Bankruptcy After Divorce – Why It’s a Bad Idea

When a couple divorces in Arizona, the community property is divided equitably. That means both assets and debts alike. “Equitably” does not necessarily mean “equally” and ultimately the court will make that determination or the parties will come to an agreement. Normally, however, both parties are responsible for a portion of the marital debt. So what happens when one of the parties files for Bankruptcy after the divorce? The effect of Bankruptcy after divorce is that the party filing the bankruptcy will discharge their portion of the debt onto the other party. Remember, it is community debt so both people are obligated to the creditors. In short, one party becomes solely responsible for all of the marital debt.  When that happens, the equity under the decree is destroyed. You may be thinking, well why wouldn’t the other party file for bankruptcy too? Most times, the other party does not qualify to file for bankruptcy because they earn more than what is allowed under a Chapter 7 bankruptcy. While one can discharge their obligations to creditors, they cannot discharge their obligations under a court order. According to Birt v. Birt, a case out of the Arizona Court of Appeals, the Superior court shall vacate portions of the decree and consider whether reallocating community property is appropriate in light of the changed circumstances due to one party discharging community debts through bankruptcy too soon after a divorce. In plain language, the parties can re-open the property division in their divorce decree when one party is substantially harmed by the other party’s bankruptcy. The good news is there is recourse through the courts, the bad news is reopening the property division is like going through another divorce. The time, expense of hiring counsel, rehashing old arguments and more. The risk then in re-opening the property division is that everything is revisited. This could end up being a negative if something had not been addressed in the original decree. For example, if one of the parties had a business that was not included in the original decree, you now are looking at including the value of that business. In order to properly place value on a business, one must hire a business valuator to do an analysis. The business valuator alone costs anywhere between $5,000 to $10,000. That does not include hiring the business valuator as an expert witness for trial. Another negative...
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Do I Really Need A Will? Horror Stories From The Grave.

We all hear people talk about estate plans and how everyone should have one drafted. But why is a will or a trust so important? Besides, who wants to think about the end of their life? Understandably the topic is a difficult one. But besides the normal warnings about how an estate plan can help you avoid family conflict, probate and estate taxes, I wanted to present a few real-life examples* to portray the sad and unfortunate circumstances that could have been avoided if a basic plan had been in place. A Stepchild’s Story: A client recently came to me asking what she could do to protect the estate of her stepmother who had recently passed away. The history was that her stepmother had raised her and been her mom for over 40 years. In turn, the client had cared for her mother during her the last ten years of her life when she was very ill. Now that her mom had passed, her stepsister, and blood daughter of her mother, had cut her off from family communications and any inheritance. This is the same stepsister who had refused to help her ailing mother in her last years and had all but disappeared from her mom’s life only reappearing when her mother had passed away. At first blush this seems simply cruel and human instincts suggests that there must be a legal remedy to aid in such a case. Especially considering this client had letters signed “mom,” she was listed as next of kin on hospital documents and there are over 40 years of evidence showing that there indeed was a parent/child relationship. Unfortunately, the opposite is true. In Arizona one must be a blood child or legally adopted to be considered an heir.  The only saving measure that could have secured this woman’s interest in her inheritance and protecting her mother’s estate from the stepsister is an estate plan. If the mother had even a simple will drafted that named her beloved child – who was never her child legally but who was her child in every sense of the word – her daughter would have avoided the harsh reality that she had zero options once her mother passed away. Now this poor woman has to grieve her mother’s passing and the fact that there is nothing she can do to protect her mother’s estate from a crooked...
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I Had A Trust Created, Now What?

