Difficult Financial Questions Make Hiring a Divorce Lawyer a Wise Move

Q: My husband is divorcing me. Instead of selling our home, he will allow me to buy him out. The house has been appraised at $360,000. We owe $225,000 on the first mortgage and $23,000 on a second mortgage. How much would I have to pay him to buy him out and how should I go about this?

A: You should go about this by hiring a divorce lawyer--or at least getting some smart financial advice.

In a community property state such as California, half of the home’s value generally would be considered yours--along with half of its mortgage. You would in essence be paying your husband for his half of the equity--$56,000--and taking over both the loans.

But your home is probably not the only asset you two have. You probably have retirement plans, pensions and cars, not to mention other debts besides your mortgage. Before the divorce is final, you’ll need to work out an equitable distribution of the assets and debts; the house and its loans will be just one part of this puzzle. If you have children and child-support issues, things become even more complicated.

You also have some difficult financial decisions to make. Assuming you can afford to buy him out, are you able to handle the mortgage payment without his income? Would he require you to refinance the mortgage to take his name off the loan? Would you be able to qualify for the loan on your own? Do you know how much it would cost to refinance and what the new payment would be?

Many people go into shock when faced with divorce. They make stupid decisions while emotionally overwhelmed, or because they don’t understand the long-term consequences of their actions. Some protest that they can’t afford a lawyer, even though the amount of money at stake is often many, many times greater than the lawyer’s fee would be.

At the very least, you should read “Divorce & Money,” by Violet Woodhouse and Victoria Collins (Nolo.com, 1996, $26.95), so that you understand your legal rights. Better yet, read the book and hire a competent divorce lawyer for some good personalized advice. The decisions you make will be final once the divorce is; make sure you don’t hurt yourself financially for life in your rush to get through this painful experience.

Do-It-Yourself Estate Taxes? No

Q: What are the numbers of the forms used in filing estate taxes? Is there an IRS publication describing the use of these forms and, if so, what is the publication number? Are these obtainable from the forms division of the IRS?

A: People, we’ve been through this before: If the estate in question is big enough to worry about estate taxes (that is, if it’s worth more than $675,000 this year), then it’s big enough to get professional help to file the return.

Estate tax issues are complex and constantly changing, and sometimes too tricky even for CPAs who don’t specialize in this area. Audit rates are high, and the person who files the return can be held personally liable for any underpayment of tax.

At the very least, you should have an estate-tax-savvy accountant review your work before sending it off. Even Denis Clifford, an attorney and the author of the self-help book “Plan Your Estate” (Nolo.com, 1998, $34.95), doesn’t recommend that lay people try to tackle an estate tax return.

Any tax preparation book, such as “J.K. Lasser’s Your Income Tax 2000” (J.K. Lasser Institute, 1999, $14.95), would have told you that the estate tax form is Form 706. The instruction publication is simply called “Instructions for Form 706.” You can pick up the form and instructions at your local IRS office or download them from the Internet at https://www.irs.gov.

The fact that you didn’t know how to track down this basic information on your own tells me you’re ill-equipped to handle the return. Save yourself hassle, time and expense and find someone to help you.

A Caveat on Brokers and Trades

Q: You’re my newest hero! Your bucket-of-cold-water-in-the-face response to the investor who wanted to sue her brokerage is exactly what’s needed as these inexperienced do-it-yourselfers destroy themselves and then look for a scapegoat.

One technical point: You said brokerages aren’t supposed to execute trades if they exceed the customer’s margin limit. Actually, if our full-service brokerage accepts the order, the client may have until settlement day (the day of the trade plus three days) to pay for it. Without enough cash or margin, we do not have to accept the order, but where a good relationship exists, we’re likely to take it.

A: Thank you, both for the compliment and the clarification. Given that our inexperienced do-it-yourselfer started her relationship with the brokerage by bouncing a check, I doubt that the brokerage was doing her a favor; either the trade slipped through the cracks, or the brokerage has found there is little financial risk in accepting a trade that exceeds margin limits, because it can require the investor to sell the shares to make good on the trade. In any case, your comment underscores the point that it’s important to read the brokerage agreement when you open an account.

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Liz Pulliam Weston regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.