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!
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.
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.
Dividing community property, or property jointly owned by a married couple, can often be a complicated process, with your financial options dictated by potential tax implications. While some things may be easy to divide, others are not. Some belongings are sentimental, while others — such as annuities — involve complicated financial calculations. Annuities not only involve moving ownership from one person to the other or joint title to single title, they often also involve moving or potentially deleting critical living benefits, guarantees and/or death benefits as well as surrender penalties on top of potential tax liabilities. That is a lot! Annuities in divorce are complex to say the least. We will attempt to unravel the complexities of annuities as they relate to divorce or at least guide you on what questions to ask.
While there are multiple types of annuities (fixed, fixed index, variable, immediate and deferred) all types of annuities are typically in either the accumulation phase or the distribution phase. The different phases will determine how value and divide the annuity in a divorce situation.
If an annuity is in the accumulation phase, it is growing. The annuity may be growing by a simple fixed rate – aka a fixed annuity or by a variety of factors in the fixed index or variable space. The key take-away is there is only growth in this phase. Income has not yet started. This is a critical factor in divorce negotiations. In the accumulation phase the annuity can have three main parts – the actual cash value, the guaranteed benefit amount and the death benefit.
This is the actual cash value. This is real money and should be the value on the marital inventory. This value may have a surrender charge affiliated with it which should also be reflected on the marital inventory. If you do not see a surrender charge on the statement, it is wise to call the carrier and confirm no surrender fee exists. Also, if the contract is still under surrender charge penalties, ask the carrier if they will waive the surrender charge in the case of a divorce where the account is divided between the spouses. We have found quite often they do not waive any fees even though the division is pursuant to a divorce.
Guaranteed Value or Living Benefit Amount
In the accumulation phase, this is the living benefit amount. Many contracts offer a certain amount of guaranteed growth for future income. For example, some annuities may guarantee 7% growth, compounded annually with possibly even a high-water mark (meaning the annuity will capture the highest day of market gains in the annuity contract that year plus add the 7% guaranteed growth on top of this value). Sound too good to be true? What is the catch? This amount is not real money – it cannot be withdrawal in a lump sum. It is the value for which a future income stream is derived. In our same example, let’s say the contract grows by 7% guaranteed compounded annually, and when the client is age 65 a 5% income stream can be taken, guaranteed for life off the 7% compounded number. (In some cases, the income stream will also double for long term care needs for a certain amount of time.) In divorce, the guaranteed amount is often erased if the annuity is divided. This can cost the overall estate hundreds of thousands of dollars.
Know if there is a living benefit and if so, what happens if the annuity is divided between the spouses? The living benefit number is often quite higher than the actual account value, but this is not the number to be listed on the marital inventory. It is a phantom number used to derive a set amount of income at a future date. However, because there is an account value it is the actual cash value which is listed on the estate spreadsheet. The annuities are designed to deplete the cash value over time when the income begins if you live long enough, so this number is not listed on the inventory when the annuity is still in the accumulation phase.
Sometimes annuities have stand alone death benefits or death benefits attached to the living benefits. This means a certain amount is guaranteed at the death of the annuitant. In some cases, the death benefit is the reason an annuity is sold as life insurance was not an option or was too expensive. It is important to know if an enhanced death benefit exists and if so, know this and other relevant facts. Who is the annuitant? What is the death benefit exactly? What happens in the case of divorce if the contract is divided or moved to the non-annuitant spouse? Now that the couples are divorcing, is the death benefit still relevant or should other options be considered? The death benefit should be on the latest annuity contract statement. However, it is not listed as an asset on the marital inventory as it will only be pain in the event of the annuitant’s death.
If an annuity is in the income phase, it is in distribution. The distribution may be a systematic withdrawal stream on a guaranteed basis, a systematic withdrawal on a non-guaranteed basis or annuitized. This set of facts is vital to know in the case of a divorce.
Systematic Withdrawal – Guaranteed Basis
This should be the most common situation with an annuity. The income from the living benefit has been triggered. In the example above, the 5% income stream at age 65 has begun off the 7% compounded annual growth the annuity provided. If this is the case, the annuity may not be divisible without significantly hurting the amount of income the annuity provides on a guaranteed basis. Contact the carrier to determine how, if at all, the annuity can be divided, and the income stream kept intact. The income stream however may be divisible. The division of this works much like a pension on the estate spreadsheet where a net present value of the future income stream is calculated, and this is the number on the marital inventory.
You can also forego a net present value calculation of the income on the marital inventory and split the income 50/50. We recommend contacting the annuity carrier to determine if division can occur at the carrier level so there is little, if any, interaction between the parties. You will also want to ask the annuity carrier what happens if the annuitant dies. The wife may not receive any payout if the annuity is based only on the husband’s life and he dies or vice versa. Some payouts are based on joint life and some are on single life which were determined at the income stream’s inception. It is vital to understand what happens in the event of one spouse’s death.
