The new tax law will affect people differently, depending on whether they’re paying or receiving alimony.
In divorce situations, one spouse or ex-spouse may become legally obligated to make payments to the other party. Because these payments are often substantial, locking in tax deductions for the payer has often been an important issue. Before the new Tax Cuts and Jobs Act (TCJA), payments that met the tax-law definition of alimony could always be deducted by the payer for federal income tax purposes. And recipients of alimony payments always had to report the payments as taxable income.
This old-law treatment continues for alimony payments made under pre-2019 divorce agreements. But for payments made under post-2018 agreements, things will change dramatically. Here’s the story.
TCJA eliminates deductions for alimony payments required by post-2018 divorce agreements
For payments required under divorce or separation instruments that are executed after Dec. 31, 2018, the new law eliminates the deduction for alimony payments. Recipients of affected alimony payments will no longer have to include them in taxable income.
This TCJA treatment of alimony payments will apply to payments that are required under divorce or separation instruments that are: (1) executed after Dec. 31, 2018 or (2) modified after that date if the modification specifically states that the TCJA treatment of alimony payments (not deductible by the payer and not taxable income for the recipient) now applies.
For individuals who must pay alimony, this change can be expensive — because the tax savings from being able to deduct alimony payments can be substantial.
No change in tax treatment for payments required by pre-2019 divorce agreements.
There’s no change in the federal income tax treatment of divorce-related payments that are required by divorce agreements that are executed before 2019. However, for these payments to qualify as deductible alimony, payers must still satisfy the time-honored list of specific tax-law requirements. If those requirements are met, alimony payments can be written off above-the-line on the payer’s federal income tax return. That means the payer does not have to itemize to benefit from the deduction. Payment recipients must include alimony payments that are required by divorce agreements executed before 2019 in their taxable income. So this is a continuation of business as usual.
When payments fail to meet the tax-law definition of alimony, they are generally treated as either child support payments or payments to divide the marital property. Such payments represent nondeductible personal expenses for the payer and tax-free money for the recipient.
Requirements for deductible alimony
Whether payments required by pre-2019 divorce agreements qualify as tax-deductible alimony or not is determined strictly by applying the applicable language in our beloved Internal Revenue Code and related regulations. In general, what the divorce decree says and what the divorcing couple might intend does not matter. For a particular payment required by a pre-2019 divorce agreement to qualify as deductible alimony, all the following requirements must be met.
1. Written Instrument Requirement
The payment must be made pursuant to a written divorce or separation instrument. This term includes divorce decrees, separate maintenance decrees, and separation instruments.
2. Payment Must Be to or on Behalf of Spouse or Ex-Spouse
To qualify as deductible alimony, a payment must be to or on behalf of a spouse or ex-spouse. Payments to third parties, such as attorneys and mortgage lenders, are permitted if they are made on behalf of a spouse or ex-spouse and pursuant to a divorce or separation agreement or at the written request of the spouse or ex-spouse.
3. Payment Cannot Be Stated to Not Be Alimony
The divorce or separation instrument cannot state that the payment in question is not alimony or effectively stipulate that it is not alimony because it is not deductible by the payer or not includable in the payee’s gross income.
4. Ex-Spouses Cannot Live in Same Household or File Jointly
After divorce or legal separation has occurred, the ex-spouses cannot live in the same household or file a joint return for payments to qualify as deductible alimony.
5. Cash or Cash Equivalent Requirement
To be deductible alimony, a payment must be made in cash or cash equivalent.
6. Cannot Be Child Support
To be deductible alimony, a payment cannot be classified as fixed or deemed child support under the alimony tax rules. The rules regarding what constitutes child support–especially what constitutes deemed child support–for this purpose are complicated and represent a nasty trap for unwary taxpayers. Contact a tax professional if your proposed divorce agreement includes payments that you intend to be alimony as well as payments that you intend to be child support.
7. Payee’s Social Security Number Requirement
For the payer to claim an alimony deduction for a payment, the payer’s return must include the payee’s Social Security number.
8. No Obligations for Payments to Continue after Recipient’s Death
The obligation to make payments (other than payments of delinquent amounts) must cease if the recipient party dies. If the divorce papers are unclear about whether or not payments must continue, applicable state law controls. If under state law, the payer must continue to make payments after the recipient’s death (to the recipient’s estate or beneficiaries), the payments cannot be deductible alimony. In other words, the payment obligation must cease if the recipient party dies in order for the payment to qualify as deductible alimony. Failing to meet this requirement for payments to cease if the recipient dies is the most common reason for lost alimony deductions.
If you are in divorce proceedings and want deductible alimony treatment for some or all of the payments that will be made to the other party, the TCJA gives you a huge incentive to get your divorce agreement wrapped up and signed by 12/31/18.
On the other hand, if you will be the recipient of payments, you have a big incentive to put off finalizing your agreement until next year, because the payments would be tax-free to you.
Either way, you should contact a tax pro with experience in divorce tax issues sooner rather than later to get the best tax results for yourself. Waiting too long could turn out to be an expensive mistake tax-wise, and you may have to live with that expensive mistake for years. Finally, be warned that many otherwise-competent divorce attorneys are not up to speed on the tax issues, and they may be reluctant to admit it. So don’t assume that your divorce attorney is ready, willing, and able to get you the best tax results. Some divorcing taxpayers will want to delay their divorces, while others will want to get it done as soon as possible
This is probably one of the most common mistakes in settlement agreements and even final judgments, since often times attorneys prepare the final judgment which the judge simply signs. It often erroneously states “retirement plan” without ever defining the type of plan(s) to be divided.
Retirement plans can be defined contribution plans, defined benefit plans or some type of hybrid. These plans are vastly different and have different implications when trying to divide them. In defined contribution plans, an employee and/or employer make contributions into an account maintained in the employee’s name. These plans have a known account balance at any given time, since the underlying account is nearly always invested in publicly traded securities. In a defined benefit plan, the employee accumulates credits towards their retirement based upon years of service to an employer, and often based on compensation earned.
Typically, when a settlement agreement says the parties will “divide a retirement plan” it can be interpreted that the non-employee is going to receive a lump sum amount. However, if the plan is a defined benefit plan, they may not be receiving any money until the working party retires. Further, they may never receive a lump sum – but rather a monthly benefit payment.
Knowing the plan type and the benefit that can be divided (a lump sum now, a lump sum later or a stream of income) can substantially affect how you may choose to negotiate a resolution.
