FICO and Divorce

How a divorce can trash your credit score and what to do about it…

A divorce can provide many opportunities for credit destruction. The mere act of setting up two households can place a huge strain on finances not to mention extortionate levels of child support or alimony ordered by the court (I was ordered to pay 90% of my income in “temporary” support orders). 

On the other hand, there are also vindictive attacks on your credit. In Nevada, your assets and liabilities remain community property until the divorce decree is signed by the judge. Thus, your soon-to-be-ex wife can rack up debts, clear out bank accounts, and not pay bills – damaging the credit of both of you. Nevada has a provision for a “joint preliminary injunction” that orders both parties to not accrue debt. However, these orders can and do get violated all the time. 

My ex-wife has also used a creative ploy of not paying the co-pays for medical visits involving my children. The bills get sent to her address but I am the ‘guarantor’ on the health insurance policy. So when the bill goes to collections, the collection agency holds me responsible for the unpaid $15 bill that I have never seen. Two of these collections in the last six months have seen my FICO score plunge by 80 points. 

The solution is to file a motion seeking a) damages for credit destruction and b) a court ordered deletion notice to remove the negative information. While courts may find it difficult to quantify the damages (although services are springing up offering to value the effect of lost credit), they have an easier time of issuing a deletion notice that instructs the credit agencies to remove the offending information.

Kudos to Alec Baldwin

…for a wonderful interview on 20/20 last night (click here for link to story).

I was particularly impressed by three aspects of the interview:

1) The way that Alec dodged traps (by explicitly stating that he does not support abusers or deadbeat dads for instance) and by calling out Diane Sawyer several times on her attitude “What, you don’t believe what I saying?”  (about judges being corrupt and inefficient).

2) Alec also apparently took time outs when he began to get heated in the interview (and what was up with the hot room – was it premeditated to make him look flustered and “hot under the collar”?)

3) How he managed to slip sound bites into the interview (like judges in the divorce industry being like pit bosses at a Vegas casino keeping people at the tables). The latter point echoing many of the same observations I have made on this blog (here and here for instance).  

I think he has also done great service in bringing the debate on parental alienation into the public spotlight. I am looking forward to purchasing a copy of Alec’s book when it is released on Tuesday.

More lawyers, more divorce laws

Hans Bader has made an interesting link between the number of lawyers and lawyer-intensive divorce laws in this article.

The head of the Virginia bar association is concerned because Virginia, which once had the highest percentage of lawyer-legislators in America, now ranks behind New York and Massachusetts and on par with New Jersey. Although I am a lawyer myself, I view this as cause for celebration, because the more lawyers are in a state legislature, the more unfair a state’s divorce laws tend to be, and the more anti-business they tend to be. The states with the weirdest, most lawyer-intensive divorce laws are New York, New Jersey, and Massachusetts — states with lawyer-heavy legislatures. (Given the ideology of my classmates at Harvard Law School, this doesn’t surprise me).

Hans goes on to explore many freakish or bizarre cases that invite on-going litigation in a number of lawyer-heavy states.

Lazenby v. Shriver

Former 007 George Lazenby and tennis star Pam Shriver offer a near textbook case of the family law “industry” in action. Lazenby clearly wants to be in his children’s lives and act as a responsible parent but finds himself with a restraining order and 3 supervised visits a week instead. Remember none of the allegations against him were grounds to steal his children BEFORE he entered family court.

Both sides have been encouraged to dig up as much dirt on the other as possible and the lawyers are looking forward to a “big trial”. Exactly how is this in the children’s best interests? This is a system seriously out of control.

Legislative agenda for Nevada

Given my experience in the Family Courts in Nevada, here is a list of changes that I would make to the system that would make the process much more efficient and painless (I also expect lawyers and judges to oppose many of these changes because it reduces litigation and thus billable hours):

1) Presumption of shared parenting

Much time is wasted in court trying to win sole or primary custody and “prove” that the other parent is not worthy. A presumption of shared parenting awards 50% custody to each parent. Studies have shown that children do better with both parents in their lives. Any parent wanting to challenge the shared parenting must prove (beyond the balance of probabilities) that the other parent is unfit. This change would certainly reduce conflict and litigation but more importantly not cause the court to “choose” which parent is better.

2) Alimony formula

Unlike child support, the current system provides “factors” to determine alimony but no formula.  A formula has been proposed (called the Tonopah formula) but it has not been adopted by the Supreme Court. Establishing a formula provides more certainty and reduces litigation over the relevant “factors” and how to weight them. Fighting over child support and alimony are the two greatest areas of litigation and cost in the family law system today.

3) Revised child support formula

The current child support formula is based solely on the non-custodial’s parent income with the opportunity for the judge to make adjustments or offsets for various circumstances. If a shared parenting model is adopted then the formula will need to be adjusted to take both parents incomes into account. Ideally, child support should be based on the actual cost of raising a child and a formula used to determine how that cost should be divided between the parents. Many jurisdictions adopt an income-share model where the cost is split in proportion to income. Child support should not be a hidden form of alimony or welfare for custodial parents. 