Systematic Withdrawal – Nonguaranteed Basis
If this is the case, you can likely divide this annuity. It may not be attached to a living benefit guarantee. This is the least likely to exists and rarely seen, but it is a possibility. It is important to call the carrier and determine your options if this set of facts exists with your annuity. The issue will be mainly surrender charge penalties when this annuity is divided if it is still in the penalty period. We would also ask if there are any issues with the annuitant – is it joint annuitant or single annuitant and will this be possible if you change to the spouse who wants the asset or if you divide the contract in half.
If this is the case, the annuity cash value no longer exists – it is only an income stream. Older contracts typically have this. Most newer contracts do not require annuitization because the contract corpus is gone – it belongs to the annuity company. The valuation of this is now just like the valuation of a pension plan. The carrier may have the income based on joint life or single life. They may divide the income in half but when one spouse dies, the income stream may cease for all. The carrier must be contacted to determine what happens at the death of the owner and/or the death of the annuitant. These facts are important to know as they relate to the income stream after one spouse dies. If you do not want to divide the income, one can calculate a Net Present Value of the future income stream as one would a pension and this number should be indicated on the marital inventory as an asset to be offset with other assets.
Owners and Annuitants
Aside from the issues we stated above in valuing and dividing annuities in the accumulation and the income phases, the named owner and named annuitant could alter the course of the annuity division. It is vital to know who the owner is and who the annuitant is (they may not be the same). These set of facts may determine what happens to the contract when this is divided to the non-owner and/or non-annuitant. Some contracts are jointly owned the with joint annuitants or jointly owned with single annuitants – and each carrier can handle dividing these differently. A simple call to the carrier and a discussion with a member of client services advanced team should straighten out these issues, we just want you to know what to ask for.
We highly encourage you to reach out to a professional who not only understands annuities, but also understands divorce laws in your area. A Certified Divorce Financial Analyst is the perfect person to have on your team if you or your spouse own an annuity and you are walking through a divorce. We at Divorce Strategies Group understand annuities and divorce finance and can help as well. Contact us for your 30-minute free consultation today.
In Texas, divorce mediation is a confidential process where a neutral third person (the mediator) helps divorcing couples reach a divorce settlement. The mediator facilitates communication between the parties to promote settlement and understanding between them. Mediation addresses child custody, child support, visitation, spousal support, and property division. The mediator does not act as a judge, attorney, or financial advisor, but assists the spouses in reaching a voluntary agreement.
Denise French founded Divorce Strategies Group, LLC in 2014 and since that time we have continuously guided clients through the divorce and mediation process. We believe mediation is an excellent tool for divorcing couples, especially when there are contentious issues. Our goal is to help you reach a satisfactory agreement with your spouse, without having to endure a lengthy, costly trial. Save time! Save money! Get on with your life.
How does Mediation work in a Texas Divorce?
The goal of mediation is to work through all the issues of your estate and the issues with minor children. An attempt at mediation is strongly recommended and often even required in many Texas counties. In mediation, you will most likely be in separate rooms while your mediator(s) walk in between the rooms. Sometimes, the parties will be in the same room, if they wish to be and it is productive. Without minor children, expect to mediate for a half day. When minor children’s issues are involved, expect to spend an entire day in mediation. At the end of mediation if agreements have been reached a binding, legal document called a Mediated Settlement Agreement or MSA will be signed by everyone. This document is irrevocable and binds your agreements legally. The fight is, in essence, over at this point which typically brings much peace and relief. The MSA is also a tool used to push your agreements through the court system as a judge cannot typically overturn a property drafted MSA.
After the MSA is completed a divorce decree will be drafted by an attorney which reflects the agreements you made in mediation. The divorce decree (which you will review and also need to sign) along with the MSA are presented to the judge in court (or remotely due to COVID-19) and used to finalize your divorce. The mediation document is usually 6 – 10 pages long while your actual divorce decree is 30 – 50 pages long.
Why Should I Use Mediation to Settle our Divorce Conflict?
- Mediation is flexible – While we have a process, we acknowledge every family and every divorce is different.
- Mediation is future oriented – We are going to focus on where you are headed, not where you have been. Everyone in divorce has some type of pain or fear. We understand and we are happy to listen and help you heal. However, in mediation we will focus on the future.
- Mediation works – Mediation has a high success rate, especially when both spouses are open to compromise.
- Your information is protected – Mediation is confidential.
- You and your spouse are in control of the outcome – Your future in not the hands of a judge hearing only a tiny fraction of your life story.
What sets our firm apart?
The founder of Divorce Strategies Group, LLC, Denise French, has been divorced herself and understands what you are going through! Her divorce was costly and long. Sadly, it was also damaging to her family, her finances and her children. She strives to help litigants avoid the heartache her family endured. This is personal for her. Denise is not a lawyer. She is a financial expert in litigation and fully understands divorce finance in Texas.