* Include the plan type in your agreement if it is not part of the name of the plan.
* Describe in the agreement if the receiving party will get a lump sum now, a lump sum at a future date or payments over time and when those payments will begin and end.
EXAMPLE: The husband participates in the “ABC Company Pension Plan” which has a cash balance plan with a defined benefit component. If the parties desire to divide the cash balance equally and the defined benefit component based on the marital coverture, the language must be specific. In this case “divide the retirement plan equally” would not be an acceptable reference for the plan administrator to implement a QDRO.
While divorce rates hover around 50% for first time marriages (and higher than that for subsequent unions), the reasons for splitting up often center around finances. Disagreements over what to spend and how much to save are often blamed for the failure of a relationship.
But finances play another role in divorce, too, according to a recent report in Barron’s. A change in financial behavior might signal that divorce is on the horizon.
Things to look out for?
· Account statements, tax returns or other financial documents go missing.
· A spouse who has been hands’ off with finances suddenly taking an interest in household money management.
· One spouse suddenly acquiring new credit lines.
· Statements from unfamiliar financial institutions begin to arrive, or passwords to existing ones are suddenly changed.
· Changes in the contribution amounts to retirement accounts without explanation.
While these signs don’t always point to divorce on the horizon, they do at least merit a frank discussion between spouses.
Source: Has Your Spouse Changed Their Financial Habits? Divorce Might Be Next | Robert Hetsler,J.D. CPA,CVA,CFF,FCPA,MAFF,CMAP,PFP | Pulse | LinkedIn
The Divorce process is a stressful process that can easily bring out the worst in people. Some people even see divorce as a way to seek revenge on a spouse by seizing money and assets.
Although divorce can get you out of an unhappy marriage, it can also milk you for all you are worth if you don’t know your rights. Check out these 40 secrets from top divorce attorneys to help you protect your assets and stay on the winning side.
1. Don’t Let Emotions Lead Your Financial Decisions
People often want to take out their hurt feelings on their exes; however, it’s important not to let emotions interfere with the business at hand. In the long run, being spiteful could harm your own finances.
“Asking your lawyer to write a letter to your ex over who gets the $50 coffee table book is kind of nonsensical,” said Brendan Lyle, a former divorce attorney and CEO at BBL Churchill, a divorce finance firm. He went on to reveal that a short letter could cost you $500 in attorney fees.
2. Everything Is Divisible and Is Fair Game
Individuals often make the mistake of assuming that assets that are in their names can’t be claimed by spouses in a divorce. However, divorce experts caution that the opposite is true.
“Practically everything is divisible, including frequent flyer air miles or royalties from a book you wrote,” said Ann Narris, a Massachusetts attorney with the Narris Law Office & Family Mediation Partners.
Because the same holds true for liabilities like debt and credit cards, couples should be sure to consider all factors when doing their financial planning.
3. Make Big Purchases Before Filing for Divorce
Have a big purchase in mind, such as a new car?
“Most states issue automatic financial restraining orders prohibiting people from making big purchases or liquidating assets after the divorce is filed, absent a court order or an agreement,” said Narris.
In her practice, she advises those considering divorce to buy big items before filing.
4. Keep Track of Your Spouse’s Money
If you’re thinking of filing for divorce or legal separation, it’s a good idea to take a look at your spouse’s financial situation. According to Narris, spouses should start by tracking the partner’s new credit card and loan applications.
“People are more generous in their income reporting on credit or loan applications than they are in, say, their 1040,” said Narris, who went on to stress that loan applications could be crucial parts of a divorce discovery.
5. Gather Key Evidence Before Filing for Divorce
If you’re thinking of filing for divorce, it can be tough not to walk out the door when your spouse pushes your buttons. However, Narris recommended that individuals take time to collect evidence before a split. Along with taking pictures of assets, individuals should make copies of account statements and jot down any important numbers. Preparation is key if you hope to come out ahead in court.
6. Get Property Valued Before You Part Ways
When it comes to the divorce process, almost all property is fair game. However, spouses can’t hope to get their fair shares if they don’t know the value of assets.
“No sense in guessing on the worth of his baseball cards or your engagement ring — never mind a house or a business,” said Narris, who reminds couples that there are experts available who can appraise just about anything.
Doing your homework now is the best way to come out ahead down the line.
7. Don’t Hide Assets
You can try to deceive your spouse by hiding or concealing assets, but don’t forget that you’re also messing with the law. According to Narris, if what you’re hiding is discovered, you’ll lose your credibility in court. There could also be stiff penalties, including monetary sanctions. To protect yourself and your property during a divorce, it’s best to declare all assets upfront in the divorce process.
8. You Can Write Off Alimony Payments on Your Taxes
People who pay alimony are rarely grateful for the opportunity. Paying alimony can actually help you out come tax time, however. According to Narris, people who pay alimony to their exes can write it off as a tax deduction. On the other hand, those who receive alimony must report it as taxable income.
It’s important to note that alimony is different from child support, which is neither taxable nor deductible.
9. If Not Considered Alimony, the Income Is Not Taxable
If the transfer of money in a divorce is not considered alimony, the receiving spouse is in luck: These funds aren’t regarded as taxable income, according to Christian Denmon, founding partner of Denmon & Denmon, a personal injury, divorce and criminal defense law firm in Tampa, Fla.
Not so lucky is the payer, as there is no tax break for money transferred during the divorce process.
10. There Are Hidden Tax Implications to Watch Out For
During a divorce, it’s important to stay alert to hidden tax obligations.
“A husband might have purchased stock for $50 during the marriage,” said Denmon. “The stock has gone up in value so that at the time of the divorce, the husband ends up transferring $75 to the wife. If not otherwise addressed in the divorce settlement, the husband will be on the hook to pay taxes on the $25 gain on the stock.”
According to Denmon, spouses who are receiving real estate, stocks or bonds need to understand that taxable gains can leave them vulnerable.
11. Get Job Training or Update Your Education Before Filing
If you are currently being supported by your spouse, you might want to consider taking the time to dust off your resume and freshen up your skill set before seeking a divorce.
“Even if you receive support, the courts can impute income and expect you to be working if your kids are school aged and you are not of retirement age or disabled,” said Narris, who cautioned against “depend[ing] too much on a hopeful spousal support award.”
Updating your education now can help protect you later if things don’t go your way in court.
