A legal separation is a legal procedure that allows a family court judge to settle certain matters for couples who are not living together, but who have not obtained a divorce. An individual asking the court for a legal separation cannot be at fault in causing the separation.
In a legal separation a court can order one party to pay child support or alimony. It can also award child custody or set a visitation schedule for children. Court orders in a separation can always be revised though, if circumstances change, and a judge can not make a final settlement of the property division in this procedure.
Legal separations are not very common, and as a divorce attorney I find that the majority of people who initially ask about legal separations ultimately decide that it is not right for them. I would explain this by the fact that if the parties are eventually going to get divorced, they will end up going through two court procedures instead of one, if they first file for a legal separation.
Legal separations are sometimes necessary though, if the parties are not planning to divorce and they need the intervention of the courts to determine issues concerning children or support.
Tuesday, September 27, 2011
Tuesday, August 23, 2011
Donation of Qualified Vehicle to Charity
As a bankruptcy lawyer I deal with a lot of people, who have not been able to purchase a new car in quite a while, and I know that an old car can sometimes be a burden to dispose of. For this reason people sometimes feel that it is easier to donate the vehicle to a charity, who can use the help, and the donors are often intrigued with the idea of taking a tax deduction for the value of the vehicle.
While the tax deduction is available, the tax law contains strict rules for vehicle donations, which apply to trucks, boats and aircraft as well as cars.
In the first place the donor is required to obtain a form 1098-C from the charity and attach the form to his or her tax return. The 1098-C needs to identify the taxpayer, the taxpayer’s identification number and the vehicle’s identification number. The charity must also disclose any goods or services the donor received in exchange for the vehicle.
If the car is sold, which is what many charities do with donated vehicles, the form must also disclose what the proceeds of the sale were, and the tax deduction is limited to the amount of those proceeds. Only when the vehicle is used in the charitable purpose of the organization will the taxpayer be allowed to use an estimated fair market value as a tax deduction.
While the tax deduction is available, the tax law contains strict rules for vehicle donations, which apply to trucks, boats and aircraft as well as cars.
In the first place the donor is required to obtain a form 1098-C from the charity and attach the form to his or her tax return. The 1098-C needs to identify the taxpayer, the taxpayer’s identification number and the vehicle’s identification number. The charity must also disclose any goods or services the donor received in exchange for the vehicle.
If the car is sold, which is what many charities do with donated vehicles, the form must also disclose what the proceeds of the sale were, and the tax deduction is limited to the amount of those proceeds. Only when the vehicle is used in the charitable purpose of the organization will the taxpayer be allowed to use an estimated fair market value as a tax deduction.
Monday, June 6, 2011
Tenancy By The Entirety in Bankruptcy
When a married couple holds title to property in a tenancy by the entirety, the property will pass automatically to the survivor upon the death of one owner. This is the same treatment that applies to property held in joint tenancy. However, a tenancy by the entirety has a special advantage when it comes to protecting assets. If a joint tenant is sued the judgment creditor may have the property severed and apply the debtor’s share of the property to the debt. If a tenant by the entirety is sued though, the judgment creditor must wait until the owners decide to sell the property on their own. What can be put in this type of ownership varies from state to state. Under Illinois law tenancy by the entirety, is limited to a married couple’s principal residence.
The tenancy by the entirety protection can also come into play, when one of the tenants by the entirety files bankruptcy. This is because the bankruptcy code provides for exemptions of property that are exempt from creditors under state law. While the married couple filing a joint bankruptcy would not get the benefit of this exemption it will be available when a spouse files an individual bankruptcy provided only the filing tenant is liable for the debts.
The tenancy by the entirety protection can also come into play, when one of the tenants by the entirety files bankruptcy. This is because the bankruptcy code provides for exemptions of property that are exempt from creditors under state law. While the married couple filing a joint bankruptcy would not get the benefit of this exemption it will be available when a spouse files an individual bankruptcy provided only the filing tenant is liable for the debts.
Wednesday, June 1, 2011
Are Inherited IRAs Protected From Creditors
Besides the tax benefits which provide the incentive to save for retirement, Individual Retirement Accounts contain another valuable quality that is less well known and often not appreciated until the owner needs it. Individual Retirement Accounts, as well as other qualified retirement plans, are not subject to claims by creditors. Both Illinois law and the Federal Bankruptcy Law prevents creditors from attaching the IRAs to collect debts, and considering that modern Americans live in the most litigation happy society in history this is no small benefit.
Now that IRAs have been around for almost 40 years and many deceased owners have passed their IRAs on to their heirs, some lawsuits have raised the questions whether the creditor exemption applies to the heirs or merely to the original purchasers. Unfortunately, the law is not yet settled on this point. In 2010 there were two reported cases of a bankruptcy trustee challenging whether a debtor can protect his inherited IRAs, and two bankruptcy courts came down with contradictory decisions.
