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Bankruptcy & Divorce, which first?

Bankruptcy and Divorce

Lets take the following hypothetical situation:

Ryan and Lauren are married but soon to be divorced.  Ryan is planning on moving from the marital residence in Miamisburg, Ohio, to Tennessee with his new girlfriend Jennifer.  Lauren has already moved to Kettering, Ohio.  Can they file a joint bankruptcy together in Dayton?  Would it be better to wait and file their bankruptcy after the divorce is final?

Divorces breed bankruptcies.  During the marriage there was one household with one set of expenses.  Once one spouse moves out, there become two households and two sets of expenses, and divorce litigation can be very costly.  Filing bankruptcy is often the only solution for people getting divorced.  But how does separation and divorce affect a Chapter 7 bankruptcy or a Chapter 13 bankruptcy?

Ryan and Lauren can file a joint petition at any time during their marriage, even if they are maintaining separate residences.  Filing joint bankruptcy is cheaper because saves the additional filing fee.  However, most bankruptcy attorneys will not advise filing a Chapter 13 bankruptcy in anticipation of a divorce.  Chapter 13 bankruptcies require that the debtors make monthly payments for 36 or 60 months.  This is impractical to do if the individuals involved will no longer be married.

The timing of the two separate cases in Ohio is also important.  Filing either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy will stall any existing divorce proceedings.  The bankruptcy court issues what is called an Automatic Stay at the beginning of the bankruptcy that prohibits anyone from taking action on any debts.  Therefore, the divorce court cannot divide the debts of the spouses until the divorce case is final or a Relief From Stay is obtained from the bankruptcy court.  It is often considered preferable to file the joint Chapter 7 bankruptcy a couple of weeks before filing the divorce case, as the Chapter 7 bankruptcy does not generally take as long as a contested divorce.

A skilled bankruptcy attorney will be able to answer all of your questions about filing bankruptcy in the context of a divorce or separation.  Many Dayton-Springfield area attorneys offer free bankruptcy consultation.

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Social Security Disability benefit overpayments can be discharged in personal bankruptcy

Social Security Disability benefit overpayments discharged in personal bankruptcy

Many of our clients are currently receiving benefits from the Social Security Administration because they are permanently disabled.  So, what if  Social Security attorney, John T. Nicholson in Centerville, Ohio, won your Social Security Appeal in downtown Dayton, Ohio, and you got more money than you should have?  That is called an overpayment, and the government may attempt to collect it.

Filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy will discharge your obligation to repay the government.  The overpayment is treated the same as all other general unsecured debts.

There are some exceptions.  You cannot discharge an obligation to repay fraudulently obtained benefits.

This is the same rule with most forms of government benefit overpayments, like Workers’ Compensation benefits (a.k.a. Workers Comp).  If there was no fraud in obtaining the benefits, then you can file personal bankruptcy to discharge your obligation to repay the overpayment.

Call today for a free consultation (937) 432 – 9775.

 

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Dividing Pension & Retirement Benefits in Ohio Divorce – Part 1

dividing_retirement

In the first installment of what is planned to be a series on dividing retirement / pension benefits during a divorce settlement, we look briefly at the common questions of dividing retirement and pension plans between spouses.  The parties’ retirement benefits is an important consideration when equitably dividing marital property, because, like the marital residence, retirement benefits are often the largest asset or assets of the parties. Therefore, dividing these plans or funds becomes enormously important.  So, let’s now address some common questions.

Is my retirement / pension considered marital property?

As the intro gave away: yes.  Just as with any other asset of value that is acquired during the marriage, generally, retirement benefits accrued during the marriage are considered to be  “marital assets” and must be divided equally between the parties.  If a spouse is working during the marriage and this results in the accrual of retirement benefits, the law sees it as if the non-working spouse contributed equally to the creation of those benefits.

This frequently makes it difficult for a court to carry out its statutory mandate of dividing all marital property equally.  Technically, the non-working spouse is entitled to at least a portion of the employed-spouse’s pension fund (as marital property), but the money may not be easily accessible at the time of divorce.  Because courts like to maximize the value of all retirement and pension funds, it is normally preferable to avoid causing the withdrawal of the accrued monies, and leave the fund growing in the name of the working spouse.   Fees, penalties and taxes can often destroy a pension that is withdrawn when it is not fully matured.  But, the problem is that sometimes there simply isn’t other marital property to award to the other (non-earning) spouse at the time of the divorce that will adequately compensate that spouse for his or her rightful portion of a retirement fund.  For this reason, valuing and dividing retirement benefits should be one of the first issues contemplated by a divorcing party.

Is it true that my spouse is entitled to half of my pension?

No. Not always.  Only the portion of the retirement fund that was contributed to or earned during the marriage is considered “marital property” and subject to division between the parties.  The portion of the retirement fund that was earned by the working spouse while unmarried is considered that party’s separate property and the other spouse has no interest in that money. Therefore, the first step is to determine what portion of the retirement fund is marital and what portion is separate property.

How do you value the portion of the retirement fund that is considered “marital”?