Denise works alongside several family law attorney mediators. These mediators, along with Denise, will walk you through every aspect of your child issues and your financial issues to help you achieve a win-win solution for your family. Our partner attorney mediators are Denise Khoury of Guajardo, Khoury Family Law and Manny Caiati of Caiati Law & Mediation.
Denise is a Credentialed Advanced Mediator through the Texas Mediator Credentialing Association with hundreds of cases both as a mediator and as a financial expert in mediation.
The decisions you make in mediation will have lasting, lifelong ramifications for your children and/or your lifestyle and financial wellbeing. We have a proven, 7 step process which involves the help of a financial expert and a family lawyer – both of whom are also mediators. Together, this is a place where you can work through all the child custody issues as well as the financial issues without the fight in court and with proper guidance.
Contact Divorce Strategies Group today!
Before you contact a divorce lawyer, call us. Need more information about divorce and mediation? We invite you to contact our office for a complimentary consultation. We are here to help you in every way possible!
The valuation and division of retirement accounts in divorce is more complex than most divorcing couples expect. We frequently see people after the fact who wish they had known better before they signed papers to finalize their estate division. The details are important. Below are four common items to know about before you sign on the dotted line.
1. Does a retirement account only belong to the person whose name is on the title?
What if only one spouse worked for most of the marriage while the other was the primary caretaker for the home and children? If that’s the case, most of the retirement assets are likely only in one spouse’s name. Despite the titling, these retirement assets acquired during the marriage belong to the community estate and are fully subject to division in a divorce. It is common for clients who own retirement accounts to believe they are entitled to the entire account since it’s in their name. However, money earned during the marriage is a marital asset and subject to division in a divorce within a community property state like Texas.
In contrast, retirement assets earned prior to the marriage are typically considered separate assets and not subject to division in the divorce. In addition, the growth on those separate assets during the marriage is considered separate property (but not the income, yes, it gets confusing). For an accurate appraisal of what portion of a retirement account is separate versus and what portion is marital, a separate property accounting must be conducted. The burden of proof is on the person making the separate property claim. All assets, no matter what the title says, belong to each spouse equally if the asset was acquired during the marriage, except for those assets which were inherited or gifted during the marriage or came from a personal injury suit.
2. How will we be taxed if we divide a retirement account?
You are not necessarily taxed on the division of a retirement account. Taxation happens only if you distribute the retirement account outside of the retirement vehicle. For example, if your spouse has a large 401(k) and you divide it during the divorce, no problem. You can move these funds into an IRA for yourself without paying any tax and let it continue to grow tax deferred. The same rules apply if you are dividing an IRA. You only acquire a tax liability when you redeem the funds from the retirement chassy and put them into your bank account or a non-retirement brokerage account.
3. Which retirement assets are best to keep in a divorce?
Not all retirement assets are equal as far as the IRS is concerned, which means what you get to keep in your pocket differs – sometimes substantially- between different retirement accounts! This is a synopsis of the different types of retirement assets we commonly see with divorcing couples in our office. We also provide a discussion of liquidity as having liquid, available cash is king in a divorce.
Pension plans typically rate lowest on the list of assets to obtain because those funds are not liquid today (unless you are at retirement age). Further, each plan has its own rules surrounding availability of the pension funds to the ex-spouse. Some funds mandate you wait for your ex-spouse to retire while others will let you retire on your own timeline after you have reached a certain age which can be anywhere from 50 to 65. Pension plans may also offer a lump sum option at retirement – it just depends on the company or entity offering the plan. There is also the issue of company solvency – will this pension plan even exist when you are retirement age? It is also important to know if you are entitled to assets if your spouse dies before the pension plan begins – some entities don’t pay you at all if your spouse dies before the payout has started, even with a divorce decree.
It is wise to involve a Certified Divorce Financial Analyst or CDFA in cases with a pension as they can help you understand your options and make those phone calls for or with you. Know the rules of your potential pension plan before you sign any binding documents
IRA’s typically rank lower on the scale of available, liquid assets because withdrawals are usually taxed at the owner’s highest marginal tax rate and incur a 10 percent penalty until age 59.5 (barring the exceptions of substantially equal periodic payments for those typically 50 and over, death and disability). There are no divorce exceptions to the penalty as there are in a 401(k) which is why we prefer our clients are awarded the 401(k) assets rather than the IRA assets if there is a choice.
401(k), Profit Sharing Plans and other ERISA-Regulated Plans
ERISA regulated plans (such as 401k’s and Profit Sharing Plans) are one step above the Traditional IRA regarding assets available for liquidity as you can redeem cash from your ex-spouses 401k plan without paying the 10% penalty, but you still must pay taxes. That is a big savings – especially in larger plans. You can save thousands in fees by just taking the 401(k) over the IRA if you are in need of cash from the retirement assets.
