurance claim is made for the damage to the ring and funds received from that claim are used to replace that stone (i.e. diamond, etc. . ) now, marital funds have been used to repair or replace a part of the ring.  Once marital funds are used in any way on the ring, the previously pre-marital ring now is commingled with marital income (which is a marital asset) and they now convert the character of the ring from pre-marital to marital.

Other arguable examples that would change the ring to a marital character are:

1)  Adding new stones using marital income.
2)  Fixing the setting using marital income.
3)  Pledging the ring as collateral for something marital being purchased as a couple.

Authored By:

  Christopher A. Pearsall
Money Making Entrepreneur and Attorney-at-Law
70 Dogwood Drive, Suite 304
West Warwick, RI 02893

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Copyright 2008.  Christopher A. Pearsall, Internet Entrepreneur and Attorney-at-Law

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Rhode Island Divorce Lawyers and a regular pension issues!

Are you concerned about your pension in a Rhode Island Divorce situation?  Many people are concerned about their pensions and what will happen to them if the Rhode Island family court judge ends of including the pension in an equitable distribution of the marital estate.

The first consideration is when the pension was started and when the marriage started.  If the pension began after the date of marriage, then the entire pension is part of the marital estate and subject to the Rhode Island Family Court's power of equitable distribution.

Generally speaking, if the pension began but did not become vested before the date of the marriage, then the contributions made prior to the date of marriage are not a marital asset nor is any appreciation that is attributable to those contributions if the pension gains interest on non-vested contributions.

From the marriage date forward, the contributions to the pension and any appreciation relating to those contributions is a marital asset subject to equitable distribution by the Rhode Island family court provided the pension has not vested.

If the pension has vested at the time the divorce is tried by the family court and the entire pension occurred during the course of the marriage, then the payment afforded by the pension then becomes the marital asset that is subject to the court's equitable power of distribution.

If the pension has vested at the time the divorce is tried by the family court and the entire pension did not accumulate with contributions solely during the marriage, then a rather complicated actuarial calculation would need to be done after the court determines the portion of the retirement payment each party is entitled to in order to determine which portion of the payment results from pre-marital contributions and is thus exempt from the equitable distribution of the court.

Since pensions follow a particular plan that participants often have little choice regarding it's accounting method or contributions, it is one of the few exceptions to the concept that the commingling of funds contributed during the marriage convert the entire asset to one that is marital in character.  The contributions to pensions made prior to the marriage remain pre-marital and the contribution of those pre-marital payments to the whole of any pension payment after a pension has vested should remain exempt from the court's power of equitable distribution.

Pension issues can, and often do become the most complicated to work out legally and at trial it may be necessary to present an actuary as an expert to demonstrate the pre-marital contributions and its financial effects on your pension payment of a vested pension.

 

Authored By:

  Christopher A. Pearsall, Esquire
70 Dogwood Drive, Suite 304
West Warwick, RI 02893


Call (401) 632-6976 Now for your low-cost consultation.
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Rhode Island's Most Affordable Divorce & Family Law* Attorney

Copyright 2008.  Christopher A. Pearsall, Attorney-at-Law

*The Rhode Island Supreme Court licenses all attorneys in the general practice of law.
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Question for RI Divorce Lawyers: Can my attorney tell me what assets are non-marital?

Question

Can my attorney tell me what assets are non-marital so I can do what I want with them?

Answer

No.  Your attorney can take an educated guess at which assets in your marriage are non-marital and your attorney can argue on your behalf to the judge who is hearing your case that certain assets are non-marital and are yours (provided your attorney has a basis for arguing that each such asset is yours as opposed to your spouse's).  However, your attorney does not have the authority to simply say that an asset is non-marital and therefore have it excluded from consideration by the judge.

It is the judge who has the power and/or discretion to hear the facts surrounding each item and determine if it is a non-marital, pre-marital or marital asset.  Until a judge makes a determination that an item falls into one of these categories and determines what can be done with it, the only way anything can be done with any items during a divorce proceeding is if both parties agree to it in writing and that agreement should also be approved by the court.

Short of the foregoing, both parties remain bound by the Automatic Orders of the Court and nothing should be done with an asset that is outside the scope of those orders.

 

Authored By:

  Christopher A. Pearsall, Esquire
70 Dogwood Drive, Suite 304
West Warwick, RI 02893


Call (401) 632-6976 Now for your low-cost consultation.
from
Rhode Island's Most Affordable Divorce & Family Law* Attorney

Copyright 2008.  Christopher A. Pearsall, Attorney-at-Law

*The Rhode Island Supreme Court licenses all attorneys in the general practice of law.
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