12. Familiarize Yourself With Your Finances Before You Split
Normally, one person in a household manages the finances. However, this arrangement can create a “power imbalance when it comes time to negotiate settlements,” according to Narris. So what can you do to protect yourself?
Seek professional help to guide you in making more informed decisions about finances being filing for divorce. Doing this will help you come out swinging when you get your day in court.
13. Consider Mediating Your Divorce
It’s no secret that divorce can be expensive. In fact, according to Narris, the average cost of legal fees in a divorce is $15,000. One way to cut down on these expenses is to use a mediator.
A mediator doesn’t work on behalf of any one party, just facilitates agreements. If you want to keep your divorce details behind closed doors while cutting costs, a mediator might be the best bet for both you and your bank account.
14. Know What Is Your Biggest Asset
According to Narris, many people mistakenly believe that their house is their biggest asset when it is actually a retirement or pension account. Even if your retirement account is less than robust now, the court will likely consider its future value when dividing assets.
“There are many ways to divide your portion of your spouse’s retirement asset (called a qualified domestic relations order) so give that due consideration,” said Narris.
15. If Your Lawyer Recommends a PI or Forensic Accountant, Hire One
Many individuals are hesitant to shell out for a private investigator or forensic accountant when going through a divorce, but sometimes, these professionals’ services are necessary.
According to Eva Cockerham, an attorney with Burke Jaskot law firm in Baltimore, “Private investigators are useful for investigating people who own small businesses, as independent data about numbers of customers, employees and resources can give a much fuller picture of a person’s true finances.”
Likewise, Cockerham noted that forensic accountants can give “insight as to whether a person going through a divorce is getting accurate information from their soon to be ex-spouse.” By spending a little now, you might be able to save yourself a bundle in the future.
16. The Most Expensive Lawyer Isn’t Always the Best
Pick your divorce lawyer wisely because your choice could save your bottom line.
“Find one that is experienced and knowledgeable but is also a good fit for you,” said Narris. “You have the power to set the tone for your divorce. The attorney should advise you but also respect your position on how to approach the negotiations.”
Just because an attorney has a high hourly rate doesn’t necessarily mean he or she will honor your wishes. For best results, go with your gut feeling.
17. Understand Debt Obligations
According to Heather Sunderman, a divorce attorney with Mirsky Policastri in the Washington, D.C. area, too many clients assume partners’ debts are joint when they’re not.
“Some states do not divide marital debt if it’s just in one person’s name, so if possible, during separation you may want to pay down that debt preferentially,” said Sunderman.
The last thing you want is to be on the hook for debts you didn’t accumulate.
18. Don’t Forget About Beneficiary Designations
Divorce attorneys note that many clients fail to remove former spouses from their beneficiary designations.
If you fail to remove these designations, “those amounts may end up being paid out to a former spouse,” said Sunderman. “Usually that’s not the result you want.”
For best results, handle beneficiary designations and other tedious paperwork as soon as possible.
19. Pay Court-Ordered Attorney Fees
Court-ordered attorney fees are no joke.
“The court can order one spouse to contribute to the other spouse’s attorney fees,” said Denmon, who went on to explain that this type of debt was treated in a special manner. When it comes to court-ordered attorney fees, the judge can throw the offending spouse in jail for failing to pay.
In light of these regulations, Denmon advises that spouses who are receiving financial help have language drafted into agreements clarifying how much money must be paid and by what date. Doing this gives spouses the ability “to enforce the agreement should the paying spouse fail to follow through with his agreement,” said Denmon.
20. Consider Your Income Before Asking for All the Deductible Items
Clients typically strive to get as much as possible in a divorce. However, according Russell Luna, a certified divorce financial analyst in Colorado, higher incomes can disqualify individuals from important tax deductions.
“If you file single and make more than $380,750, your personal exemption of $4,000 is not available,” said Luna.
In light of this fact, individuals might not want all the items they originally requested in a divorce. For best results, speak to a financial professional about your specific fiscal situation and options.
21. Take Advantage of Free Legal Advice
Most attorneys will offer free consultations, said Narris, who advises clients to “take advantage of that and get some basic information, see if the lawyer is the right fit.”
To ensure you make the right choice, be sure to consult with a few attorneys before coming to a hiring decision. After all, the outcome of your divorce depends in large part on the quality of your legal advice.
22. Be Mindful of the Date When Initiating Divorce
While you might be tempted to file as soon as possible, it’s important to note that property division is based on the date of marriage separation in some states. Typically, the court uses a formal date of separation (DOS) to determine property division and the value of certain assets.
“If you are expecting a large increase in the value of a major asset upon a certain occasion, be mindful of that when you decide to initiate the divorce,” said Narris.
23. Design a Joint Parenting Arrangement Wisely
Unlike claiming a child as a tax dependent, claiming head of household is not assignable, said Narris, who went on to explain that individuals either met the criteria or did not.
If you’re negotiating who will claim a child as a dependent, Narris said, “You can include a provision that the right to claim the child is dependent on the parent being up to date on their support obligation.”
24. Plan Finances for After the Divorce
Clients often neglect to consider how their financial planning can change after a divorce.
“Your risk aversion may be very different than your former spouse[‘s] and you do not need to keep the same investment trajectory you had before the divorce,” said Narris.
If you don’t know where to begin, you might want to hire a financial advisor. Remember to think long term when planning finances after divorce.
25. Have a Paper Trail
While most assets are divisible in divorce, there are some exceptions to the rule. Documents can help preserve what you believe to be separate property when it comes to divorce proceedings and should be collected beforehand.
“Too many times the necessary documents seem to disappear after a divorce starts, so to the highest degree possible, gather those documents before you start the divorce,” said Jeff Anderson, a Dallas family law attorney.
26. The Division of Property Can Be Complex
Dividing assets and properties isn’t always a simple numerical transaction.
“Negotiating the division of property is an art form all its own,” said Keith Nelson, a family law attorney with Orsinger, Nelson, Downing and Anderson, LLP in Dallas. “It’s a three-step process: Characterize the asset, value it, divide it.”
After the asset is identified as community property, separate property or both, figuring out the value can be tricky. “For instance, a bank account with cash in it is pretty easy to value — look at the balance,” said Nelson. “But a retirement account, a house or securities can have more complex issues.”
27. Retirement Accounts Are Not Worth the Statement Balance
Just as it can be difficult to value assets, couples often struggle to determine the true value of their retirement accounts. One reason that retirement accounts pose problems is that deferred tax will have to be paid at some point. In light of this fact, Nelson cautions clients that retirement accounts might be worth even less than the balance minus tax.