This spit by the courts makes it hard for a bankruptcy lawyer to give a definite answer to the holder of the inherited IRA, but my advice would be to keep the inherited IRA in place. For one thing the view in favor of the exemption might ultimately prevail. Furthermore, one of the principals of asset protection is that creditors often will leave an asset alone that is difficult to collect on even if it is not impossible, and the fact that the creditors do not have a definite answer either will probably convince them to let the inherited IRA alone in many cases.
Now that IRAs have been around for almost 40 years and many deceased owners have passed their IRAs on to their heirs, some lawsuits have raised the questions whether the creditor exemption applies to the heirs or merely to the original purchasers. Unfortunately, the law is not yet settled on this point. In 2010 there were two reported cases of a bankruptcy trustee challenging whether a debtor can protect his inherited IRAs, and two bankruptcy courts came down with contradictory decisions.
This spit by the courts makes it hard for a bankruptcy lawyer to give a definite answer to the holder of the inherited IRA, but my advice would be to keep the inherited IRA in place. For one thing the view in favor of the exemption might ultimately prevail. Furthermore, one of the principals of asset protection is that creditors often will leave an asset alone that is difficult to collect on even if it is not impossible, and the fact that the creditors do not have a definite answer either will probably convince them to let the inherited IRA alone in many cases.
Friday, January 14, 2011
Supreme Court Limits Allowance for Car Ownership Expense in Bankruptcy
This week the Supreme Court handed down its long awaited decision in the case of Ransom v. FIA Card Services N.A. which dealt with the expense allowance a bankrupt individual can claim on the means test for ownership of a vehicle.
The means test came into the law in 2005 and applies a formula to determine, if an individual has monthly disposable income, which is high enough to enable him or to pay back part of his or her unsecured debt. Basically the means test takes the debtor’s average income for the last six months, and then subtracts out allowances for various expenses. Most of the allowances such as food, clothing, utilities and transportation are standard amounts used by all debtors. Some of the allowances however, such as taxes, medical, and child support are based on the debtor’s actual expenses.
If the means test shows the debtor has enough disposable income the law requires him or her to file a Chapter 13 Bankruptcy in which the individual will make monthly payments for five years toward the debts. If the means test shows the income is not high enough the debtor may file a Chapter 7 bankruptcy and receive a discharge in about three months. The means test is also important when the individual files a Chapter 13, because the courts will look to the means test to calculate how much the debtor’s plan must pay toward his or her unsecured debts.
The means test includes a vehicle ownership expense for up to two vehicles owned by a household. It also includes a vehicle operating expense. The ownership allowance varies by locality and debtors living in Northern Illinois can currently claim an allowance for $496 for each car every month. In the five years since Congress enacted the means test, the courts have split on whether every individual owning a car may claim the car allowance or whether it is only available to debtors making car payments. The question can often make or break a bankruptcy plan, since at $496 a month the amount the debtor will have to pay over the life of his Chapter 13 plan will come to $29,760.
On January 11, 2011 with Justice Kagan rendering her first opinion, the Supreme Court decided in the case of , Ransom v. FIA Card Services N.A, that the ownership allowance is only available to debtors making loan or lease payments on the car. The decision now becomes the law of the land.
The means test came into the law in 2005 and applies a formula to determine, if an individual has monthly disposable income, which is high enough to enable him or to pay back part of his or her unsecured debt. Basically the means test takes the debtor’s average income for the last six months, and then subtracts out allowances for various expenses. Most of the allowances such as food, clothing, utilities and transportation are standard amounts used by all debtors. Some of the allowances however, such as taxes, medical, and child support are based on the debtor’s actual expenses.
If the means test shows the debtor has enough disposable income the law requires him or her to file a Chapter 13 Bankruptcy in which the individual will make monthly payments for five years toward the debts. If the means test shows the income is not high enough the debtor may file a Chapter 7 bankruptcy and receive a discharge in about three months. The means test is also important when the individual files a Chapter 13, because the courts will look to the means test to calculate how much the debtor’s plan must pay toward his or her unsecured debts.
The means test includes a vehicle ownership expense for up to two vehicles owned by a household. It also includes a vehicle operating expense. The ownership allowance varies by locality and debtors living in Northern Illinois can currently claim an allowance for $496 for each car every month. In the five years since Congress enacted the means test, the courts have split on whether every individual owning a car may claim the car allowance or whether it is only available to debtors making car payments. The question can often make or break a bankruptcy plan, since at $496 a month the amount the debtor will have to pay over the life of his Chapter 13 plan will come to $29,760.
On January 11, 2011 with Justice Kagan rendering her first opinion, the Supreme Court decided in the case of , Ransom v. FIA Card Services N.A, that the ownership allowance is only available to debtors making loan or lease payments on the car. The decision now becomes the law of the land.
Thursday, December 30, 2010
Illinois Employee Credit Privacy Act
In 2010 the Illinois legislature passed the Employee Credit Privacy Act to protect employees from losing job opportunities based on negative credit reports. The law takes affect on January 1, 2011. The new law forbids an employer or a potential employer from discriminating against a person based on their credit history, and prohibits the use of a person's credit report or credit history as a basis for employment, discharge, or compensation.