The down side is a federally mandated 20% withholding on all cash distributions. For example, if you want $80,000 in cash from your ex-spouses 401k, you’ll need to withdrawal $100,000 as 20% ($20,000 in this example) will automatically be forwarded to the IRS. You are not losing that money – you’d owe it in taxes anyway you are just forced to pre-pay your taxes. If you do not owe the full 20% at tax time you will receive a refund or if you owe more, they will certainly let you know when you complete your taxes the following year. The other negative is 401(k)’s can only be awarded via a Qualified Domestic Relations Order or QDRO. QDRO’s cost an additional fee of $500 – $1,500 and they take time and work to finalize.
ROTH IRA’s are the most advantageous retirement asset for liquidity needs during or after divorce. The principal put into a ROTH IRA can be withdrawn tax and penalty-free at any time for any reason. The earnings on the ROTH IRA are different. The earnings can be subject to taxation and the 10% early withdrawal penalty (before age 59.5) but you are able to take all of the principal before touching the earnings. For example, if you have a ROTH IRA worth $40,000 today which you originally invested 15,000 in; the $15,000 is principal and the other $25,000 is earnings. In this example, you can redeem the $15,000 with zero penalty and zero taxation while the rest can be left alone to grow.
4. Should you consider the value of retirement accounts after taxes when dividing assets in a divorce?
Many attorneys will “tax effect” retirement plans (discounting the account by the recipient’s marginal or effective tax bracket). Left unchecked, the spouse receiving more of the retirement accounts may benefit (possibly unfairly) in negotiations from this practice. However, if your spouse is not playing fairly and trying to stick you with all the retirement accounts while they take all the cash, a tax effecting is in order. Tax effecting can be as simple as taking 20% – 28% off the value of the retirement account and dividing that. Or, it can be as complex as determining your effective tax rate and considering what assets will actually have to be used and tax effecting just those by the actual amount of tax you will pay this year (and possibly projecting out to the next few years). By preparing financial projections, a CDFA can assess the amount and timing of the recipient’s anticipated withdrawals and tax liabilities from retirement accounts.
Questions About Divorce and Retirement Accounts? Let us help. Retirement accounts are complicated, especially in divorce. Understanding tax implications and liquidity are critical in divorce negotiations. You only have one shot to get this right. Ensure you are receiving the settlement that’s best for you by having the right people on your team. Contact Divorce Strategies Group for a complimentary 30 minute phone consultation to discuss your specific needs.
When you are facing divorce life can see overwhelming. To make matters worse, in the midst of emotional turmoil you are asked to make life altering financial decisions. This is tough!! We STRONGLY encourage you to hire a divorce team with experts in each area of needed expertise. An experienced, knowledgeable attorney is critical. Next, if you have financial concerns, it makes sense to hire someone to help you with the financial questions and issues in your divorce. A Certified Divorce Financial Analyst or someone trained and experienced specifically in the areas of divorce finance and tax can save you thousands of dollars in your overall settlement.
We have seen many people come into our offices after the divorce details are finalized only to discover they could have done better or they will lose 30% of what they were awarded to taxes. We don’t want this to happen to those still in the divorce process. Be informed! The following are mistakes we see repeatedly when it comes to divorce.
3. The settlement doesn’t take taxes into effect.
If the old saying, “death and taxes are the only sure thing we have in life” holds true, why would you settle divorce negotiations without knowing the tax implications of your settlement. You are going to be taxed, just know what those taxes will be!
What people often find is the tax burden on their half of the marital assets is significantly higher than their spouse’s. This means their “half” of the assets are worth significantly less than they thought! It’s also important to consider when you will be using the assets you were awarded. For example, what’s worth more – $100,000 in an IRA account or $80,000 in a savings account? Well, it depends! What is your tax bracket and how much cash do you need today? If you need cash now, you are better off taking the $80,000 in a savings account. The $100,000 in an IRA is going to have taxes and possibly penalties taken from it so in the end the $100,000 is probably only worth about $65,000 or $75,000. If you don’t need this money for years, the $100,000 in an IRA will probably be better as it will grow tax deferred for many years and will be able to compound on itself quicker than a taxable $80,000 in savings.
2. Pensions are split 50/50 but no one knows what that really means.
Over and over and over I see divorce decrees that order pensions split 50/50 but no one has any idea what will actually happen. When do you start collecting? How much money can you collect when the pension begins? Is there an option to take a lump sum?
Did you inquire about a separate interest Qualified Domestic Relations Order (QDRO) where you can take the funds on your own timeline? Are you subject to your ex-spouses retirement wants or do you have a say in when the funds begin? Will there be a cost of living increase each year? What if you or your spouse dies before you start collecting? Will it still pay you?