“If one of the parties will be liquidating a retirement account early, then the highest marginal tax rate and the early withdrawal penalty might need to be subtracted from the value of the account,” said Nelson, who went on to explain that the value of these assets is often drastically reduced as a result.
According to Nelson, “Even if the account is not going to be liquidated, the taxes which will be paid on the money at the time of retirement can be considered and a reduction of the overall value of the asset might [be], and very often is, appropriate.”
28. ‘Division of Property’ Depends on Where You Live
When a divorcing couple heads to court for a property dispute, state law is used to divide the property using one of two classifications: community property or equitable distribution. With community property, both spouses own income and assets equally, and items can be divided evenly. Additionally, individuals can keep separate property.
According to NOLO, a legal advice website, community property applies to the states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin as well as Puerto Rico. Every other state uses equitable distribution, which involves “fairly” divvying up assets and money accrued during marriage. Knowing the law of the land can help you avoid surprises during your divorce proceedings.
29. Some States Are Better for Getting a Divorce
According to the government research site InsideGov, the five states with the easiest and most lenient divorce laws are Alaska, South Dakota, Wyoming, Iowa and Washington. The ease of filing, fees and processing times are all considered as part of the rankings. If time and cost are of the essence, you might want to consider where you live before filing divorce papers.
30. Be Mindful of the Worst States for Divorce
Based off InsideGov’s data, the most difficult states to get a divorce include Arkansas, New Jersey, Rhode Island, South Carolina and Vermont. Arkansas takes the longest amount of time at 540 days. If you live in one of these states, you and your spouse might want to consider relocating to expedite the divorce process.
31. When in Doubt, Seek a Professional — Or It May Cost You
Todd Huettner, president of the residential and commercial real estate mortgage bank Huettner Capital and a financial analyst who has helped many individuals dealing with divorce, advises clients to seek professional help at all costs.
“A simple mistake that drops your credit score 40 points can cost you thousands on your next mortgage,” said Huettner. “Making a mistake separating accounts, renaming beneficiaries or not setting up life insurance properly can cost you hundreds of thousands and impact you for years.”
32. Make Sure You Actually Implement the Divorce
Despite their eagerness to be divorced, many people actually fail to complete all the steps needed to make their divorces legal, according to Huettner. For the best results, clients should make sure all their bases are covered and check up on spouses to ensure they have completed the necessary steps.
“You don’t want to find out that your ex-spouse never refinanced the house five years ago like he was supposed to and [it’s] now in foreclosure,” said Huettner. “By the time you find out about it, your credit will be destroyed for years.”
33. Compromise Could Help You
You win some, you lose some, right? Unfortunately, divorcing spouses often refrain from compromising out of spite.
While you might be tempted to fight every battle that comes your way, agreeing to compromises could save you a lot of headaches and money on legal fees when going through a divorce. As an added bonus, your decision to compromise could encourage your spouse to do the same.
34. Don’t Forget About Health Insurance
Although federal law might dictate that you have health insurance access under your former spouse, Narris cautions clients against relying on COBRA coverage long term due to the high cost.
Her advice: “Start doing legwork for available options that may be less expensive. Better yet, find a job for yourself that has benefits.”
35. Belts Are Always Tightened During a Divorce
While individuals tend to factor the price of getting divorced into their budgets, they don’t always consider other everyday expenses incurred during the process.
Narris recommends that clients carve out a little extra money to care for their personal needs during this difficult time. “Factor in a gym membership, therapy co-payments, massages,” said Narris. “You will want to be as healthy as you can to help your kids through the process, and you never know when you may have a bad day.”
36. Take Action but Be Wary
Savvy divorce attorneys advise their clients to be cautious when filing for divorce.
According to Luna, it’s important to make sure you have the current statement for your spouse’s brokerage account before announcing and filing for the divorce. After all, a deceitful spouse could very easily liquidate the account with no paper trail by neglecting to cash checks until later. The last thing you want is to find out your spouse set up a new account after the divorce settlement while leaving the current brokerage statement with a zero balance.
37. Avoid Underestimating Living Expenses
You need to know what your spouse earns monthly, as well as where the money goes. According to a Divorcenet.com article, when considering the cost of future living expenses, it’s important to take into account the effect of inflation.
Narris recommended keeping receipts so you have a good idea of what everything actually costs. Doing this will help you maintain quality of life after a divorce.
38. Don’t Let Emotions Get in the Way of Selling the Family Home
Whether you have an emotional attachment to your family home or are just being vindictive toward your former spouse, be sure you’re thinking wisely about your decisions with regard to shared property. You don’t want to discover later that you gave up other assets just to keep a home in which you can’t afford to live.
39. Know What You Value
When contemplating divorce, it’s important to consider what assets you value most and be prepared to let some things go.
“A major mistake in divorce that everyone can get trapped into is spending hundreds or thousands of dollars fighting for something that you don’t even want,” said Narris.
Take your time so you can make the most rational and intelligent decisions.
40. Dress Appropriately for Court
It might seem like a small matter, but buying nice clothes for court can boost one’s confidence.
“You will feel better and likely fair better with the judge,” said Narris.
Of course, clients should remember to keep it professional and avoid dressing in a manner that’s flashy or overly pompous. Play it safe by keeping clothing neutral and accessories to a minimum.
It’s important to remember that divorce law varies by state, and some of these tips might not be applicable in your region. Be sure to find a divorce attorney in your area to advise you on how to get a divorce. Doing this will help protect your assets and property while ensuring the divorce process goes as smoothly as it possibly can.
Divorce, by nature, isn’t easy. Luckily, there are some things you can do that will make the process just a little less difficult.
Below, divorce lawyers share their little-known tips.
1. Open a bank account in your own name.
“Couples who share a joint bank account should know that either one of them can drain the entire account under the banking laws. They will eventually have to pay their spouse their share, but it can take a while to get to that point in a case where a judge is ordering repayment. That’s why I advise everyone to have a separate bank account in their own name, even if the account is a secret. Chances are if the account has to be kept secret, you need it even more than you realize.”