In determining the portion of a pension or retirement plan that is considered a “marital asset” and subject to division between the parties, the court should calculate the ratio of the number of years the employed-spouse worked during the marriage to the total number of years he or she worked at the qualifying employment to earn the pension.  Only the portion of the pension that was earned during the marriage is a marital asset, and the spouse of the employee is only entitled to a proportionate share of the marital asset.

Example – Employed spouse works 25 years to earn a vested pension of $100,000.  10 of these years were worked during the marriage. This equates to a 40% ratio, and only $40,000 of the pension is a martial asset. Because the division of marital property always begins with an equal division, the non-employed spouse would typically be entitled to $20,000 in this scenario.

Now, assuming the court doesn’t want to destroy the fund if it would be better for the employed spouse to contribute for 30 years, you see where it could be difficult to off-set this amount with other marital property? How many couples have $20,000 (in liquid form, moreover) lying around to award the other spouse his or her fair share of this fund at the point of divorce?

Are Social Security Benefits Divided?

No.  Not directly, anyway. Social security retirement benefits are not considered marital assets to be divided when a couple divorces.  A court cannot distribute a portion of one spouse’s SS benefits to the other spouse directly.  However, the court does consider the SS benefits when making an equitable division of retirement benefits overall – See Smith v. Smith (1993, Franklin Co) 632 N.E.2d 555 (“while not divisible as a marital asset, SS benefits must be considered when equitably dividing pension benefits”).

Are State and federal retirement plans treated differently?

Yes. The law related to state and federal retirement plans will be the subject of a later post.  There are specific rules that govern certain public-forms of pensions, such as military pensions, State pension plans (e.g., PERS) and deferred compensation plans.  Those forms of retirement benefits are impacted by specific federal and state statutes that must be consulted where applicable.

Brought to you by the Miami Valley Ohio law offices of Morrison & Nicholson.  Call today to schedule a consultation (937) 432 – 9775.

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Can the Child choose which Parent they want to live with in Ohio?

It is one of the most common myths that people maintain when it comes to child custody: Once a child reaches a certain age, that child can choose which parent to live with, right? Well, that is actually incorrect. However, this myth is based in history and actually grounded is truth. Under former Ohio law, once a child attained the age of 12 years old,child_support_ohio_termination that child had the power to choose which parent was to be deemed the residential parent and legal custodian of that child. However, under current Ohio law, minor children no longer have the ability to choose which parent they want to live with on a permanent basis. In other words, when the Court issues its final divorce decree which, among other things, allocates parental rights and responsibilities, it is not the child that determines which parent is to be the residential parent, even if that child is a teenager. Ohio law treats a 14 year old in the same manner as a 4 year old when it comes to determining which parent with be designated as the residential parent. And, like almost all issues involving minor children, the determination is guided by what is in the “best interest of the child”.

So, divorcing parents, remember that your child will not be choosing for or against you when it comes to custody issues. Rather, the Court will decide and you need to focus your energy on convincing the Court that it would be in the best interest of the child to live with you … do not work on convincing the child that he or she should choose you. Which, in truth, is not fair to the child anyway.

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Bankruptcy and the Required Credit Counseling and Debtors’ Education Courses

Bankruptcy and the Required Credit Counseling and Debtors’ Education Courses

All bankruptcies are governed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The law requires that every person who files for bankruptcy undergo mandatory credit counseling at least 180 days before they can officially file. The credit counseling must be conducted by an organization approved by the government. Besides the credit counseling, those who file for bankruptcy also need to complete a debtors’ education course before the government will officially discharge their debts.

The U.S. Trustee program is the government agency that approves the organizations that provide the mandatory credit counseling and provide the debtors’ education program. If the group’s name appears on the U.S. Trustee program’s list of approved credit counselors and educators, then they are an acceptable option, if not, then don’t waste your time or money.

Each of these programs follows a specific timeline. The credit counseling course must happen before the debtor files for bankruptcy and the debtors’ education course must take place after the debtor has filed the initial claim. When the debtor files for bankruptcy, he must include in the already mountainous pile of paperwork a certificate of completion for the credit-counseling course. The debtor must also submit evidence that he or she has completed the debtors’ education program before the debts can finally be discharged.

The credit counseling session is meant to involve a thorough examination of the debtor’s complete financial life. The credit counselor is supposed to provide the debtor with some alternatives to bankruptcy and also give the debtor an opportunity to learn how to develop a better personal budgeting system. If the debtor cannot afford the counseling session, the credit counseling organization is required to offer the counseling free of charge. The debtor is responsible for telling the organization that he or she cannot afford to pay the fee before the session begins and will then receive a fee waiver from the organization. If the debtor is able to pay for the session, the charge could be as much as $50 dollars.

Once the debtor has completed the required credit-counseling course and has received the certificate of completion, he can then submit the certificate of completion along with the bankruptcy petition and move the process one step closer to being done. The next step is to complete the debtors’ education course. This course includes instructions for the debtor on how to develop a better budget, how to use credit wisely and how to manage money effectively. There is also a fee associated with this course, but just like the credit counseling sessions, if the debtor cannot afford the fee the education provider should waive it.

 

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