Pensions are complex financial tools with variables many do not consider. In addition, the devil is in the details with the pension plans. Know what you are getting and your options!! If you have a pension you really need a financial expert on your team who understands pensions and QDRO’s so you can make informed decisions.
1. The biggest mistake – keeping a house you can’t afford.
As a woman I understand becoming emotionally attached to a home – this is where my kids have grown up and where we made many happy memories. This spot on the stairs or the place by the front door is where we took pictures every year on the first day of school. This is where I want my kids to come home to when they are grown with their own children. I get it!! It’s tough to leave the marital home if you have such strong emotional ties. However, time and time again my older divorcing couples are told by their adult children – don’t stay in the house!! We don’t care. We just want you to be financially healthy and strong.
As a financial expert, the first thing I’m going to ask my divorcees to do is create a monthly budget. What does it cost to live in this house? I have witnessed where one or two years down the road the spouse who “won the house” has run out of cash and realized that they can’t sell a window to put food on the table, they can’t refinance because now they don’t have enough income, and they have no choice but to sell. Further, the selling costs are about 8% of the sale – all of which could have been split 50/50 with a spouse if the house had been sold during the pendency of the divorce.
The sum this up, please realize you don’t know what you don’t know. Bring in the right experts for your divorce to make sure you are smart, you are informed, and you make the best decisions you can with all the information! Don’t go this alone. As we say at Divorce Strategies Group, “You only have one chance to get it right!” Let us help. Call today for a complimentary consultation to discuss your situation and let us help you start on the right path.
Let’s face it. Change is tough for many people and divorce changes just about every facet of your life. Divorce can often test one’s ability to handle change to an extreme. Some people struggle more than others with change. They fight it, avoid it, fear it, and sometimes feel guilty about it. These notions would make anyone want to keep things as normalized as possible. One would think only adrenaline junkies and dysfunctional people would want to disrupt what could be a perfectly normal situation. However, change can be very positive and powerful, especially if you have been in an unhappy or abusive marriage. Here are five truths in my life I’ve experienced with change. Hopefully this will help readers cope with their own life changes.
1. Change is inevitable
While divorce may not be inevitable, relationships will evolve. Whether you cling to what you have or long for something more, change is unavoidable. Nothing can or will stay the same. You have power when it comes to change. Your actions or reactions to change will determine how positive or negative the change is. Get comfortable with the notion of change as part of the evolution of life and stop resisting.
My divorce meant not only losing a spouse, but losing his entire family, the life I had envisioned and dreams I had of being a stay at home mom. Oddly, I have a relationship with my ex-spouses family today. It’s different than it was, but it’s good. I also had the chance to be a “stay at home” mom for a year, and I found I really didn’t like it. I love to work and I’m a better mom because of it. I own two businesses today which I never would have had the chance to own if I had stayed in my marriage – he would not have given me the freedom to explore these opportunities. What was the absolutely worst thing in 2007 is a gift today.
2. Change helps your brain stay healthy
Science suggest our brains need new and varied problems to work on. When our minds aren’t working out problems, solving mysteries, or figuring things out we can become weak. Change is one of the best ways to keep our brains healthy. This means our lifespan will be healthier, and our mind will not be as susceptible to diseases like dementia. It’s good for your brain to embrace the change in your life as a puzzle you can solve.
I certainly fought the divorce in the beginning, and I went through the stages of grief for at least a year if not longer. No doubt, there was a grieving process to walk through. However, my divorce also brought about new changes which were fun and unexpected, like meeting new friends and having a fun, loving social environment. I was also able to thrive with my career after the divorce which meant learning a lot of new things and experiencing new challenges. When I was no longer subject to emotional abuse I was able to really thrive and grow.
3. Change creates maturity
Sometimes change comes with a price tag. Sometimes change comes with a penalty. Sometimes change requires risk, and sometimes change is forced on us. No matter how change occurs, it causes us to grow. From learning we are tougher than we realized and having to do some difficult things – change creates maturity.
When my divorce was over I made a list of gifts. To my suprise, I had three pages of small, single spaced gifts. Many of them had to do with personal strength and fortitude. I’m so much stronger today. While I certainly would not have chosen this path voluntarily, I’m so grateful today for it.
4. Change teaches you to overcome fear and anxiety
Whether stepping out towards change in doubt or being pushed into the unknown without your consent, change can be scary. The devil we know is easier to manage than the one we don’t. Once the fears are faced, they are often scarier in theory than reality. Change teaches you to overcome fear and anxiety as you learn new coping skills or how to talk yourself through fear.
I was a single mom of a 2 year old child when my divorce was final – that is big change. It was scary. Looking back I’m convinced there is no stronger force than a parent protecting their child. Being a single mom of a young child drove me to bigger and better things with my career. It also lead me to be a better mom and person. I no longer fear financial insecurity (for the most part). I no longer fear being alone. I no longer fear many things – all because of what I went through.