2. If you plan on explaining your rationale for divorce in a letter to your spouse, have a lawyer approve it first.
“When you’re the one who wants the divorce, there is often a lot of guilt associated with that decision. Many people want to explain their decision to their spouse, and that often takes the form of a heartfelt letter. That’s a really decent thing to do, and it comes from the right place. The problem, however, is that in writing these types of letters, people tend to take more of the responsibility for the breakup to help soften the blow. Handing over a bunch of ‘it’s not you, it’s me’-type statements in written form is never a good idea. Letters like that can become ‘Exhibit A’ in your ex’s case against you.”
3. It’s always a good idea to get a second opinion.
“If you have any concerns at all about the advice you are getting, do not be afraid to get another opinion. Any good lawyer will be glad you are doing that and will accept any good suggestions a respected colleague may have. You only have one chance to handle your divorce well and you have a right to be confident in the advice you are receiving. And if the second opinion is that your case is being handled well, then the reassurance will be worth the consultation fee for that second opinion.”
4. Ask your lawyer to meet with your ex’s lawyer at the very beginning.
“A better practice is for lawyers to begin constructive communications right away. The vast majority of cases will settle, so begin the negotiation process now. Sometimes it is as simple as working together to lay out the rules of the road for the divorce process. Other times it is to solve little pesky problems that might blow up into big issues later. Sometimes the best thing your lawyer can do for you is to meet the other lawyer at the coffee house to explore win-win resolutions.”
5. Devote the time required to the divorce process.
“Going through a divorce is like having a second job. You are going to spend an enormous amount of energy gathering documents, meeting with professionals, figuring out your finances and separating your stuff. You are going to have to work to make sure that your kids are okay, and that their transition to a totally different life is as smooth as possible. If you understand this from the beginning and find a way to devote the time and energy to your divorce that it requires, your divorce will go more smoothly than if you resent everything about your divorce and drag your heels doing what you need to do to put your divorce behind you.”
6. If you plan on filing a motion with the court asking for relief, wait until you have multiple things to address before doing so.
“Judges get annoyed by parties who file a motion every other week for every little thing. You can ask for relief for more than one thing in a motion, so wait until you have a few items to address and then file. Also, don’t ask for 50 different things; focus on the major disputes so the court does the same.”
7. Know that the reasons for your divorce will likely have no impact on child custody proceedings.
“Custody in divorce is the most expensive to litigate and whether your partner cheated on you or gambled away your savings will probably have no impact on his or her ability to parent your kids.”
8. Pay attention to how you time your offer.
“Cases do not settle until both parties are ready to let go of the marriage. Therefore, the timing of your offer may be as important as the content. Do not make an offer too early to a party not ready to receive it. You will end up betting against yourself in the end.”
Try to simplify your divorce rather than make it a complicated divorce.
Are you going through a divorce? You should avoid these very common divorce mistakes which can have long-term effects on your family and financial future.
1. Getting legal advice from friends and family members
2. Interpreting what your divorce attorney tells you as a guarantee
3. Making threats to your spouse
4. Moving or hiding marital funds without the knowledge of your spouse
5. Speaking too soon or too openly to minor children about the separation and divorce
Mistake #1 Getting legal advice from friends and family members.
Although they may mean well and want the best for you, advice from friends or family is almost always wrong. They can sometimes unintentionally lead you down the wrong path by offering you advice that is uninformed or does not apply to your particular situation. Is the person you are talking to a practicing divorce lawyer or someone that is already on your side? You will often hear things like: “My friend got full custody of her children so you can too,” or “my cousin had a great attorney who got her 90% of the assets and alimony for the rest of her life, so you should be able to get the same thing.” Although this advice may sound good to you at first, you need to understand that there are no two divorce cases that are the same, so they cannot possibly be treated the same way by a court. There are many many factors that go into a court-ordered divorce settlement, such as:
1) The state law that applies to your particular set of facts;
2) The local court customs and practice in your particular county;
3) The effectiveness of your attorney, and:
4) Since judges are human, the mindset of the particular judge or even the mood they are in on a given day.
In actuality, going to court is often a “roll of the dice” in which you might spend a lot of money in legal fees, only to get an end result that is radically different than what you were expecting. Therefore, when approaching your divorce, you should seek out the advice of an experienced and competent attorney first who will help you to sort out all your rights and options while helping you to develop some realistic expectations up front.
Mistake #2 Interpreting what your divorce attorney tells you as a guarantee.
Getting the advice of a good experienced attorney you can trust and get along with is always a wise choice and a good place to start. A divorce attorney will attempt to gather all the relevant facts as well as financial and other important information about your marriage. The attorney will usually give you a general assessment of the type of settlement you can expect, with a general idea of the outcome. However, do not rely on an attorney’s preliminary impressions as a guarantee of the exact outcome you can expect in your case. Remember, an attorney’s advice will always be limited to what information you alone give them. That’s it. The attorney will not be aware of financial or other information your spouse may have in which you do not know. And that could drastically change the attorney’s analysis of your case. Moreover, because you may come to an attorney’s office feeling upset and angry at your spouse or otherwise emotionally distressed, you might have the tendency to hear only what you want to hear. This can cause you to firmly dig in your heels without any compromise going forward. This can be the most costly mistake you make which can both deplete your finances and harm your family emotionally for years to come. This is true, especially if your spouse is already in a position to discuss a compromise in order to avoid costly and emotionally draining litigation. Wait for a full analysis of all of the information that is relevant to your case and only then discuss what a realistic outcome may be.
Mistake #3 Making threats to your spouse.
Spouses commonly make empty threats and other nasty comments to one another.“I’ll get the meanest lawyer in town and destroy you,” or “After cheating on me, there is no way you will ever see your kids again, or “My lawyer said you’ll have to leave the home and pay me alimony for the rest of your life.” Such threats, although understandably borne out of anger, are really meaningless in the long run and have no effect either way on the outcome of your case. Remember that the way you act towards your spouse early on will not only set the tone for your entire divorce case, but also for years to come after it is all over. This, of course, becomes especially important if you have children to co-parent which you will be difficult to do in a way that is healthy for them if you carry hatred and resentment towards your spouse into your post-divorce lives. Believe me, no matter how old your children are they will feel the hatred you have for one another even if you don’t argue in front of them. Your children will greatly benefit if they see you and your spouse trying to “get along.”
Always take the high road in approaching your divorce. You don’t necessarily have to be best friends with your spouse through all this, just be willing to make an effort to communicate, cooperate and compromise with him or her as best you can, especially when children are involved. Assure your spouse that you are not out to hurt him/her or the kids (if kids are involved), and that you have good faith intentions of reaching an amicable settlement as soon as is possible. Just because your spouse may act like a jerk does not mean you are not a jerk if you respond in the same way. Bad behavior does not justify bad behavior.