Payments should also respond flexibly (and sympathetically) to a  loss of job or income. You should not face jail time or punitive arrears because of factors beyond your control. Reductions should be automatic upon application (with supporting documents) and not require a court order.  Reductions can be reviewed in a reasonable time period.

4) Make Temporary Support Orders Appealable

Temporary support orders (payments made for alimony/child support between filing for divorce and receiving a final decree) are currently not appealable in Nevada. This opens them up for abuse by judges who may order lengthy and onerous temporary support to force a settlement. In my case, I was ordered to pay up to 90% of my net income in temporary support with no way of appealing the ruling.

5) Penalties for false reports

The use of protection orders to exclude men from their homes on the basis of domestic violence (DV) has been seen as a legitimate “tactic” by many lawyers.  There is also a presumption that you will lose custody if you have a proven DV incident on your record not to mention the possibility of jail time.  The penalties for making a false report are rarely applied and many judges err on the side of caution in these cases by granting the protection order without additional evidence other than the petitioner’s testimony. To discourage false reports, the law should be changed to provide mandatory penalties for proven cases of false reporting. This would have a chilling effect on those using the tactics inappropriately.

6) End Community Property on Application

Community property ends in Nevada on the filing of the final decree. In some cases, this can be years after the initial petition for divorce. California, on the other hand, ends community property accumulation on the day of filing for divorce. Property, business, and pension accumulations thus end when at least one party signals they want the marriage over. The Nevada system allows a financial benefit for prolonging the case and should be changed. In fact, Nevada courts should allow a bifurcation – granting a divorce and ending community property – almost immediately if the grounds for divorce are met. There is no reason that ongoing litigation over financial and custody issues canot then be worked out later.

Glenn Sacks on restraining orders

Interesting new column by Glenn Sacks on restraining orders.

Some Common Misconceptions about Divorce in Nevada

So you do your homework on the divorce process, speak to a few lawyers, read a few websites, perhaps get the self-help documents. You think you understand the process. This post will let you in on a few secrets that I learned through bitter experience that are difficult to find through online research.

Myth: Divorce in Nevada is fast
Reality: It’s only fast if it is uncontested (see this post)

Myth: The family court seeks justice
Reality: The family court system is an industry. (see this and this)

Myth: The family court is fair to both parties
Reality: There is a distinct anti-male bias (see here and here)

Myth: If you have a few unresolved issues your case will end quickly
Reality: My whole case was an alimony case. It could have been settled in five minutes. Instead, it took three years. Sometimes judges don’t want to make decisions. Remember all judges are lawyers, lawyers get paid for billable hours, and judges like to help their own kind. The old adage that the case settles when you run out of money is very true (and very sad). Voltaire allegedly said “I have been broke twice in my life – once when I lost a lawsuit, and once when I won a lawsuit”.

Myth: Judges are independent.
Reality: Nevada judges (including family court judges) receive the majority of their campaign funds from lawyers who will appear before them in court. The Nevada Supreme Court has ruled that this is not a basis for a conflict of interest!

Myth: A deal’s a deal – if I have a written agreement, the court will uphold it.
Reality: The judge can change the deal any time or even defer ruling on the validity of a written agreement

Myth: Judges must follow the law and court rules
Reality: A family court Judge has wide discretion (i.e. she can do whatever she likes) on issues like alimony (see here and here), custody/visitation, attorney fees, and temporary support orders.

Can I use a paralegal for divorce?

You can use a paralegal to prepare legal papers but not for legal advice – that would be practicing law without a license.  Paralegals can run anywhere from $50-$100 per hour (which is much better than the $200-$500 per hour charged by lawyers).

In my lengthy case (three years and counting), I have frequently used a paralegal to prepare court papers. It is simply not worth the time to prepare them myself (they have to be typed a certain way then notarized then delivered to the court) and I refuse to pay a lawyer $1000 for basic clerical work. It is well worth paying $100 for a paralegal to do the leg work.

Often I can even email drafts of my pleadings back and forth before the final version is submitted. Of course, I am now intimately acquainted with Nevada divorce law and process so I am in a good position to know what I would like to put in my documents. Paralegals simply cannot give you advice on what to ask for – but they can give you a lot of advice about the legal process and how to file documents. My advice is to read all the posts on this site then go see a paralegal to file your documents. If you need to represent yourself in court, consider using an attorney in an unbundled capacity, and failing all else, retain a lawyer (or here or here).

The difficult part is to find a paralegal who is skilled at the craft. Fortunately, the paralegal I use is simply excellent. Dads can contact Equal Rights for Divorced Fathers for a referral.

QDROs – Qualified Domestic Relations Orders

A QDRO or “Qualified Domestic Relations Order” is a document that instructs the administrator of a pension fund to distribute funds to another person (typically the ex-spouse) at the end of a marriage. Normally, pension funds cannot be distributed until retirement (or certain other events) so a court order is required to remove the funds from a 401k or other retirement fund. 