The federal bankruptcy law has long forbidden an employer to discriminate against anyone in the job market who has filed bankruptcy, and it makes sense for the states to extend this coverage to credit problems, that are not severe enough to require bankruptcy.
The legislators have included a provision of the law which I believe will make it far more effective. Instead of merely telling employers that they cannot use the credit history in making their decisions; they have also included prohibitions against an employer or a potential employer inquiring about an individual’s credit history or obtaining a credit report on an employee or a potential employee.
As a bankruptcy lawyer I have encountered many individuals, who are worried about losing their jobs, when they file bankruptcy. I always point out that this conduct by their employer would be a violation of the bankruptcy law, but while this offers some comfort it does not totally eliminate the fear that an employer might just invent another official reason , when they are really firing someone for going bankrupt. Thus I believe making it illegal for the employer to even view the credit report adds a lot to the level of protection.
Unfortunately, the legislation blunted the protection in some other cases. Public employers, insurers, financial institutions and debt collectors are exempt from the provisions of the act. Also, an employer might be able to avoid the prohibition by claiming that credit history related to a bona fide job requirement.
The federal bankruptcy law has long forbidden an employer to discriminate against anyone in the job market who has filed bankruptcy, and it makes sense for the states to extend this coverage to credit problems, that are not severe enough to require bankruptcy.
The legislators have included a provision of the law which I believe will make it far more effective. Instead of merely telling employers that they cannot use the credit history in making their decisions; they have also included prohibitions against an employer or a potential employer inquiring about an individual’s credit history or obtaining a credit report on an employee or a potential employee.
As a bankruptcy lawyer I have encountered many individuals, who are worried about losing their jobs, when they file bankruptcy. I always point out that this conduct by their employer would be a violation of the bankruptcy law, but while this offers some comfort it does not totally eliminate the fear that an employer might just invent another official reason , when they are really firing someone for going bankrupt. Thus I believe making it illegal for the employer to even view the credit report adds a lot to the level of protection.
Unfortunately, the legislation blunted the protection in some other cases. Public employers, insurers, financial institutions and debt collectors are exempt from the provisions of the act. Also, an employer might be able to avoid the prohibition by claiming that credit history related to a bona fide job requirement.
Sunday, December 26, 2010
Loans From Qualified Retirement Plans
Some individuals suffering financial problems attempt to avoid having to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy by withdrawing funds from a qualified retirement plan to pay their debts However, this strategy is seldom a good idea. In the first place qualified plans are designed to provide for a worker’s retirement, and withdrawing the funds to apply to current problems can lead to devastating long term consequences by leaving the workers with little means of support during the final years of their lives.
In addition qualified plans contain tax incentives to encourage people to use these plans and save for their retirement, and the flip side of these incentives is that withdrawing the funds early has a heavy tax cost that can add to a person’s financial problems.
Finally, creditors cannot levy against qualified plans to collect on judgements. Someone, who is struggling to pay his or her debts should not give up this protection, and it is never a happy situation when someone deletes their 401k trying to pay off debts and ends up filing bankruptcy anyway.
As an alternative to withdrawing from a retirement plan, some plans allow the participant to take out a loan. Qualified loans from 401k plans or other qualified retirement or profit sharing plans must be repaid in five years, and the employee must repay the loan in basically level payments made at least quarterly. The interest portion of these payments are not deductible for tax purposes. The loans cannot exceed the lesser of $50,000.00 or the employees nonforfeitable balance in the plan.
Borrowing from a qualified plan is not an ideal solution to a financial crisis, since these loans can often prove difficult to repay; and the law treats a failure to repay as a taxable distribution from the plan. However, borrowing is better than a total withdrawal, because you still have the possibility of being able to repay the loan, and even if you fail to repay the entire amount you will receive the benefits of a qualified plan on the portion you do manage to repay.
In addition qualified plans contain tax incentives to encourage people to use these plans and save for their retirement, and the flip side of these incentives is that withdrawing the funds early has a heavy tax cost that can add to a person’s financial problems.
Finally, creditors cannot levy against qualified plans to collect on judgements. Someone, who is struggling to pay his or her debts should not give up this protection, and it is never a happy situation when someone deletes their 401k trying to pay off debts and ends up filing bankruptcy anyway.
As an alternative to withdrawing from a retirement plan, some plans allow the participant to take out a loan. Qualified loans from 401k plans or other qualified retirement or profit sharing plans must be repaid in five years, and the employee must repay the loan in basically level payments made at least quarterly. The interest portion of these payments are not deductible for tax purposes. The loans cannot exceed the lesser of $50,000.00 or the employees nonforfeitable balance in the plan.
Borrowing from a qualified plan is not an ideal solution to a financial crisis, since these loans can often prove difficult to repay; and the law treats a failure to repay as a taxable distribution from the plan. However, borrowing is better than a total withdrawal, because you still have the possibility of being able to repay the loan, and even if you fail to repay the entire amount you will receive the benefits of a qualified plan on the portion you do manage to repay.
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