HS 137 - Protecting Your Marriage Financials with John Patti

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It's my pleasure to welcome John Patty to the show. He is a certified matrimonial law attorney practicing in New Jersey and just want to give you the disclaimer before we jump into this and we talk about marriage and family law issues that I think are important to most people. He is only licensed to practice in the state of New Jersey and this is not legal advice. If you desire specific legal advice, consult a lawyer in your own jurisdiction. Okay. And John, with that, I think I gave the disclaimer for you. So welcome. How are you?

Thank you, Jason. I think you and I are both covered on that one.

Okay, good.

So I think we're all squared. And again, you know, if you Have a specific situation, seek out a matrimonial law attorney and bring that to his or her attention. We're just going to give you some thoughts.

Fantastic. You've got 25 years of experience in this field. When it comes to divorce, maybe we'll kind of go into it backwards from the negative part first, and maybe we can circle back to talk about how to set a marriage up properly from the beginning. But when it comes to divorce, you always hear these horror stories, and one of them is about one of the spouses hiding assets from the other. What are some of the reasons that people do this, besides the obvious?

So obviously people are greed or have greed, and they don't want to share what has been accumulated during the marriage. The other is revenge and looking to insert pain into their spouse for broken hearts or whatever. And there's another area, and I call that people who unintentionally hide assets, meaning they put in their mind that this asset is not part of this marriage and therefore I don't have to disclose it. It doesn't matter whether the asset is gathered during the marriage or not, and it may not be part of the marital pot for distribution. You have to disclose everything. So even if it's innocent, even if you sincerely believe that this asset should not be part of any discussion, you still have to disclose it. And nine times out of 10, you know, the attorneys will figure that out and move on. But you don't want your spouse's attorney to say, you never told us about that house in Vermont. You know, we have a problem with it. What other assets are out there that you're not telling us about? And then at that point, you're just going to prolong a litigation right right.

Now with wealthier clients that I'm sure you've represented over the years. They'll even have offshore structures that are outside of the United States, and they may or may not have accumulated these before the marriage. So it's debatable as to whether they're community property. Do they have to disclose those, too? You're probably going to say yes, I think.

Yeah. And there's sometimes a spouse's are very interconnected with the finances, and everybody knows that there's an account in the Cayman Islands or Bermuda or in Switzerland, and those actually have to be disclosed on your federal taxes. To do so not to do so is actually tax evasion. You have to disclose that there are foreign interests and there are certain forms that you have to fill out.

So even don't you just get. And of course we're coming to this backwards here from the bitter end, if you will. Don't you just get the tax returns of the other spouse and solve the problem?

Yeah, it's very normal. It's very normal. And I would say about a good 90% of the people that you deal with file joint tax returns. So, you know, one grabs a copy. It's the same copy that they've had for years and depending upon the girth of the case, will depend upon how far back we want to go. But on that tax return is a ton of information. For example, the spouse may say, I don't really know what my husband has or my wife has. We're seeing a lot more, by the way, of the resurgence of the wife being the financially superior spouse. But in the case of the husband, we look to the tax return and actually find out where the dividends and interest section of the federal tax return to find out what exactly is out there. So that, that's a way, that's a quick way to investigate exactly where the interest is coming from. It won't disclose exact amounts, but if you see an account that is, you know, has 5 or $10,000 worth of interest, it's probably a lot of money.

There's some decent money in it, especially nowadays because the banks pay no interest virtually.

So, oh, yeah, it's less than. It's less than 1%.

Right, right. What are some of the tips you can give people to go into a. With the right mindset, but also with the right legal set, if you will? I mean, you're probably going to say, as an attorney, you know, get a prenup. I remember having that discussion with my mother, and I should probably make the disclaimer that I've never been married, although I'd like to get married. But I remember my mother saying, you know, Jason, when you do that, you're kind of. You're kind of setting the wrong tone for a marriage. You know, you're maybe planning for failure. What are your thoughts?