Your goal should be to achieve the best overall outcome you can. Trying to “get even” with your spouse and arguing at every opportunity rarely ends up with your spouse giving in to your demands or suddenly admitting that they are wrong and you are right. Keep in mind, the court doesn’t care who is the “bad” person or who is at fault. There are no winners here and the court never declares to the world that it is all your spouses’ fault and you are the victim. You should not argue over petty things simply because you are hurt or angry. Is arguing over your old furniture or fighting to get an extra hour with your kids worth it? Often this only leads to your spouse reacting by being just as stubborn. You have to choose what is important and let go of what is not. There is a middle ground between being a push-over and demanding that you get everything you want. Compromise, you will feel better about yourself and hopefully your spouse will respond positively.
Mistake #4 Moving or hiding marital funds without the knowledge of your spouse.
Trying to hide assets so that they are not part of your divorce is a big mistake. One big way to break any trust that exists is for one or both spouses to act underhandedly, especially with the marital finances. When a spouse decides they want a divorce, they will sometimes try to secretly transfer funds from a joint account into their own account or into someone a friend or family member’s account or even make significant withdrawals of cash from a joint account. When clients are asked why they do this, they typically say they feel threatened and need to act quickly in order to protect what is theirs or make up some other excuse. Although it is understandable that such activity could occur in the heat of the moment when a spouse may perceive a sense of urgency and desperation for it, if these are marital funds that are being moved in and out of accounts, this activity will immediately be uncovered through the initial steps of the discovery process. This means generally that if marital monies were withdrawn from marital accounts, this will eventually come to light and they will have to be returned to the marital estate. If a spouse has since spent the funds away, they will be ultimately accountable for them as part of the divorce settlement. Therefore, if you and your spouse are contemplating a divorce, and you feel the need to move any funds from an existing marital account or redirect marital funds away from a marital account, discuss your intentions with your attorney and/or spouse first and make sure there is a good reason for doing this, and one that also makes sense to your spouse. This open disclosure early on help save you money in attorney’s fees in the long run and avoid the judge thinking that you are cheating or lying.
Pitfall #5 Speaking Too Soon or Too Openly to Minor Children about the Separation and Divorce.
Discussing your separation or divorce plans with your children is a very sensitive subject which must be approached very delicately. Without realizing it, many times people who decide to separate or divorce will use their children to vent all the frustration and confusion they are feeling at the moment. This is the worst thing you can do to your children during this time and can have very bad long-term effects on their emotional well-being. If you need to vent, find a friend, family member or therapist. Although your own feelings and emotional well-being are important in a divorce, a healthy divorce means considering what’s best for your children first. Therefore, if you are getting a separation or divorce, try to make every effort to go about your business as quietly as possible without involving your children in any particular facts or even worse, trying to get them to pick sides. This is not to say that children should be completely left in the dark either. Sooner or later, you will have to face these issues with them directly so that they can begin to emotionally prepare for what will be a very different life involving two separate households. Figuring out the ideal time and also the appropriate things to say to children is key. Planning with your spouse in advance how to approach this, and also approaching the children together is the best way. Family therapy with a licensed family therapist can also be very effective when working through these issues together as a family. Believe it or not, a large majority of divorcing parents can amicably work out a compromise regarding child custody issues without legal assistance and only 6- 20% of all divorce cases involving children actually need the courts to intervene. Therefore, the odds are in your favor that your custody matter can be resolved amicably without court involvement if both parents are willing to work together and do what’s best for the children.
Divorce is an ongoing reality in our society. No longer will the exception, at least one in every two marriages end through a divorce. And yet, despite this fact, we have been slow to adapt procedures that allow a marriage to end civilly, creatively, fairly and in these tough economic times, with the minimum of expense. For the most part, divorce is still framed as an adversarial battle that is characterized by accusations, blame, unproductive argument, high costs, and weak solutions that ignore the best interests of the children.
There are plenty of attorneys waiting for you to show up angry, indignant, hurt, and vengeful. They are happy to stand up to make futile motions to court, beating their chest, but only as long as there is money in the estate. The number of divorce cases that start out with an attorney, but end without is an embarrassment. The number one reason-there was no more money!
It doesn’t have to be this way. In truth, we have already evolved better ways to end a marriage, ways that are kinder, gentler, and when there are children involved, to deal with the reality that what is actually taking place is a reorganization of the family, rather than an ending.
What follows is a list of ten ideas that are worth considering as you seek to cope with the divorce experience:
1. Seek to collaborate, not to fight: The research from the field of negotiation is clear. We get better deals when we seek to work jointly at the challenge on hand, both in regard to those issues where the best interests of the children are at stake, but also when it’s all about the money.
2. Keep your eye on the ball, start with the end in mind: The purpose of the process is not to exact revenge, but rather to work out a fair solution that makes sense for your family. The end product is your marital settlement agreement. It documents your plan of action for your ongoing care of your children, the division of your estate, and also addresses whether and to what extent there will be any spousal support. It is this document that allows the court to essentially rubber stamp your process.
3. Prepare! Getting a divorce takes an effort. You will have homework to do! Both parties must make full disclosure of all assets and liabilities. Only you have the information. The sooner you share it the quicker the process will be.
4. Manage your Emotions Wisely! Not only is it important to have your financial information organized, but also that you take time to manage your feelings. Inevitably, divorces surface strong emotions, like anger, disappointment, shame, fear and jealousy to name a few. There will be opportunities to share how you feelings which will help you in coping with divorce. If you can dissipate your negative emotional energy before the meetings it will help.
5. Listen To Understand: As hard as it may be to listen attentively to what your partner is saying, it will pay dividends. You will have the benefit of understanding where they are coming from and what is important to them. Too often we can only hear the voices in our own head and tune the other out. Mediation works best when both parties communicate effectively, and listening is a vital part of that.
6. Focus on your needs: In conflict it is natural to identify a solution that we feel is fair and to demand its application. The danger with this approach is that it fosters defensiveness and conflict escalation. The mediation process works best when we articulate and focus on our needs, and then together search for the most creative solution with the resources available.
7. Explore Standards of Fairness: The law is one standard. If you don’t work things out and still want to divorce, a judge will apply the law to the facts of your case. How you feel or what your personal standards of fairness look like, will not come into play. However, in mediation, you can establish your own criteria for fairness, and use those family inspired yardsticks to address the more tricky issues that leave you feeling hopeless.
