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Divorce Strategies Group

Denise French

Archives for October 2020

Health Plans – Open Enrollment & Divorce

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If you work for a company which offers health insurance you probably already know about open enrollment.    Updates you choose during this time period will determine your health, dental and vision insurance for the upcoming year and your tax savings in deductible plans like Health Savings Accounts (HSA’s).   While the timing of open enrollment can vary with different employers, open enrollment is generally the period between November and mid-December.  During this time you are able to make changes to your health insurance plans without a major life change.  You can choose to renew your participation in your company’s current insurance plans, switch to a different one, and make changes to participants on your plan for the upcoming year.  Even though it can be tempting to select the plan you had last year so you don’t have to put in much effort, I’d encourage you to pause for a moment and consider if that’s really the best option from a benefits, tax, and budgetary viewpoint.

It Is important to remember if you are still in the midst of divorce, you will likely need to add your current spouse on your health coverage during open enrollment elections for the new year.  If you are under temporary orders (which you likely are) do NOT remove your current spouse from your health coverage right now for the next year.    You can remove your spouse from your health insurance coverage in the new year after your divorce is final as that will count as a major life change.

While you will keep your spouse on your current coverage, it’s important to look at your coverage options and make sure you have the right one for you. After you divorce is final in the new year (or the end of this year), you will remove your spouse from your coverage and this will be your plan for the rest of the year.  Are the deductibles proper for you?  Are you eligible and participating in the HSA? Is this the right plan considering minor children you will have on your plan?  This and other issues are important to consider.

1. Evaluate Life Changes

The amount of coverage you need plays a big role here, especially if you previously covered dependents and/or your spouse and no longer need to or vice versa.  Some other life changes in addition to divorce could make a difference in the plan you choose during open enrollment include births, deaths and medical issues.

2. Review Beneficiaries

Open enrollment time is a good opportunity to revisit the beneficiaries on your accounts.  For example, if you have group life insurance, you may still have your ex-spouse as the beneficiary.  Once the divorce is final you will need to remove your ex-spouse from the beneficiary designation unless you want your ex-spouse to be the beneficiary, and in that case you will need to re-assign that person as the beneficiary after the divorce is final.  Your ex-spouse will be skipped over on a life insurance policy payout unless they are specifically designated in a divorce decree and/or you rename them as beneficiary on the policy after the divorce is final.

We encourage you NOT to list minor children as beneficiaries on an anything.  Minor’s cannot receive payouts without a court appearance and a guardian. Guess who will be the guardian for your children if you pass while they are minors?  It will be your co-parent or ex-spouse unless they predecease you.  If you want to leave the proceeds to your children you will want to create a testamentary trust (included in your will usually and what I have personally) or a revocable or an irrevocable trust.     All of these involve a trip to an estate planning attorneys office which we highly recommend after the divorce is final.

For now, while the divorce is still pending, list your spouse as beneficiary. You are likely under temporary orders to do so. After the divorce is final it’s time to do some estate planning and likely change the beneficiary.

3. Understand the Benefits of the Plans You Select versus Your Needs

This is a great time to make sure you’re getting the coverage you need and you’re maxing out the tax savings from it.   Take the time to review what’s included in your plans, any tax credits or benefits you’re eligible for, and options outside of your employer-provided plans.  That way, you know you’ll actually use everything you’re paying for.  The reality is, it comes down to saving money and being tax-efficient, especially with an HSA.

Another big issue we see with divorcing couples is the deductible and the corresponding out of pocket costs.  You may have a fight on your hands (and undue stress from such a fight for you and your children) if your spouse is living paycheck to paycheck and you opt for a plan with a huge deductible.  Paying hundreds of dollars to meet the deductible for a simple sick visit to the pediatrician may not go well for an ex-spouse on a limited income or at least be an issue to address while you are in divorce proceedings.  Conversely, if there is a large surgery to pay for or a medical issue to be dealt with which is known for the upcoming year, it’s wise to perform a cost analysis on how much it will cost you to have this covered at a higher percent even with a large deductible versus a lower percent of coverage with a lower deductible.

Medical costs can be an enormous part of the annual budget.  The good news is you have coverage and choices, the bad news is sometimes those choices, especially in the midst of a divorce, can be overwhelming.   To make sure you’re getting the biggest benefit, tax savings, and coverage you and your family actually need, talk to a trained consultant who can guide you through the process.

