Archive for July, 2012

TEMPE AND MESA ARIZONA DIVORCE AND FAMILY LAW LAWYER DISCUSSES BUSINESS VALUATIONS

Monday, July 30th, 2012

 

Arizona Divorces, Equitable Division of Assets and Debts, Including Complex Business Valuations:

Submitted by Attorney Douglas C. Gardner

Under Arizona law, the Court must equitably divide the assets and debts of the parties involved in a divorce case.  The general rule is that the equitable division will also be an equal division, though there are some exceptions where an un-equal division is considered equitable or fair by the Courts. 

Many assets and debts are simple enough to divide.  If there is $1,000.00 in a bank account, each party simply takes $500.00.  If one side already took $400.00, then of the remaining $600.00, one party will receive another $100.00, and the other party will get the $500.00. 

Similarly, with debts, each party is generally required to pay 50% of the debts.  Sometimes a house can be sold and the equity can be used first to pay down the debts.  Sometimes one party will do a balance transfer of 50% onto a different card, and each party will then be required to pay their 50% off at their own pace. 

Retirement accounts such as 401(K) accounts can be divided quite readily, though doing so may require a court order or complex paperwork.  The concept though is the same in that each party will get 50%. 

By settlement of the parties, and occasionally by court order, certain items are offset against other items.  The Court may give Husband the $500 pink sewing machine and give Wife the $500 orange chain saw, which would be an equitable division as each party has an item of equal value. 

Some care must be taken when using offsets or setoffs.  For example, $1000 in a savings account is not equal to $1000 in an IRA or 401(k).  The $1000.00 in the savings account has already had the taxes paid.  The $1000 in the IRA or 401(K) will require taxes of approximately 20% and a penalty in most cases of about 10%.  So the $1000 IRA or 401(K) nets only about $700.00 and the $1000.00 in the savings account nets the full $1000.  Similar issues result in property, real estate, stock, and businesses that have capital gains and other tax issues involved.  A qualified and experienced attorney should be able to help you understand the principles, and a CPA or accountant should be able to help you specifically quantify these valuation issues.

Having been involved in many complex divorces, an issue that often arises is the division of a business owned by one or both of the parties.  In cases where one party owned the business prior to the marriage, the other party may still have some claim to a part of the business.  In cases where the business was purchased or built during the marriage, the business must be equitably divided. 

Sometimes the easiest way is to sell the business and each party receives 50% of the net sales proceeds.  This makes things simpler for both parties, both attorneys, and the Judge.  However, in many cases the business is not one that is easily sold, or the business is the livelihood of one of the parties.  In these cases the business may be sold by the community to one of the individuals, or rather the purchasing party will pay the other party 50% of the value of the business. 

Figuring out the value of the business can be expensive and complex.  An appraisal for most houses costs $300-$400, and these can usually be obtained quite quickly.  The abundance of houses, all somewhat similar to one another (most have a kitchen, a family room, a few bedrooms and bathrooms) allow for comparable sales to be used to quickly identify the going rate for houses of a certain size and in a certain location.  With businesses, they are much less one size fits all.  Some businesses such as accounting or medical practices are service related.  Other businesses such as restaurants and grocery stores are retail, merchandise, or goods related.  Some businesses own the real estate used, while others rent or lease.  Some businesses are very risky and demand much higher returns.  Some businesses have intense competition, while other businesses have unique niches. 

Having been involved in many divorces including businesses, and having an accounting, finance and business background myself, I have seen how important it is to have businesses professionally evaluated.  Sometimes this can cost a few thousand dollars, but think for a moment what the cost to just guessing would be.  Hypothetically, the parties “guess” the business to be worth $300,000.00.  A business valuation would have cost $3,000.00.  Each party would have paid half of the business valuation.  If the “guess” is off by more than $3,000.00, one party will get burned.  What if the business was really worth $320,000.00 instead of $300,000.00?  The receiving party would receive $160,000 instead of $150,000.00 for half of the business.   This small difference in value would have easily justified the cost of the business valuation. 

There are some cases where the business is a very small business, or a new business with lots of debt, that is simply not worth much.  In these cases the business may not merit a full blown appraisal or valuation.  There are some options that can be considered to help both parties make appropriate decisions in such cases. 

Once the value of the business is determined, the parties need to ensure that certain adjustments are considered.  A business worth $500,000.00 may not automatically require a buyout of $250,000.00.  What if the business has debts of $400,000.00?  The net value of the business may then be only $100,000.00.  