8. Consider the need to apologize: When your kids throws a ball through your neighbors window you don’t tell them to run inside and hide. You send them over to apologize and to make reparations. When our actions cause pain to another, the right thing to do is to say you are sorry. When we are conciliatory with one another in this manner, we set the stage for reconciliation, a vital outcome for the ongoing, but reorganized family.
9. Consider Forgiveness: Forgiveness is something we do for ourselves. It empowers us to move on with our lives without challenging the past to be anything other than the way it was. To forgive does not mean we condone, but it does signal an intention to let go of the pain.
10. Be Creative: As humans facing a challenge, we are only limited by our own creativity. Your challenge is to think outside the box and find a unique solution that addresses the reality of a reorganized family. Mediation is a family friendly process that allows you to focus on what you need to do to make your divorce a reality. It represents a new way of doing things. A way that most agree is good common sense. Following the suggestions contained in this brief article will help you get through your divorce with the least pain possible and with the greatest potential for a marital settlement agreement that is fair to both.
One of the unfortunate realities in many divorces is that one spouse will attempt to hide assets from the other to avoid having to divide them down the road. This is particularly problematic for the “non-financial” spouse – the one who took a hands-off approach to involvement with the couple’s finances during the marriage.
These non-financial spouses usually will not understand or have immediate access to records or documents related to marital property like investment accounts, real estate holdings, business interests and the like. Not having any information on marital assets can make it very challenging to ensure that the non-financial spouse receives a fair share of the marital estate.
If you are a non-financial spouse facing a divorce, your first priority should be identifying and locating documents related to all marital assets. While sometimes you can get this by simply asking your spouse, usually the spouse intent on hiding assets will delay or refuse outright.
In these cases, you or your attorney will need to rely on the legal process to obtain financial information from the unwilling spouse. In legal jargon this is referred to as the “discovery process” and can become a complicated and costly affair. However, it is one of the most effective ways to compel an unwilling spouse to turn over financial records.
Even after you receive the requested information, another problematic situation arises when the unwilling spouse has an ownership interest in a privately held business. In these cases, you will usually need the help of a forensic accountant to study the financial statements and records of the company to determine an appropriate value for the business and identify any unusual transactions that suggest assets are being hidden.
For any non-financial spouse experiencing the issue of hidden assets in a divorce, it is important to seek out the advice of an experienced divorce attorney or forensic accountant who can provide advice on the best course of action, depending on your circumstances.
Did you know that, in America, there is one divorce about every 36 seconds? That’s nearly 2,400 divorces per day, 16,800 divorces per week and 876,000 divorces per year.
With tax season upon us, that means approximately 876,000 people are newly navigating the realm of post-divorce taxes. Taxes are complicated enough as it is, but when you add in assets, dependents, alimony, child support and other freshly split obligations, filing can be downright daunting.
Here, the five most important things to keep in mind when facing this new challenge.
1. Marital status is set as of Dec. 31, not April 15
If your divorce was finalized after Jan. 1 but before you filed your taxes, you are still officially married as far as your 2014 taxes are concerned. In other words, your marital status as of Dec. 31 determines your filing status for that entire calendar year.
Although you cannot file jointly, you may be able to file as a head of household, depending on particular qualifiers such as length of cohabitation, cost of home upkeep, et cetera.
2. Home is where the taxes are
Upside: You don’t have to pay taxes on transferred property in a divorce, and if you’re retaining the residence, you can claim the mortgage interest deduction.
Downside: Now that you’re single, capital gains exclusion laws work less to your advantage. As a result, if you eventually decide to sell your home, your profit from the sale may be significantly reduced.
3. Alimony is tax deductible, with some caveats
In most cases, alimony is tax deductible for the party paying it; in fact, it’s an above-the-line deduction, meaning it does not need to be represented as an itemized claim. However, a few conditions should be kept in mind:
Alimony payments made while both parents of the child are still living together are not tax deductible.
While cash, checks and money orders meet alimony standards, property contributions do not.
4. Custodians clean up on tax returns
Modern custodial agreements rarely designate a sole custodian, which makes taxes a little more difficult. Typically, the custodial parent is considered, by default, the parent who has physical custody for most of the year. However, many couples now alternate who claims custody each year in order to share the tax benefit.
Also, keep in mind that child support is always tax-neutral, which means that even if you’re paying it, it is not tax deductible in any way.
There’s one little loophole, however. If you continue to pay a child’s medical bills, even without custody, those costs can be included as a medical expense deduction.
5. Be careful with your 401(k)
Your retirement should be handled with the same care it took to earn it. Cashing out a 401(k) to use in a settlement is subject to taxes; however, this tax trap can be avoided if the transfer is done under a qualified domestic relations order, or QDRO. A QDRO grants your ex-spouse the right to the funds without the imposition of taxes.
As always, if you have any doubts about how to file your taxes due to a divorce, contact your attorney and your accountant. They are best qualified to give advice for your unique situation.
Tips for Financial Security After Divorce Settlement
Meet with an Lawyer
Even if you’re hoping for a simple divorce, you can still benefit significantly from consulting an attorney who specializes in divorce law. A lawyer can be objective, advising you of your rights, obligations and options and walking you through issues surrounding alimony, child custody and a divorce settlement. During this emotional period, an attorney will be able to help you focus on critical details regarding your divorce finances.
Estimate what you and your spouse are worth
The court may require a list of all marital assets and liabilities you and your spouse have jointly and separately. You should:
List all financial accounts and assets the two of you have, either individually or jointly. That includes stocks, bonds, real estate, mutual funds and workplace retirement plans.
Do an inventory of household possessions, including vehicles, appliances, electronic equipment and furniture.
Once you’ve accounted for all assets, list each of them under one of three categories:
1. Your pre-marital assets (things you brought into the marriage). 2. Your spouse’s belongings. 3. Marital property, or property acquired during the marriage.
The court will decide how to “equitably” divide marital property. Pennsylvania laws does not automatically define “equitably” as “equally.” The court and applicable law will also determine the ownership and division of all property and the responsibility for debt incurred during the marriage.
Itemize your liabilities — debts like mortgages, home equity loans, car loans, credit card balances, etc. Essentially anything else you and your spouse owe money for. List liabilities as yours, your spouse’s, or joint.