In Nevada, all assets are community property so your spouse is entitled to half of the funds in your pension account from the time you were married to the date of your divorce (see here and here for a discussion of how community property continues to accumulate). You are also entitled to half of her pension. A QDRO could even distribute more than 50% (as high as 100%) as part of a broader asset division. For instance, you keep the house in exchange for giving her 100% of your pension accumulation. It could also work the other way, where she waives her interest in your pension for some other asset.

A domestic relations order is usually prepared by a financial consultant (either court-ordered or agreed by the parties). The order is then submitted to the court for the judge’s signature. It then becomes known as an “issued domestic relations order”. This is then forwarded to the plan’s administrator who must determine whether the order is valid (understandable and fair). The administrator has a duty to act in the interest of the fund holder. If the administrator approves the order it becomes a “qualified domestic relations order” or QDRO and the plan then writes a check for the ex-spouse or “alternate payee”.  Otherwise the plan is returned to the parties for revision. The plan administrator must respond to a domestic relations order is a reasonable time with a reasonable set of procedures. All of this can take several months to occur.

So far, so good. Things start to get complicated on two fronts – how much was contributed during the marriage and what are the contributions worth today?

A defined contribution scheme (DCS) requires you to invest a proportion of your salary in a retirement account (and may be matched by your employer). Your spouse is entitled to half of the total contributions PLUS any accumulation during the marriage. Say you had $100,000 in the 401k on your marriage day and contributed a further $50,000 during your five-year marriage. On the day of your divorce, the fund is worth $180,000.  So, at least $30,000 was earned through your investments on top of any contributions during the marriage. Clearly, the $100,000 is not a marital asset -but how much of the investment income is marital and how much separate income? The law says if funds are co-mingled they become a community asset – so it is very likely that the total community asset will be seen as $180,000-$100,000 = $80,000. The QDRO would then order the plan administrator to distribute $40,000 to your ex-spouse.

Complications can also occur if the fund declines in value from the day of divorce to the day of distribution by the plan administrator.  Say the value of the 401k was only $160,000 on the day of distribution (a drop of $20,000 in value). Is it fair to distribute $40,000 to your ex-spouse? Clearly not and some plan administrators may reasonably reject such a request. This is why it may be better to write a QDRO in terms of a percentage of units in a fund – if the fund has 500 units then your spouse receives 250 units – whatever they are worth on the day of distribution.

Even more problematic is a defined benefits scheme (or DBS). Here a pension contribution buys a certain benefit after retirement (such as 50% of your final salary for life after twenty years service). Typically the proportion of the final salary may fall or rise depending on years of services. The pension may also be indexed to inflation, carry a lump sum option, or other benefits. Although complex calculations can be involved, the simplest method might be to award of percentage of the benefit when you retire to your ex-spouse based on the length of the marriage.  The percentage may be contentious – let’s assume your receive 50% of your final salary after 20 years service but only 20% of your final salary after ten years service. Let’s assume you were married for the first ten years but then served another 20 years in the company. Should your ex-spouse receive 10% or 25% of your final salary? What if the situation were reversed – not married the first ten years and married the second ten years? Often this will just come down to the judge making a ruling rather than the parties reaching a agreement.

Naturally, all of this can become much more interesting when multiple DCS and DBS accounts are involved!

Limits to Discovery

In a previous post , I provided an example of a request for production of documents in pre-trial discovery. In this post, I consider the limits to discovery.

As we saw, discovery can be conducted with a request for production of documents (an RFP), through interrogatories (literally twenty questions), and depositions (taking oral testimony).

Pre-trial discovery has often been labelled as “fishing expedition” because of the breadth of requests that can be made. For instance, you can ask for all of your spouse’s payslips for the past five years. At the end of the day, the trial judge (or discovery commissioner) is the only one that can determine if your discovery requests are excessive.  You will need to petition the court (via a motion) for the judge to make a ruling.

In general, the court may curtail the scope of discovery “if it determines that the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence.”   Burden refers to time, cost to dollars, and instrusiveness to the notion of a right to privacy. For instance, should your ex-spouse be able to read all of your emails since your separation?  

Something is discoverable, “if it might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement” and this is usually interpreted very liberally – it does not have to be something that can introduced into evidence at the trial. At the end of the day, the judge (or discovery commissioner) will have to make a determination on how burdensome, costly, or instrusive the request and the benefit of the insight that the requesting party may gain.

The judge may be particularly sensitive to whether the same information could be obtained another way or whether the request is duplicative. For instance, requesting five years of payslips to determine your income when the same information is available through the tax returns you have already provided may be seen as unnecessarily burdensome.  Once again it is up to the judge.

On the bright side, priveleged information is generally not discoverable (such as a letter between you and your lawyer or a conversation between you and your doctor).