5. Change gives you choices
Once the spirit of change is validated and embraced, change can become part of your normal routine. If you choose something and don’t like it, that isn’t the end of the line. Change things again! From changing your coffee order to the brand of cereal your family eats this week, change can be fun. From picking a new wall color to a new genre of book to read, change can be exciting. From changing where you volunteer your time or which organization you donate to, change can matter to more people.
When my divorce was final I made big changes to my house – I repainted rooms, moved furniture around, rearranged the cabinets and made changes to the yard. These small changes made a big difference. Small things like which cabinet your plates are in can help facilitate change in your head and heart which can give you courage for more change. In my first marriage I really wanted multiple children. As a child I was much younger than my siblings and as a result raised as an only child. I did not like it. I decided very young I would have no children or multiple children – but not an only child! Even though my first husband and I had decided on two or three children when we married, after our first (and only) child was born he decided he didn’t want any more. Well, guess what. When I remarried it was to someone with three young children, and now we have five!! Talk about an evolution of change. It is a beautiful blended crazy mess which this extrovert absolutely loves.
There are many truths about change – some scary and some not so much. Embrace the concept of change, and it will lead to enjoying the realities of change. We at Divorce Strategies Group are here to help you navigate changes from married to single. Schedule a strategy session or call us at 281-210-0057 to schedule your first mediation session today. No matter what your situation we strive to help our clients walk through divorce with confidence, strength and courage!
If love is a battlefield, then co-parenting teens is a battlefield with landmines. Teenagers can swing from adolescent to grown-up feelings (and back again) in the snap of your fingers. This confusing age is hard enough already for them to navigate. Throw in the challenges of being a teen with divorced parents and watch the fun multiply!
Luckily, it doesn’t have to be fraught with turmoil and anxiety all the way. Knowing where some of the landmines are hidden, or what to do to avoid them outright, will make this period smoother for everyone.
The thing to remember is that right now, teens are becoming independent and striving to express themselves. They will have their own ideas about how things should be, and those ideas may go against what you’re thinking. At the end of the day, I know you want to keep them safe and happy. With these suggestions, you can navigate the challenges you may face as you co-parent your teen through divorce.
3 Things to Remember when Co-Parenting Teens
It’s important to recognize that teens are trying to figure out what they want and who they’re becoming. With that comes lots of hormones. Sometimes it’s easier for teens to mask shame, sadness, and loneliness they could be experiencing with anger. Other times, kids think they’re angry when really they’re feeling those deeper, more vulnerable feelings. At any rate, it’s your job as a parent to be there for them with support and compassion.
Home is where the safety is. Home should always be a safe haven for teens. Yes, they want independence, but that doesn’t mean they don’t also need safety and stability. Make sure you establish a family-first feeling. Let them know whatever is happening in the outside world, their parents both will support and love them.
Teens will have a different idea about how things are going to work. Teens, especially the ones on the cusp of having more independence with access to a license, job, and friends or activities outside the home (ie: that sweet spot of 14-16) will have a lot of ideas about how they want things to work. It’s important to listen to them and meet them where you can. Work as a team with your teens and your ex as you co-parent so they feel respected and heard. If you tend to blanket them with your opinions, they could feel like you have no regard for their wishes and act out. They want to know you’re working with your ex to support and nurture them, even though they seem to be pulling away.
Teens just want to be heard. Sometimes, it could be a challenge to decipher between normal teenage angst and when your kid is really in trouble. Add to that the reality that your teenager may not want to share their feelings with you for whatever reason. Perhaps they wish to avoid confrontation or they don’t know how to express themselves. When you co-parent your teen through a divorce, remember that your kid just wants to be heard. When they talk, listen.
4 Things to Consider in your Parenting Plan as you Co-Parent Through Divorce
It’s challenging to tell your teen what they’re going to do, but you are doing this for a good reason (safety, making sure your teen becomes a self-reliant adult, and so on). Communicate that with them! Let them know you aren’t just making rules because you’re power-hungry; you have a good reason behind that.
Having a parenting plan will help with this. It could also be a struggle at first as you establish new routines for your kids as they turn into teens. Remember: your teens don’t want to be told what to do.
Make them feel like they have a say in it, especially as they get older. Once they hit a certain age, they can communicate their wishes with both of you instead of you telling them what they want. Respect those wishes and honor them as much as you can.
Kids will have time constraints and want control over their own schedule.
In your parenting plan, consider that your kids will have new and different time constraints. Teens are busy bees between work, school, friends, and other activities like jobs and volunteering.
Have a plan in place for time for handling scheduling conflicts. When possible, make sure both you and your ex show up at events like sporting games, rewards ceremonies, and the like so your teens can see you’re both showing up for them. Not only will your teen still feel like an important member of the family, but you’ll also get to spend time with your teen and not miss out on activities that are important to them.