If you’d like me to help you with health care selections during open enrollment season or any other financial related issues, I’ve opened up more Divorce Strategy Sessions on my calendar in late October and early November for those who are not current clients and want some extra help with financial related issues.   In my Divorce Strategy Sessions, we will discuss your needs, your options and your budget so you can make the best choices for you and your future!!  Click here to learn more about Strategy Calls and schedule yours today!

 

Divorce Myth Busters

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When going through a divorce, everyone seems to have an opinion – your mother, your father, your aunt, your cousin, your brother’s uncles’ friend, your dog, and anyone else who happens to find out you are getting a divorce. You will likely hear a lot of stories, thoughts, ideas and no doubt myths. In addition, proclamations of how things “always are” or “never are” can be terribly scary. In a time when you’re already going through a lot, you don’t need more stress on your plate.  There are five main divorce myths we have seen with our clients over the years.  This article will discuss the 5 top divorce myths we see and clarify the truth about each one.

Divorce Myth #1:  I don’t need specialized financial divorce support; my estate is simple.

The Truth: It will save you time and money to hire a divorce focused financial professional.

When discussing divorce, finances will always come into play with attorneys and clients. The attorney will be faced with some sort of estate, even if a negative estate, to value and divide.  Some attorneys are very experienced and adept with financials but even those attorneys, at some point, usually suggest the client consult with a financial expert or advisor.  The logical conclusion is to call on the current financial advisor or accountant for ‘free’ advice. However, few accountants, CPA’s or financial advisors in general deal in divorce on a regular basis, so they don’t have the training to handle divorce questions nor do they understand how the divorce realm works.  This really causes problems when dividing retirement accounts and pension plans (two things we do most often) because these professionals don’t understand the complete picture of how everything works together.  Nor do they, in general, understand tracing, separate property, community property or business valuation in regard to divorce laws.  Even worse, we have seen clients frustrated in mediation when the reality of the situation is far different than what the regular financial advisor suggested or stated was needed.  For example, one well-meaning financial advisor told his client she would be okay as long as she received 70% of the estate.  In mediation, 50% of the estate was on the table which brought her a great deal of distress, additional attorney’s fees, the input of a financial divorce related expert and a second mediation. She spent an extra $5,000 just because her well-meaning regular financial advisor steered her in the wrong direction at the onset of the divorce.

We have heard many clients tell us their estate is simple and question their attorneys’ request to hire us.  Your simple estate starts with a house, a mortgage, a 401(k) and maybe a few cars.  Seems simple right?  Well, it is, until it’s not.  Do you need money out of the 401(k)? Do you know the rules surrounding getting your money from a spouse’s 401(k), how it works, the process, the penalties and the tax implications? Oh, and then you forgot there is also a pension, there was that account you inherited a few years ago which you put into a joint account, and that rental property you own.  So, a seemingly simple estate which still had financial issues specific to divorce turns into a very complex estate where separate property tracing comes into play.  We see this all the time!

Even with truly simple estates, there are divorce issues to work through.  You want to keep the home – well, who is on the mortgage? Does the party leaving need to buy a new home?  Did you know there are specific rules around how long you are paid child support before the support can be considered income for a new home purchase? Do you know negotiating spousal support can help you in income calculations for rental properties or for buying a new home?  Do you know how to keep your credit from being ruined in the divorce or what will ruin your credit?  Are you aware of how to time your credit hits with loans you will no doubt need when you buy a new house, a new car, apply for a new job or even rent an apartment?

All of these things a divorce focused financial professional will know (and more), but other financial professionals or advisers who do not work in the divorce realm may not consider or even know to think about.  This could cost you thousands of dollars – well more than you are going to pay a divorce focused financial advisor for basic guidance throughout your divorce.

Divorce Myth #2: Mediation costs too much, it’s not worth it.

The Truth: Mediation is a place where you can be in control and ask for resolutions specific to your family.

Mediation is going to be required by the court (in most Texas counties).  You may have one mediation for temporary orders when the parties will decide how much support is paid, who will keep the children and when, what rules to follow, etc. during the pendency of the divorce.  Then another mediation may be requested for a final orders mediation.  Mediation can be your friend – this is where creative negotiations can occur, and the parties can each work through a solution which is a win-win for everyone.