A more complex adjustment is for anticipated capital gains tax.  If a business has been largely depreciated, upon the sale (other than a sale to a spouse as part of a divorce) the sale will trigger capital gains tax on the business.  This can be up to 20% of the purchase price (and subject to change as tax laws seem to do from time to time).  A business worth $500,000.00 could have a built in $100,000.00 of capital gains tax that would need to be considered and adjusted as appropriate.  This is more complex as there is uncertainty as to when the business would actually sell, and what the future capital gains tax would be. 

If you are involved in a divorce case involving simple or complex asset and debt issues and want experienced legal representation, please call 800-899-2730 and ask to speak with Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.

ARIZONA DIVORCE LAWYER: FATHER’S RIGHTS IN ARIZONA CUSTODY CASES

Monday, July 16th, 2012

Submitted by Attorney Douglas Gardner

 

East Valley Divorce Attorney Discusses Father’s Rights in Divorce Cases

 

 

Arizona has moved forward in terms of Father’s rights recently, which changes how cases should be handled whether you are the Mother or the Father.

 

In the 1970s and 1980s, a typical custody order would have the children reside with the Mother, and Father would see the children on alternating weekends and two weeks during the summer.  As we moved into the 1990s and the 2000s, Father’s rights and Father’s role in raising children received significant attention from mental health professionals, which trickled its way into state laws and into the courtroom practices of judges.  Weekday parenting time to the Father became more common, and alternating holidays, equal sharing of summer and Christmas school recess became more common.

 

Over just the last two years, the Courts have moved beyond this, to much more often awarding equal parenting time when the parent’s live close enough to allow the children stability in school while residing with both parents. 

 

Moving to equal parenting time has its pros and cons.  Many children feel like they live at neither house, but “camp” at both houses and move back and forth.  Other children enjoy the significant relationship with both parents being much more involved.  Equal time parenting plans allow both parents to have their own time as well as parenting time, and can balance the various difficulties  in life including jobs and other responsibilities.  However, Equal time for many mother’s necessarily includes reduced parenting time. 

 

One difficulty often ran into is societal expectations.  While these changes are great for Father’s that want to be more involved, many mother’s feel that the Court has punished them because they are familiar with other families in which the Mother was named the primary parent, and they feel that they are as good or better of a parent than this other parent.  Such comparisons fail to account for the dramatic changes in the law over just the past few years. 

 

While many Father’s enjoy this additional time with their children, some Father’s realize that having the children 50% of the time causes them to be away from work more of the time, as schooling, sick children, and other issues are now falling on their parenting time 50% of the time. 

 

Equal parenting time is not appropriate in all cases.  I still see many cases in which Father or Mother can provide a better life style, stability, safe environment, and other factors and in which we can persuade the Court to award my client’s more than 50%/50% custody.  However, proving that such is the case requires a solid case and a well prepared trial plan. 

 

If you are experiencing legal issues involving custody or other difficult issues, whether as part of a divorce, after the divorce has already been entered, or a custody battle in which the parents were never married, you should have experienced legal counsel on your side. Please call 800 899-2730 and ask to speak with attorney Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.

Calculating A “Ball-park” Child Support Amount.

Monday, July 9th, 2012

 

Submitted by Attorney Karl Scholes

 

I will often have my divorce, or post-decree, clients ask me, “How much child support will I be receiving/paying?” My normal answer to them is a resoundingly, lawyerly, “It depends.”

 

When they press me for a more specific response, I tell them, “Well, we just need to apply the Arizona Child Support Guidelines.” I then proceed to instruct them as to what the Guidelines specify.

 

However, when they push back even more, I tell them, “Oh, you are looking for a “ball-park” calculation. That I can get for you.”

 

The remainder of this article is an explanation on how to come to a “ball-park[1] ” child support calculation.

 

First, one should understand at least a little of the background about child support in Arizona. It is important to understand that Arizona law requires custodial and non-custodial parents to provide “reasonable support” for their minor children. A.R.S. §25-501(A). A parent’s child support obligation has priority over all other financial obligations of the parent. A.R.S. §25-501(C).

 

In addition, the court receives the authority to award child support under A.R.S. §25-320. This statute also makes it mandatory for the court to issue an order of child support as per the Arizona Child Support Guidelines, (unless the court finds that a deviation is necessary… which is a subject matter for another day.)

 

The Arizona Guidelines follow the Income Shares Model, which means that the total child support amount approximates the amount that would have been spent on the children if the parents and children were living together.  The guidelines involve numerous intricacies, and for a full application, one should consult an attorney – who is experienced in using the Arizona Child Support Guidelines – as to how the guidelines apply to each individual case.