How will you navigate chores and other household responsibilities? When kids who are younger experience a divorce, it’s very important to keep a consistent routine between both parents’ households. That gives them a sense of stability and normalcy. Things like bedtimes, chores, and time outs or rewards should stay the same.
As kids get older, their responsibilities will change and they may not need that consistency between both houses. However, what they do need is to know the rules so they can play by them. Communicate your expectations clearly if there is a difference between households. Make sure they understand what happens if they break curfew or get in trouble. I’d recommend that the basic structure remains the same between households (ie: expectations, consequences, and rewards), while the specifics may vary.
What happens when your teen starts to become more involved with friends and begins to date? You may not want to think about your kid growing up and leaving the nest, but they will. As you’re co-parenting teens, you have to realize they are teens. They will have friends and they will want to date.
What happens if their boyfriend or girlfriend wants to sleepover (or they want to stay at their house)? This is another area I’d advise consistency. That way they can’t play you and your ex off each other. No one wants to hear, “Dad lets me!” or have them take advantage of you because the rules around friends and paramours are more lax at your house.
Who will have the final say? Teens will fight you on things, plain and simple. That said there are important considerations to make, like what happens if your teen is sick, wants to get a piercing, decides to join a branch of military service, wants to purchase a car, claims they’ll drop out of school… the list goes on, really. In that instance, these are big discussions that should be considered carefully. When you’re co-parenting your teen, it’s assumed that decisions are mutually agreed upon with both you and your ex involved. The reality is that some parents may think they should have the final word, especially if they are the ones paying for most of it.
Having a discussion about whose decision is final before these issues come up (in other words, when the tensions aren’t running high) will help you stay cool and focus on the matter at hand when it occurs. Will there be times when mom has the final say over dad or vice versa? In what situation does your teen get to make their own decision? Just like who has the final say, think about who pays. You may be sharing financial responsibilities, but what about your teen’s input? If they want a car, do they pay for it or do you? Whose responsibility is it to replace a broken iPad? What if they want a cell phone? Put that language in the parenting plan.
A Final Word About Parenting Plans
As your teen is navigating their own changes (and at times feeling like the center of the world), you, too, must navigate changes. It’s different when you’re co-parenting teens than when you’re co-parenting adolescents. Parenting schedules will have to be addressed. Discussions about school, friends, and time conflicts will have to take place. Consequences, structure, and what you present a united front on will be a point to consider. As you’re co-parenting teens, these issues (and more) will come up. So, the more clarity you can provide in your parenting plan, the better. Make sure you actually look at your parenting plan, too. It won’t do any good if you never use it. Help your teen take you seriously by giving them new structure and boundaries as they get older. It will make a huge difference when you have to make decisions for your teen on behalf of you and your ex.
We understand co-parenting teens because we have navigated co-parenting 2 who are grown and 2 more who are almost ready to leave the nest. We, personally, have sought after the help of professional counselors and therapists. For a list of who we recommend call us at 281-210-0057 and also visit us regularly to check out our latest blog on various divorce related issues.
The issue of health insurance is critical in many divorces we see in our office. It is a key issue in any divorce when at least one party is under age 65 and without means to obtain their own health insurance. It can also be a significant issue with children who have graduated from high school but have not yet entered the work world to obtain their own health insurance. Thus, there are two areas where decisions should be made regarding health insurance and divorce: your child’s coverage and your coverage. Here’s a high-level overview of what to know and how to plan for coverage post-divorce.
Health Insurance, Divorce, and Children
When do you, the parent, stop being financially responsible for your child? Some parents believe it’s never; others believe it’s when your child turns 18 and some believe when the child graduates from college. People who are married disagree on this, so certainly people who are divorced will, too!
In a Texas divorce, minor children will be identified and the parent providing health, dental and vision insurance for the minor children will also be identified. In a typical Texas divorce, child support and court ordered health insurance coverage ends when the child turns 18 or graduates from high school, whichever occurs later.
Currently, from a insurance company perspective a child can be covered by a parent’s insurance until they are age 26. After child support obligations are complete (again, either at age 18 or upon high school graduation), the parent can remove their child from health insurance. Even though the insurance company will keep your children on your ex-spouse’s insurance plan, health coverage after high school graduation or age 18 may not fall under a family courts jurisdiction. An ongoing parenting plan and/or a contractual agreement in this situation may benefit everyone. We encourage all parties to discuss how they will handle health insurance for young adult children through college and even up to age 26 during the divorce process. You’ll want to make these decisions while your attorney is present in the divorce process so you can understand what is legal and what is at least contractually enforceable.
Health Insurance, Divorce, and You
With an adult, it’s much simpler. A divorcing party must keep their spouse on their health insurance until the divorce is final – and then after finalization the ex-spouse must be removed from the policy. As an ex-spouse you cannot stay on your former spouses policy. However, you do have other options.
