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Divorce Strategies Group

Denise French

Archives for January 2018

Options for the Divorce Process

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Everyone knows that divorce has the potential to be very ugly. However, it does not have to be that way!!  There are options for divorce and ways to split amicably – even if you don’t agree on the details.  Texans value the amicable dispute of civil resolutions so much that The Alternative Dispute Resolution Procedures Act by the Texas Legislature was passed in 1987 to encourage the peaceful resolution of disputes.

Mediation is by far the most common and arguably most successful method used in Texas as an alternative dispute resolution.  The proceedings are confidential and the parties themselves participate in the solution. Mediation allows the parties to speak with candor in a safe environment and negotiate towards a satisfactory resolution.

Mediation is defined as “…as forum in which an impartial person, the mediator, facilitates communication between parties to promote reconciliation, settlement, or understanding among them.” Tex.Civ.Prac.&Rem.Code § 154.023(a). The statute specifically states that “a mediator may not impose his own judgment on the issues for that of the parties.” Id. § 154.023(b). The mediator as a neutral party is a key player in the mediation process, and the Act thus imposes special qualifications and standards on mediators.

Absent a special order of a court, not just any person may serve as a mediator. At a minimum, mediators must have completed at least 40 classroom hours of training in dispute resolution techniques in a course conducted by an approved organization. Id. § 154.052(a). To serve as a mediator in a dispute involving the parent-child relationship, a mediator must have completed an additional 24 hours of training in the fields of family dynamics, child development, and family law. Id. § 154.052(b).

There is no requirement in the statute that a mediator be trained or licensed as a lawyer.   At Divorce Strategies Group, our trained and experienced mediator is also a CDFA® or Certified Divorce Financial Analyst.  So, in addition to the neutral mediator skillset and training, we possess experience and knowledge regarding the financial and tax matters of divorce.

At Divorce Strategies Group we created an entire process revolved around mediation called “Cooperative Divorce”.  This provides divorcing couples options for divorce and a softer, easier way to divorce.

Resources for your Divorce

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The emotions of divorce are vast and wide – but not unique.  Nearly everyone who has ever asked for or been asked for a divorce feels similar feelings.   Lost. Scared. Lonely. Shaken. Sad. Angry. Bitter. Relieved. Hopeful. Excited. Angry. In shock.   These are just some of the stops along the emotional roller coaster that is divorce. It’s not anything that anyone should have to endure alone. Divorce has become so commonplace that there are tons of resources available to help you survive the process with dignity.

There are also resources for divorce that are NOT a good idea.  When your FRIENDS AND FAMILY find out you are getting a divorce they are going to be full of ideas, tips, tools and stories.  They are well meaning, kind people who are trying to help you but mostly, they are not helping!!!  They are stirring up fear, bad ideas and likely hurting your case, usually without realizing it.   Rely on friends for a shoulder to cry on and a good ear to listen, but not for advice.  Do your best to get advice from objective professionals and NOT biased family and friends.

The resources that I think EVERYONE needs during the process and for a time period after are:

  1. A Good Therapist– Divorce stirs up so much emotional trauma, everyone involved needs an outlet for that trauma. A great therapist is the perfect person to channel those emotions.  Not only that, the therapist will help you uncover why you picked the person you didn’t love or why you picked the person who treated you so poorly – so you are not doomed to repeat the same behavior.A therapist is also the place to take your anger, fear, bitterness and other emotions – NOT your attorney.  The attorney is getting paid $350 an hour not to hear how hurt you are, but to help you with your legal case.Also, Divorce Care is a great tool and a way to connect to others facing divorce and struggling emotionally. Divorce Care is offered nation-wide at many local churches along with Divorce Care 4Kids.
  2. Certified Financial Divorce Analyst or CDFA™ – One of the most common fears in divorce is “Will I be ok financially?” It’s almost unavoidable. Before you agree to any settlement, you really need a second set of eyes and some financial projections, so you know what your post-divorce lifestyle will be. Divorce is tough and during it we tend to focus a lot on the right now. Hiring the right person for financial guidance will assure you comfort and security for the future.A CDFA can also use their knowledge of divorce tax laws and taxation of different financial accounts to help clients walk away with more after-tax money than a straight 50/50 split might offer.Be sure to hire someone with financial knowledge of divorce matters. Often, I see current financial planners write up settlement options prior to divorce negotiations are underway that set expectations too high and it causes a lot of problems in divorce proceedings.  It causes issues when you are expecting to receive 70% because he cheated, only to find out you cannot get 70% because of an affair.  Having to come down from that expectation along with dealing with divorce is hard, harder than it needs to be.
  3. The Internet– Divorce has become big business. New resource sites pop up every day offering a wealth of free information, downloads, blogs, referrals, directories, etc. It can be somewhat overwhelming so just pick out what you connect with and leave the rest. Go slow. Be kind to yourself. Going to a few is a good idea but don’t let yourself sink in too long.