Well, in some cases, the prenuptial is very much needed and an essential document. For example, you're in a family business in which you own a percentage of that, and then you get married. If you don't protect that interest in the family business, somewhere down the line.

If the marriage moves towards dissolution, you're going to find yourself having to fight and explain why that family business should not be distributed, whatever percentage it may be, to your spouse. So in cases like family business is one, a lot of times people come in with inherited property or even property that they've obtained from a divorce prior to that marriage. If there's been any commingling of assets, the court considers that to be an asset of the marriage. For example, spouse comes into the marriage with the house, the house is somewhat dilapidated, and the new spouses tell you what, $50,000, let's really get this house in shape. Who's not going to take the $50,000? And they go into the house and they new kitchen and new floors and new siding, and several years later they decide to divorce. That becomes an issue. So this asset that had nothing to do with this person prior to the marriage is now has very much or is very relevant so far as the distribution is concerned.

So here's a question for you. What you're alluding to there is that in my former state of California, that's a community property state. And as I understood it, you could have separate property in a marriage as long as you didn't co mingle it during the marriage, then it could become community property if you did it. So if one spouse went into the deal and they had 25 rental houses, 25 income properties, and then they maintain those for five years, and when the money came out of the properties, when they got positive cash flow, they put that into an account, and then when there was a repair that needed to be made in the properties, they used that money from that account to fix up the properties and they. They kept it as separate property. But what you're alluding to is that people tend to get lazy about this or they may not know any better, and they use community money out of the joint bank account to then fix up the property or support it during a time of vacancy or something like that. That's the issue. That's the crux of it. Right?

Right. You're taking money from the joint enterprise. Consider you and your spouse to be an enterprise moving forward. You gather assets, you collect income, you collect retirement accounts. If this enterprise is funding something that is clearly premarital, there may be, and I say may because it depends on circumstances, there may be an argument that that asset is now included into the marital pot to some extent. In New Jersey, we're an equitable distribution state, although some of us may say differently, because a lot of times you're trying to explain to the judge that, well, it's not 50, 50. We're equitable distribution, meaning the court has to weigh 16 factors before it makes its decision. In California, in the community property states, there's an overriding assumption everything's 50 50. Unless you tell me otherwise. New Jersey, it's like, you tell me otherwise or it's going to be 50. 50. It's the opposite.

Right, right. So let me just understand that. So in New Jersey, to use the old, the other metaphor from criminal law, are you sort of innocent until proven guilty, but in California, you're guilty until proven innocent, Would that be. I never looked at it that way.

But that sounds about right.

Yeah. Okay. All right. So California, the assumpt, both spouses own everything until you tell them different.

Right, right. And again, you're looking at the marital enterprise, what was gained together as the team of you and your spouse and dividing that up.

There's always a nuance in every case. There's always property that was given to them by their family and then money invested in that. And those make the special circumstances that make the issues in divorce law.

Sure, sure. So I guess the million dollar question here is, if you go into a marriage and you don't have a prenuptial agreement, is it possible to keep separate properties separate that you had before the marriage, or is it just gonna ultimately get all murky? I mean, I'm talking. I know conceptually it's possible, but I'm talking about in practice.

Well, it just makes it difficult, not impossible, to keep at certain assets out of the marital pot. And sometimes spouses readily admit. I don't want that. He received that from his parents when they died.

Oh, you mean they actually act in an ethical fashion and you have, you.

Know, I would say for the most part, you have people who do that. You know, I mean, there are a ton of exceptions, but for the most part, people come in and they just, they want a clean break and they want to start a new life, and they're not being greedy about trying to get the most out of their ex. I have a good number of cases where the opposite is true, where they. You have to fight for everything you have to prove even though the other spouse knows that that asset wasn't acquired during the marriage. They'll sit and make the attorneys work and get that proof to show that it's not an asset that should be considered. So I see both. I see good people come to the table and they just want to end it and they do good things for their kids and they work together and there's just a loss of love between the two.