 

Second, to get a “ball-park” child support calculation, one must be able to answer the following questions:

 

1.      What is the gross income of both parties? (Note, this issue sometimes becomes complicated, especially if one party is self-employed, has an income that is not easily ascertainable, or if one party is unemployed. Consult an attorney if there are any complications in your case.)

2.      What is the number and ages of minor children involved? (Note, if this factor is complicated, please consult a mental health professional before seeking the advise of an attorney.)

3.      What is the cost of medical/dental/vision insurance for the minor child(ren): The key to this factor is to find the cost for medical insurance for just the minor children. (Note, at times, this factor can be complicated as well. Please consult an attorney if there are any complications in your case.)

4.      What are the monthly childcare costs for the minor children?

5.      Are there any extra education expenses paid for the minor children?

6.      Are there any extraordinary (gifted or handicapped) expenses for the minor children?

7.      How many days, out of a year, will the non-custodial parent have with the minor children?

 

Third, the next step is to plug the numbers from the answers above into their corresponding areas in the Arizona child support calculator, which can be found here:

 

Fourth, once you have plugged in the numbers above into the calculator, it will dispense a number under the heading “Child Support Obligation to be paid by____________”. This is where you will have your “ball-park” child support number.

 

If there are complications in your child support case, or to get an exact child support calculation, contact a family law attorney who is experienced in using the Arizona Child Support Guidelines.

 

If you are in need of legal counsel and would like to speak with an experienced attorney, please call 800 899-2730  or visit our website at yourarizonadivorcelawyer.com. or www.davismiles.com


[1] While a “ball-park” calculation of child support may be important for purposes of settlement, or setting expectations, one should note that a full child support calculation should be done by an attorney who is experienced in using the Arizona Child Support Guidelines.  

 

 

A Financial Benefit to Paying Child Support

Monday, July 2nd, 2012

Submitted by Attorney Kirk Smith

 

There is a general discontent among those who must pay child support. The consensus among them is not that they are unwilling to financially support their children; but rather, that they seemingly overcompensate the primary physical custodian for the expenses of the children, as these expenses fall appreciably lower than the child support they owe. Notwithstanding this perceived inequity, there is some consultation for child support obligors, as their tax liabilities generally decrease due to paying child support.

 

When child support is calculated each parent will be obligated to pay a specific percentage of the total amount calculated. How this plays out typically is that the primary physical custodian will pay nothing directly to the non-custodial parent, but the non-custodial parent will pay a specified sum each month to the primary physical custodian. For the purpose of this discussion do not get caught up in the fact that the primary physical custodian typically pays nothing directly to the non-custodial parent despite being allocated a percentage of the child support obligation.

 

An example of how these percentages might be allocated is; the primary physical custodian would be obligated to pay 20% of the total amount of child support calculated and the non-custodial parent would be obligated to pay 80% of the total amount of the child support calculated.

 

The family law courts will use these percentages under Number 27 of the Appendix of Arizona Revised Statutes 25-320, to determine the allocation between the parties of the dependent tax benefit, for the years following the divorce or separation.

 

Number 27 of the Appendix of Arizona Revised Statutes 25-320 states;

 

All the federal and state tax exemptions applicable to the minor children shall be allocated between the parents as they agree, or, in the absence of their agreement, in a manner that allows each parent to claim allowable federal dependency exemptions proportionate to adjusted gross income…To implement this provision, the proportionate share of the combined adjusted gross income of both parents is rounded to the nearest fraction with a denominator no larger than 5 (i.e. 1/2, 1/3, 2/3, 1/4, 3/4, 1/5, 2/5, 3/5, 4/5).

 

Applying this statute to the above example, and assuming that the parties have only 1 child, the non-custodial parent would receive the dependent tax benefit 4 out of the next 5 years. Looking at the years following the divorce or separation, 80% of 5 years is four years. The percentage then used to determine each parent’s child support obligation is also used to determine who receives the dependent tax benefit each year.

 

Figuring out who receives the dependent tax benefit can become more complicated with multiple children between the parties, however, the aforementioned principles still apply. Child support obligors then can take a measure of solace that even though their finances will diminish due to their child support obligation; their finances typically increase when it comes to receiving their yearend tax refund. 

If you are in need of legal counsel and would like to speak with an experienced attorney, please call 800 899-2730  or visit our website at www.yourarizonadivorcelawyer.com. or www.davismiles.com