As an aside, if your marriage is in trouble, from this point on, it might be a good idea to postpone new and large purchases as well as the assumption of any new debt.
Review your Income and cash flow
After divorce, you’ll be a single person and maybe even a single parent. Financially, things will be much different from the way they’ve been, so it’s important to estimate your cash flow after the divorce, so you can plan for your new financial reality. You should also try to forecast future income to enable the court to determine child custody and alimony payments.
Give serious thought to creating a post-divorce budget as a tool for managing your money going forward. A budget can help you determine how you will need to scale back your lifestyle.
A budget can also help you focus on the income side of your cash flow. For example, you might realize that after the divorce, you will need to find a higher-paying job, or go to work if you’re not currently employed. You may even decide to go back to school as a way of enhancing your future income potential.
Review your insurance
Make sure you will have adequate health, disability, and life insurance coverage after a divorce. If you’re currently covered by your spouse’s employer-provided health plan, you can usually keep existing coverage for at least 36 months after a divorce under the Consolidated Omnibus Reconciliation Act (COBRA). You will have to pay premiums for COBRA coverage, and the premiums will probably be much more expensive, so you need to account for them in your post-divorce budget.
If you’re employed but don’t currently use your own employer-sponsored health plan, consider signing up for it. A group policy at work is typically much cheaper than an individual policy purchased on your own. Employers typically do not permit you to sign up for health insurance mid-year, but if you’ve experienced a major life event like a divorce, it may be possible.
After a divorce settlement, remember to review and, if necessary, change beneficiary designations on your life insurance policies and retirement/investment accounts, as permitted by court order. Definitely discuss your situation with a financial advisor
Your attorney may be able to provide limited guidance on financial issues. However, for broader assistance with the financial aspects of a divorce settlement, consider consulting with a financial advisor. He or she will also be able to guide you through longer-term financial planning, which might address issues like debt reduction, education funding, retirement planning and estate planning.
There are three primary steps to dividing a 401(k) in divorce: the divorce decree actually orders the division, those details are outline in a qualified domestic relations order (QDRO), and finally the plan must be approved by the judge and the plan administrator.
Preparing a QDRO is a complicated and technical task. In addition to domestic relations law, you must be familiar with the many federal laws that relate to these documents.
Obtaining life insurance can become a very important part of your divorce settlement. Life insurance for intact family situations generally involves the husband and wife obtaining life insurance coverage listing their spouse and their children as beneficiaries on the policy. The surviving spouse receives the death benefit when the other spouse passes away and the insured party will receive peace of mind in knowing their family is taken care of when they are gone.
The need for life insurance changes when you are getting divorced. In many cases part of the divorce is granting alimony and child support to the spouse who is financially dependent. Alimony payments are designed to help the dependent spouse maintain the lifestyle they have grown accustomed to. Child support is designed to help cover child care costs and all other expenses that are associated with being a full-time parent. What happens if the spouse who is paying alimony or child support dies. Support payments end at the death of the paying parent and you cannot sue his/her estate for child support. You will end up with a financial hardship if your ex did not carry life insurance.
When representing our clients, we often request that the other party be ordered to carry life insurance for some period of time. There’s no hard and fast rule on when a court will grant that request. There is no law that specifically covers this question. However, factors the court will consider in making its decision include the support recipient’s age, education, work experience, and employment prospects. The court will also consider the duration of your marriage—i.e., a life insurance requirement is less likely after a five-year marriage than after a thirty-year one.
Usually, when maintaining a life insurance policy is agreed upon or ordered by the court, it is for a term life insurance policy. Term life insurance is a product that has level premiums and death benefit for a specified period of time. For example the term of the policy may be until the children turn 18 or graduate college or until a spouse is eligible for social security benefits.
You must make sure that your spouse is actually making the premium payments. You either need to check with the insurance company or have your spouse make the payments to you and you can make sure the premium is paid.
You may already have life insurance policies in place and these can simply be maintained. In other cases new policies must be put in place.
In many cases a spouse doesn’t want a lump sum of money going directly to their ex should they die. In these cases you may want a policy that will simply make monthly payments to the surviving spouse in exactly the same manner as he made those monthly payments during his lifetime. Of course, they would be guaranteed by a life insurance company so they would come on time every month. There would be no concern on the part of the husband of an unintended windfall, nor would there be any concern of a shortfall on the part of the wife.
In situations where the insurance is for the benefit of the children, a third-party can be named a trustee, thereby making sure that the money is spent only for the benefit of the children.
If you are facing issues regarding life insurance and divorce and require a Pittsburgh Pennsylvania area divorce lawyer please contact our firm.
The Servicemember’s Civil Relief Act (SCRA) expanded and improved the former Soldiers’ and Sailors’ Civil Relief Act (SSCRA). The SCRA provides a wide range of protections for individuals entering, called to active duty in the military, or deployed servicemembers. It is intended to postpone or suspend certain civil obligations to enable service members to devote full attention to duty and relieve stress on the family members of those deployed servicemembers. A few examples of such obligations you may be protected against are:
Outstanding credit card debt
Terminations of lease.
In addition the law:
Expands current law that protects servicemembers and their families from eviction from housing while on active duty due to nonpayment of rents that are $3,451.20 per month or less for 2016, this amount changes every year.
Provides a servicemember who receives permanent change of station orders or who is deployed to a new location for 90 days or more the right to terminate a housing lease.
Clarifies and restates existing law that limits to 6 percent interest on credit obligations incurred prior to military service or activation, including credit card debt, for active duty servicemembers. The SCRA unambiguously states that no interest above 6 percent can accrue for credit obligations (that were established prior to active duty or activation) while on active duty, nor can that excess interest become due once the servicemember leaves active duty – instead that portion above 6 percent is permanently forgiven. Furthermore, the monthly payment must be reduced by the amount of interest saved during the covered period.Note: This law only covers debt incurred prior to military service.
Allows you to terminate a cell phone contract if you relocate for at least 90 days to a location that does not support your cell phone service.
Allows you to terminate a vehicle lease you signed prior to joining the armed forces if you enter military service under a call to duty on orders of 180 days or more. You may also terminate a vehicle lease if you receive PCS orders to an OCONUS location or deploy OCONUS for at least 180 days.
The SCRA covers all Active Duty servicemembers, Reservists and the members of the National Guard while on active duty. The protection begins on the date of entering active duty and generally terminates within 30 to 90 days after the date of discharge from active duty.