This is going to be a challenging time in your life. Ultimately, you will be stronger, happier, and ok – as long as you choose to. Use the resources for divorce available to you to make good decisions for yourself. Today truly is the first day of the rest of your life.

How to Tell Your Spouse you are Leaving

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It’s time to tell the spouse you are leaving.  I was on the receiving end of this message in my divorce, so I can certainly share what NOT to do!  My ex-husband, I believe, was nervous about telling me so instead, he informed me he was thinking of leaving me and then waivered back and forth for over a week.  He left me sitting in limbo when he knew he was done.  After he finally told me he was leaving, he spent the next 2 weeks telling me how terrible I was, and he threatened to take our child away from me if I didn’t cooperate with what he wanted.  And after the insults and threats, he told me I had to file.  I did end up filling and we started a war which lasted many years and our child was adversely affected by our long, continuing legal battles.  This is one of the worst ways to tell your spouse, followed by one of the worse reactions.

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So, what’s the right answer to tell the spouse you are leaving?  There probably isn’t one.  This will be one of the most difficult conversations you’ll ever have.  Here are my best tips.

  • Make sure the kids are somewhere else.  Even if you want this divorce, you’ll need time to deal with the emotions of telling your spouse you want out.  That is the first of many steps that bring finality.  It’s emotional.  Your spouse will also need time to deal with this.  Send the children away for the night or the weekend.
  • Be direct and as compassionate as possible.  I advise telling your spouse simply and directly.  Own it.  Say it.  It is also okay to let them know you don’t want to discuss any details in the moment.  It might even be a good idea to leave and spend the night somewhere else to avoid a huge emotional situation.  You’ll both likely be better off for it.
  • Do it in person.  Whatever you do, do NOT do it in writing, an email, or, mostly, a text message!  Have the courage to say it to their face.  You made this decision – own it and tell them honestly and openly, and if possible with kindness.
  • Speak only about yourself.  Do not attack!  Absolutely no “you” statements.  It should go something like this; “I have made a decision for myself that I need to tell you about.  At this point, I can no longer stay in this marriage and I want to start the divorce process.  All of the reasons aren’t important anymore.  I just know that I need things to change.  I also know this is a lot to absorb.  I’ve made arrangements to stay somewhere else tonight, so you can have some time to process this, and neither of us do something we will regret.  I’m really sorry.”  And quietly walk out.  Things may not go that smoothly, but that’s a good way to start.
  • Don’t make idle threats about not giving your spouse any money or taking the children.  This will only cause fear and create the ground work for a long emotionally and financially costly war.  I often see couples who are at the beginning stages of divorce doing this.  Keep with those “I” statements and only say what you think and what you feel.
  • Make sure you’re safe.  If there is ANY possibility that you might be met with anger or Dviolence, be sure that someone is with you.  You might also want to have the police on notice and patrolling the area.  Have them stand by the front door while you speak to your spouse in private and then immediately leave.
  • Once the decision is made, be sure to get educated.  A great place to start is our e-book on options for divorce.  Get your copy at divorcestrategiesgroup.com.

February is Divorce Month!

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February is known as “Divorce Month” and kicks off what is known as “Divorce Season”. The holidays are over; the decorations are down and now it’s back to reality. Unfortunately, the reality is you and your spouse face another difficult, unhappy Valentine’s Day which will likely be followed by another awkward angry summer vacation, and then the holiday grind all over again. You don’t want to do this another year. You had a terrible holiday season and now you feel like you are starting this all over – and you just can’t do it anymore.

So, what do you do?

This is the time to do some soul searching.