You hired an attorney, went through the planning process, made those difficult decisions about who would be trusted and where your assets would go. Now that everything is signed and recorded you are all set right? Not quite.  Before placing that portfolio on the shelf, you still have one major task to complete. It may come as a surprise but most people do not realize that when you go to an attorney to have a trust created and the documents are executed, or signed, that isn’t the end. Creating a trust is a two-part process. The attorney’s job is to help plan, draft the documents, and ensure the execution is completed properly.  But unless you have hired an estate-planning attorney on an hourly basis, when you pay for a trust at a flat fee, the funding is left up to you. This should be discussed prior to drafting, but sometimes it comes as a surprise. Most attorneys will include instructions on how to fund the trust but when it comes down to the funding process, it is often overlooked. Disregarding the funding of the trust is detrimental to your estate plan because funding is what brings your trust to life. Without it, your Trust is no more useful than a basic will. The good news is – this is 100% preventable. The other good news is, your wishes are still documented. The problem is, when you pass away your successor trustee will have the task of probating your estate. That means gaining access to real property, bank accounts, retirement accounts and the like. This takes a lot of time, out of pocket expenses for your trustee to hire an attorney to settle your estate, and a court process that is a matter of public record.  Instead of the process being automatic, the process has become painstaking for your loved ones and your estate becomes open to litigation. I bet by now funding the trust is starting to sound pretty important. And it should because not only it is important but imperative. So what is funding the trust exactly? It is the process of effectively transferring your assets into the name of the trust.  Once you fund your trust, you will have the same flexibility to handle your assets the same as when they were owned in your name individually. The only difference will be that you will own your...
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What To Do When Someone Dies

Whether you know it is coming and are able to be present when your loved one passes, or whether you get a phone call in the middle of the night, the news of a loved one’s death leaves us feeling empty and everything seems to stop.  The last thing on your mind is a “to-do” list but in actuality there are many things that must be done when someone passes. Below is a list compiled to help you through this time.  The more planning you can do, the easier this process will be. At the end of the day, you want to keep yourself and your loved ones in a place where they can focus on the one who has passed and take the time needed to grieve. Right Away… 1.    Get a Legal Pronunciation of Death •    If your loved one is in the hospital or in hospice the nurse will do this. •    If your loved one passes at home or another location, you must call 911 and have the paramedics come. This is the time where you will want to show the Living Will and “do not resuscitate” (DNR) so they can make this pronunciation on the spot. If you do not have a DNR designation on a living will the emergency team will most likely still attempt resuscitation and will have to take the body to the hospital in order for a Doctor to make this determination. 2.    Make Arrangements for the Body to be Transported •    If no autopsy is needed, you will want to call the mortuary or crematorium. •    A licensed funeral director can help you either administer the plan that was set in place by the person prior to their passing, or help you transport the body, select a casket/urn/grave marker, arrange for burial, prepare an obituary, help contact the employer, insurance company and attorney, and offer grief support. 3.    Notify the Individual’s Doctor or County Coroner 4.    Notify Family and Friends •    This may be a very demanding job, it is suggested to split up this task and make personal phone calls. Finding out your best childhood girlfriend passed away suddenly on social media is not the way anyone wants to receive this information and certainly not the way the one who passed would want people to hear about their passing. 5.    Find Someone to Care for Children, Dependent’s or...
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Why would someone need an estate plan?

One thing in life is certain, death comes to us all. While none of us like to think about dying, the fact is that improper or no planning leads to family disputes, assets going into the wrong hands, long court litigations, large amounts of dollars in federal tax and not to mention all those fees spent on probate. Having an estate plan is the best way to ensure your wishes are adhered to, and the people in your life who you love are not only taken care of, but don’t end up turning on each other. Is money really the main concern? Absolutely not. Estate Planning is about preparing for your life and leaving your legacy. If you were in an accident and incapacitated, wouldn’t you feel better knowing you already elected a person to handle your medical decisions and that person knows your wishes? The same goes for your financial decisions. If you don’t choose, then the state will choose for you. We as consumers often hear about probate, but what does that mean? Probate is the court process of administering a deceased person’s estate. Because it is a court process, it is a matter of public record. Public record means anyone who wishes to look, has access to some of the most private information. For example, this is how creditors find the information they need to collect from estates. When you hear about families being left with nothing but debt – that is what they mean. Avoiding probate is the same as protecting your beneficiaries. What happens if you don’t have a will? If your estate is unprotected upon death, then the state in which you die determines how your estate is to be administered. It has to go somewhere right? The process is called “intestate succession.” And let me assure you, while the laws are written to protect, often times things happen under the state laws that we would never in a million years want to happen. When should someone consider having an estate plan drafted? There are 9 life events that trigger either the drafting of a plan or the reviewing of an existing plan. 1.    Marriage 2.    Re-Marriage 3.    Divorce 4.    The Birth of a Child 5.    The Death of a Beneficiary 6.    Illness or disability 7.    A substantial increase in assets or income 8.    Moving to another state 9.    Changes in state law...
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