One option is to ask your attorney about extending the finalization of your actual divorce to extend your health benefits legally. For example, we have had spouses finalize the details of their estate division with a signed Mediated Settlement Agreement (MSA) which finalizes the DETAILS of the divorce, but doesn’t officially make you divorced. You can divide bank accounts and brokerage accounts and make agreements on how you will divide retirement accounts after the divorce with an MSA. This gives you the peace of mind in knowing who gets what (the fight is over) but at least a little more time to keep your health benefits at a lower cost. This option will have a limited time period, but it can give you a few more months while you find a job with benefits or find another source of health care.
Another option is to keep your current coverage via COBRA. When going through a divorce, you can receive coverage with COBRA for 36 months. The time period for COBRA is extended to the 36 month marker because of divorce versus the traditional 18 months when you leave a company. Your soon-to-be-ex should contact the HR department for a summary of COBRA options and costs prior to divorce. You ONLY have 30 days from the date of divorce to elect COBRA.
Since you would qualify as a “change of status,” you could also shop the Marketplace outside of open enrollment windows. If you’re looking for lower-cost options, you could consider health share programs such as Christian Health Ministries. Finally, insurance brokers are wonderful resources to seek when looking for individual health coverage on the open market.
To wrap everything up, health insurance affects you and your children after a divorce and needs to be carefully considered. Take advantage of mediation so you and your soon-to-be ex-spouse can talk calmly about your children’s health insurance plans both after the divorce while child support is available and how you wish to continue their coverage into early adulthood. In addition, have a plan in place for yourself so you know your options post-decree and you aren’t caught without health insurance coverage.
If you need resources to help you with your financial needs or health coverage schedule a 30 minute complimentary consultation today with Denise French at Divorce Strategies Group.
Is this your first marriage? Or your second marriage? Maybe your third marriage? Studies show the rate of divorce for first marriages has dropped to 40%. But the alarming statistic is the rate of failure for second marriages is 67% and for third marriages, it’s a whopping 74%!
What Most People Do
About 70% of people who walk through divorce will wind up remarrying once again at some point in their life. If cohabiting couples are included in this figure, the statistics show over 80% of people take the chances on another relationship. About 29% of all marriages in the United States involve at least one person who has been married at least one time before. Men generally remarry faster than women do after a divorce. Caucasians are more likely to remarry faster than any other racial demographic in both genders. The median amount of time that it takes someone to get married after a divorce is 3.7 years, which has been fairly stable since 1950.
Sadly, the average length of time for second marriages ending in divorce will typically just under eight years. Why do you think this is happening? Wouldn’t you think we would’ve learned from our mistakes? Wouldn’t you think we would be smarter, older, more mature and should know better and know what we want in a new partner?
What We Are All Looking For
Feeling lonely or afraid of being on your own is terrifying and can lead to jumping into a new relationship. Rebound relationships are quite common. Having someone adorn you with attention and praise can be intoxicating – especially if you were the one who was left. We’re just human beings and it’s natural to want to feel loved and desired. So here are what the experts say are the 3 biggest reasons why second marriages fail at such a high rate:
Money is a big issue for many couples, but it’s even more troublesome in second marriages due to child support or alimony payments. When there are children involved, it gets even more complicated financially. I’ve seen many clients who are resentful about how much money is going out to their new husband’s children. It can become a real challenge if it is not discussed openly and honestly.
We highly suggest having a conversation with a Certified Divorce Financial Analyst or CDFA. This person is a financial planner with a focus on divorce financial planning. This professional will likely understand how divorce in your area works and understand advanced financial planning concepts. They can help you find common ground in your new marriage and work through financial issues long before they lead to divorce.
Many couples stay together “for the children.” Where natural children might keep a marriage together, step-children can be a divisive factor in second marriages. Many parents deal with the frustration of having step-kids. The biggest issue here is partners not supporting each other when it comes to dealing with each other’s natural children. This can be extremely difficult and frustrating – especially when two families blend together.
A good therapist or parent facilitator can be invaluable. We suggest finding one in your area to help create a parenting plan for the blended family and to help walk through kinks and issues as they arise.
This really depends on the circumstances of the divorce. Typically, the person who was left, especially because of an affair, may be resentful and angry. They may be terribly unhappy that their ex is so quickly in a new relationship or remarried. They may even try to sabotage things to create emotional or financial tension for the new partners. Again, a good therapist is invaluable in this situation. Whether you are the ex struggling with your former spouse finding ‘love’ so soon or you are the one feeling sabotaged, having an unbiased third party trained in these issues helping you is critical.
If you’re struggling with a divorce – whether it’s your first, second or third marriage, let us help you work through this so that you can feel confident moving forward into the next chapter of your life. We also work with many therapists in the area and can help you find the right one for you. Contact our Divorce Strategies Group today to help you find your new you.