    • Realize the realities of divorce. You once loved your spouse, you chose this person for a reason. Is there work you can do to rekindle that feeling? Feelings follow actions. If you can act again like you did when you were dating, your feelings will likely change. Some people are willing to do this, some aren’t.
    • Know that you are still tied to this person if you have children with them – forever. You won’t be married or live in the same home, but you will always share your children, you will still raise them together, be there for graduation day, see them get married and be there when they have grandchildren – you just won’t do this together.
    • Still wanting divorce? Then determine which action you think is best for you. Most peoples default response is to call an attorney and start a war. This is one of the most expensive options. There are other options.
    • Explore which option is best for your divorce. You have the kitchen table approach, mediation (hiring one attorney for the family), collaborative divorce and litigation.

Whatever you decide, take the time to do your research even during divorce month. Explore all your options, ask all your questions. You only have one chance to get this right. Be sure you secure your financial future after divorce. Contact us today for your FREE 30 minute Consult at DivorceStrategiesGroup.com

Top 10 Critical Financial Errors in Divorce

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After years of working with divorcing clients, I’ve compiled what I believe are the top 10 most critical financial errors in divorce.  These are all errors I’ve seen with our own clients or my associates’ clients.  These are all items that can be avoided with property knowledge and preparation.

1. Not filing the necessary forms to receive your awarded IRA’s or retirement plans.

This is one of the top financial errors in divorce.  When the divorce proceedings are wrapping up, the parties tend to relax and think all is over and taken care of.  In my experience, that is not necessarily true.  Now, the work to move the awarded assets must begin or better yet, is already in process and follow up must take place.  I’ve seen clients go back to court to receive awarded IRA’s when paperwork was not in good order.  I’ve also seen much stress over 401k assets when QDRO’s were not properly prepared and filed originally.

Here are a few tips to avoid these kinds of issues:

  • Get required signatures on IRA’s that you are awarded before the divorce is finalized or at finalization, while the attorneys are still involved.  It is very likely there is a form the firm will require which must be signed by the relinquishing party when you are awarded an IRA.  It’s best to do this while the divorce is still in process and lawyers are still involved.  Make sure all or any investment company signature guarantees are completed properly as well.
  • Have employee retirement plan QDRO’s completed prior to finalizing the divorce and have them available for the judge’s signature when the divorce is filed.  Check with your attorney on what time line the court requires – some only honor the QDRO’s for 30 days after finalization of the divorce without requiring additional signed forms by your ex-spouse.
  • Ask your attorney what deeds need to be created and signed for hard assets you are receiving.  Make sure you are your attorney agree on the time line for creating or filling any necessary deeds for properties – especially those awarded to you.

2. Not following up on real property needs or understanding real property issues after divorce.

I recently received a call from a woman whose husband was awarded the house during their divorce.  However, since they did a “kitchen table” divorce and did not involve attorney’s or financial professionals, there was no discussion of what happens if the husband did not make the monthly mortgage payments.  In their current situation, the husband was three months behind, the wife was still on the mortgage watching her credit fall and was powerless to change.  She could have had protection put in place from an attorney setting up special deeds to protect her – but she didn’t know to do this.

  • Make sure you speak to an attorney about deeds if you are transferring property ownership from both spouses to one spouse.  Do this before you finalize the divorce.
  • Speak to mortgage specialists about re-financing the mortgage prior to finalizing the divorce.

3. Being unaware of tax recapture rules

For the duration of 2018, spouses can receive a tax break for spousal support or alimony payments.

Under Internal Revenue Code (IRC) § 71, recapture requirements apply if excess alimony payments are front-loaded into the first three post-separation years.  Their purpose is to discourage divorcing spouses from improperly characterizing property settlement payments as alimony.

Recapture would also apply for spousal support being reduced around the time a child or children turn the age of majority including: if spousal support payments are reduced or terminated within 6 months before or after the date a child attains the local age of majority, or when payments are reduced within a year before or after two individual children of the payor attain a certain age between 18 and 24, if payments are reduced upon each child turning the same age.

If child support payments are ceased with any of these two events, the payments would have been presumed to be associated with a child-related contingency and the IRS could have re-characterized spousal support payments as child support for the entire period.

  • To avoid recapture concerns I use a calculator if the support will be reduced the first three years.

I use https://www.rosen.com/alimonycalculator/

  • To avoid the recapture for contingencies related the children, I look very closely at the calendar comparing when the payments will stop versus when the children turn 18, 21 and 24.