I think the famous example of that, as I recall, was the late Vidal Sassoon, as I remember hearing or reading a story about that divorce. You know, it was many Years ago in that they didn't make the lawyers rich. They went to like, divorce mediation and just worked it out. And there was a considerable fortune there at stake. And then you hear about some of these other marriages where even with prenups, the prenups are getting overturned. And that's an issue I wanted to have you speak to is prenuptial agreements. When they are used, how do you make them valid? I've heard that, you know, you got to make sure both parties have an attorney review the document. But are there any other good rules of thumb?

Sure. The, you know, the attorney is vital, and when you get the attorney may be a factor as well.

If.

If getting the attorney, you know, on the eve of trial to review an agreement, that. That's not going to pass any mustard.

Well, no, no, I'm not saying on the eve of trial. I'm saying.

Eve of. That's not going to pass a SNF test. You have to give your spouse some notice several months prior to. So there's no duress. The court may look at the fact that, you know, one of the. Either the bride or the groom has put substantial funds into planning the wedding, or there's parties planned and then they get hit with the prenup. They're really not thinking straight.

Right, Right.

Almost like, I better sign this, otherwise I'm going to be embarrassed here. So duress is an important factor. Disclosure is just as important.

If you sit there with your spouse and say, look, I want a prenup, and for some reason you don't tell her all the property that you want prenupted. And some people feel, well, if I tell my spouse that I'm a multimillionaire, well, that's going to somehow cause a problem and she's going to want the money. But in actuality, you gotta. You have to set it down up front in order to make sure that the property is not considered if. If there's a dissolution down the road. So disclosure is really important. And I always tell people, you know, I had a case where it was very sad because the. The woman was very much manipulated, and she was manipulated into signing the prenuptial. And then when I represented her trying to throw out the prenuptial, we were doing good. We were on the eve of trial. She was manipulated again to drop the case with the same thing. It was a promise not put down on the agreement. And that's important. Anything not on the agreement is not part of the agreement. I don't care what they tell you. You know, in the case I'm thinking about, he promised he would always take care of her. A week after she dropped the case, she was living in welfare funded housing and it was very sad. I pleaded with her, please don't do this. You know, you're making a mistake, fell on deaf ears, and sometimes there's nothing you can do about that. Some people are just very manipulated. And no matter what any attorney says, they're just going to do what their heart tells them to do.

Let's kind of change the focus here and let's talk about the issue of children. Obviously, you know, a very important issue in a marriage, one that has caused a lot of emotional distress on both sides. What should people know about child custody issues in this area?

First of all, you have to keep in mind that it is not about you, that everything having to do with child custody is solely about the child. And that the one concern, and one concern only that you ought to have is what is the best interest of the child. I give an example where one spouse wants to take the other to Disney World, or if you're on a West Coast Disneyland and the other spouse objects because it's his or her parenting time. Well, think about it. What kid doesn't want to go to Disney World and is it in the best interest? Would you want your child to go there and have that good time? That's how you have to think. And it's difficult because you may not trust your spouse to do the right thing. You may feel that your spouse is manipulating the children, but you really do have to consider the best interest of the child whenever you're making any decision. And never, and I emphasize, never use the children in your divorce for anything.

Sadly though, a lot of times these kids are used as pawns.

I'd like to call Jason. I like to say they use as cannon fodder because they, you know, you will hurt this child for years that you could possibly imagine. And you have to keep in mind too when it comes to children, that dad is always going to be Superman and mom is always going to be Wonder Woman. And you don't want to take that away from them. You don't want it to sit there and say, you know, your mom, your mom's cheating on me. I just want to let you know that. Or you know, your dad, your dad boozes it up and gambles everything down at the casino. You don't want to do that because you're really, you're taking away the foundation of the child when you do that.

Well, what else should people know about the child custody issues?