We hear many clients complain about the cost of sitting in mediation all day or the fear having to deal with their spouse in the course of mediation.  We have seen mediation – even paying for your 2 attorneys’ and an attorney mediator and a financial expert – is well worth the cost!! This is the space where you are in control. A well-crafted mediation day will be attended with a plan – what is your starting point, what is your line in the sand, what is it you really want, how can you negotiate from a position of power, etc.  Further, what do you think your spouse really wants in the divorce and how can you give that to your spouse while you get what you want as well?  Mediation is also a place to receive things like longer term spousal support or a disproportionate share of the estate in lieu of something else.  Mediation is your friend in divorce negotiations.

Divorce Myth #3: It’s too expensive to work with a divorce financial advisor.

The Truth: From a cost perspective, a lot of the work we do will save people thousands of dollars.

From a fee perspective, lawyers and attorneys bill by the hour. If they have to research anything, guide you through what they need from you, or wait while you fumble around in a jumble of papers, that time will get tacked onto the bill.    So, from just helping clients get organized and pull together all the documentation they need to have ready before they see their lawyer, you’ll see a benefit of working with a divorce financial advisor. Together, we are able to gather things efficiently and use your time and money with your attorney wisely.  Further, some attorneys will ask a financial expert or advisor to help them create the community estate and value the estate.  The divorce financial expert often has fees which are far less than the attorney.  The attorney asks us to help the client prepare a marital inventory, asks us which items to request in discovery – and we do all of this at a lower rate.  Because we only do the finances, it is our niche and we are usually pretty proficient at it (which means it takes us less time and costs you less money overall).

Then, there are taxes, debt-related interests, dividing pensions, investments, and retirement accounts in addition to executive compensation plans, stock units, stock options or whole life plans attorneys don’t always know the best way to handle. You could be leaving money on the table with how things are divided if you do not have the proper financial guidance.  When I work with clients, I am able to see the best way to help them gain more financial independence and, bluntly, get or save more money in their divorce.   Often, people are afraid to take on additional costs around a divorce, but there are so many financial considerations you don’t know or aren’t aware of which a divorce focused financial advisor can help you with.

One great example is a divorce we acted as the financial expert in.  Our total fees for the divorce was $5,000.  In the process, we saved the client $60,000 in tax savings between the brokerage accounts, the timing of the divorce year end and the claiming of children in just one year!  It was a huge success for the client with the cost a fraction of the real, cash value savings we provided.

Divorce Myth #4: Divorce has to be horrific and awful.

The Truth: Divorce will be upsetting, emotional and stressful, but it does not have to be the worst experience of your life draining your soul.

Knowledge is power.  We encourage all divorce litigants to become educated on the process, the mandates and their rights.  We offer Wise Woman’s Guide to Divorce and Wise Guy’s Guide to Divorce education workshops just to educate those beginning or in the midst of the divorce process.  This is critical!  When you know what you are facing, you may not feel so lost and in the dark which should help you as you navigate the process.

Additionally, every situation is unique. If someone had a hard divorce, it is because of their individual circumstances.  We encourage those in the divorce process to not listen to others who had horrific experiences.  It reminds me of when I was pregnant and women (sometimes strangers) felt the need to tell me their worst, most horrific birthing stories.  Really – I didn’t need that.  You don’t need it now.    Polite pass on the divorce horror stories and educate your self so you have a more informed divorce path from a position of power and strength.

Divorce Myth #5: I can’t afford a therapist.

The Truth: Having a specialist who is trained to help you sort through your emotions will benefit you both now and in the long run.

While I am not qualified to give you therapeutic advice, I can absolutely encourage you to seek out a therapist to support you during this time. A good therapist can help you sort out your feelings and explore any mental and/or emotional impacts this time may have for you.   In addition, a therapist is a great ally to help you sort through the emotions in a safe place so you can negotiate from fact, not from feeling in the mediation or the negotiation room.

Having a therapist as a specialist for your mental and emotional health makes sense.   As mentioned, running up the bill when you’re disorganized because you’re only working with an attorney and not a financial expert as well, you’re also going to incur more hourly billing.  The same is true if you use your attorney as your therapist.  Let your attorney do what they do best and hire someone else to support you where they are going to make the most impact. You will save yourself money and sanity.

Next Steps

It’s okay (and perfectly natural) if you used to believe these divorce myths. A lot of clients come to us with these questions and more. If you’re wondering the best path for you to take, schedule a complimentary call so we can bust some of your divorce myths and help you come to a more peaceful solution to your divorce.    Call us for a complimentary consultation to discuss your specific needs today.