4. Ignoring tax ramifications of different types of accounts and ignoring basis information.

If you are receiving any asset, make sure you understand the tax consequence of moving that asset into cash.  The final amounts you receive from a $100,000 IRA, a $100,000 401k pursuant to divorce, a $100,000 CD, a $100,000 annuity and a $100,000 Roth IRA are vastly different.  Also, you need to know the cost basis which is the original principal amount invested, and any additional investments made.  If you do not know this then you may have more tax liability than necessary.  You don’t typically owe tax on the cost basis – just on the growth of that basis.

  • Ask your attorney or mediator to require the spouse relinquishing the asset to provide cost basis information by a certain date and in a certain format.  It is usually by date of divorce and in writing.

5. Forgetting about the Spousal Survivor Benefit

I have seen financial errors in divorce cases where both husband and wife were retired and receiving pensions pre-divorce and wanted to keep it that way post-divorce.  No big deal, right?  No QDROs needed.  That might be true, but did anyone think about the spousal survivor benefit?  Can the election be undone?  Certainly the husband and wife may want to stop paying the premium on that election.  And if either took a joint and survivor option at in retirement, can they now “pop-up” to a single life annuity option post-divorce?  Both attorneys and clients sometimes overlook these considerations.  To be safe, I look at the payouts options of each client.  If they are joint and survivor, I check the rules to see if that could change in the future.  If it can be changed, this needs to be discussed and evaluated prior to divorce proceedings being finalized.

6. Executive Compensation Plans Not Split Correctly

I’ve found account taxation is often ignored or forgotten as the divorce is closer to being finalized.  Often attorney’s and clients understand the 401k has tax ramifications, but the tax consequence of stock plans sales or other executive compensation plans are often ignored in divorce.  I’ve also noticed that attorney’s often do not delineate what is required to be reported and by which spouse.

These accounts may not always be able to be divided.  You must check with the company prior to division.

The cost basis needs to be disclosed on stock plans and other executive benefit plans if they are divisible.

7. Overlooking Pension Plan Assets

I had a client whose husband had always handled the couple’s finances which lead to one of the worst financial errors in divorce.  I asked her to send me everything she could find regarding their assets; buried deep in the 120 pages in a box was her husband’s pension statement.  His pension had two parts: a monthly income stream and a supplemental benefit that had a present value of $930,000.  The $90,000 was included in the husband’s disclosure document, but he made no mention of the monthly pension income.  I valued that income at around $890,000 and included it in the asset division report to my client and her attorney.

The number on the pension statement is not usually the real value of the pension.  This is often incorrectly valued in divorce negotiations.

8. Failing to Advise Clients to Refinance the Mortgage Beforethe Divorce is Final

Let’s say that John and Jane have agreed that John will keep the family home post-divorce, giving Jane other assets to make up for her share of the current equity.  You can do quitclaims to change the titling of the home, but unless John refinances the original joint mortgage, Jane is still financially responsible for the mortgage.  If John stops making mortgage payments, it will affect Jane’s credit report as though she had missed the payments herself.  The only way to ensure this doesn’t happen is for John to refinance that mortgage before the divorce is final.

What I suggest in these cases are:

  • Refinance the home in the person’s name who is receiving the home prior to the divorce being final or at the very least have time lines on when the refinance must happen and consequences if the refinance does not happen (as in the other spouse keeps the home)
  • If there is no way to refinance the home, then a deed of trust to secure assumption can be created to protect the person who no longer owns the home but is still on the mortgage.  I would ask an attorney about the details of this and get their advice if this should be necessary.

9. Not understanding debt and divorce

I have a client who came to me for help, but had already discussed splitting everything down the middle with her spouse.  They had already decided that was how they were going to split their estate.  However, they had more debt than assets and the debts were all in the wife’s name alone.  The husband could not qualify for debt in his name alone which was one of the financial errors in divorce I saw.  They each had their own pension plans – plans with a future income stream from their respective companies, but no cash value today.

The wife did not understand that the debt in her name was her responsibility, ultimately, and a divorce decree did not change this.  To be careful I always check to see who’s name the debt is in via the statement.  I usually give each person the debt in their name to them.  In this case, there are not enough assets to cover the debts so spousal maintenance or a buy out payment plan will have to be created to pay off the marital portion of debt to the wife, or she will have to take her husband’s pension plan.

10. Failing to Get the Insurance Before Signing the Settlement

The insured should go through the underwriting process prior to signing the settlement agreement to avoid financial errors in divorce.  If coverage will not be available due to health issues, or if the premiums are prohibitively expensive, other provisions should be included in the settlement to protect against pre-mature death, such as the creation of trusts or other estate-planning tools.