Well, with child custody, I always like to at least take a stab at working things out sitting down. And this is very popular in California where the issue is collaborated upon, meaning you sit down with a neutral custody expert and work out the differences. And if you can do that, that's fantastic because you don't want someone with a robe telling you what you ought to do and ought not to do with your child. But if you push them, they will do that. And I'm talking about judges. So you want to make the decision with regard to your children. You also want to get yourself educated because this is going to be something new. Especially guys have a tough time with this. And, you know, there could be a new spouse waiting in the wings. And sometimes it's very difficult. I have a book I always recommend my clients to read. It's called Joint Custody with a Jerk that's actually in Amazon.com. it's a great read. And when I was reading it, it identified most of the situations that I run into as the attorney receiving the phone calls about what the other spouse did.

Well, very important stuff. So read up on it, do a good job at it. And this is likely impossible, what I'm about to say, but I'm sure you'd agree. Keep the emotions tame, keep them in check. Right.

And it's very difficult because divorce is an emotional event. It's. It's. To some people, it's traumatic. They there, it's. I've had more than one client sit in front of me saying, never saw coming. I thought, I thought we had a great marriage. Some people have been saying, you know, we had relations the day before. I don't understand this. People come out of the woodwork with infidelity. I mean, and it's, it's a shock, and I think it shocks the system, you know, when you become involved in matrimonial litigation.

Yeah, I bet there are some amazing stories. You know, I've got one for you and maybe we can kind of wrap up on this, but it's the issue of how you know when your spouse during the marriage is hiding things from you, especially as it comes to finance. Sure, you're not a detective that's going to talk about affairs and so forth, and I. It is amazing. An ex girlfriend of mine who got a divorce told me this. Amazing. Really a horror story of how her husband, the guy she met after me, oddly, was really living a whole separate life. I mean, had refinanced the house, taken that equity and spent it on his whole separate life. Had credit cards she did not know about a second cell phone. To be able to hide this whole second life, you know, this life of other women. Just a real shocker. I mean, unbelievable, the links this, this guy went to, to to do this kind of stuff. Any tips for people on what they should be aware of?

What you described as an absolute dysfunction? I mean, you're, you're talking about someone who literally had a whole separate personality. And I would say that, you know, unless there were early signs, there was nothing that your girlfriend could have done to prevent that.

You know, I met the guy several times and he seemed like a nice enough guy.

But what he did was really not nice in dissipating family assets in order to pursue his own interests.

I remember saying to her, I said, look, how did you know, how did he refi the house without you? And she told me, she says, look, when you've got a two year old on your lap and your spouse sticks some documents in front of you and there's a notary there just says, sign this, honey, we're going to refinance and get a better rate, not telling her that he's pulling a bunch of cash out of the house. She couldn't keep track of all that. I mean, you know, you trust your spouse.

You do. And that's one of the signs of a good marriage is the trust between the husband and the wife. And to have that trust betrayed like that is one of the classic signs of a divorce. I recommend that people stay involved in the finances, all the financial matters having to do with the house. It doesn't mean you have to sit there and do bills together, but have at least the knowledge of what accounts are out there, where your investments are going. Don't simply say, I leave that to my husband or I leave that to my wife. Believe it or not, in many cases, I've had more than several men appear before me saying, I don't know, I give the check to my wife and she pays all the bills. And they couldn't even tell you what they, you know, what the wife spent at the supermarket. So get involved. You know, it's one thing to be madly in love and trust and that, you know, that, that I think is a good recipe for every good marriage. But stay in the ball game too.

Yeah, no good points. Well, John, give out your website and tell people where they can learn more.

Www.japlaw.com it's always being updated with different appearances and radio appearances. And we try to make it as educational as possible on our website to give you an idea of what's going on. For those who are listening in New Jersey, I'm in Monmouth County, Come look me up.

All right, John, Patty, thank you so much for joining us.

Thanks, Jason.

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