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.
Year after year, you and your spouse have been saving for college through a 529 savings account. Now that divorce is pending, it’s time to think about spending the money you’ve put aside for your children as a co-parent. Who will be in control of how much is withdrawn and how it’ll be used? What are the rules? How do you put this in writing in a way that makes everyone feel secure about using these funds? How will you handle contributing to the account going forward? Use the following to learn how dividing 529 plans in divorce works and what steps to take going forward.
You can save up to $15,000 per parent in a 529 account or $30,000 total. Grandparents can also contribute up to $15,000 per person per year. Contributing more than $15,000 per person would need to be reported to the IRS as a gift. However, a 529 account can be “superfunded” with contributions of $75,000 per person or $150,000 per couple—which uses up your federal gift-tax exclusion for 5 years. So each parent and the grandparents can still contribute a considerable amount to the 529 accounts.
What can you use this money for? Which expenses trigger taxes and penalties? If you do things right, no penalties or federal income tax—and, in many states, no state income tax—will be due on your withdrawals. But learning by trial and error can be costly at tax time, and more importantly, your child could lose out on financial aid if you’re not careful. So learn the ins and outs ahead of time.
Here’s a guide to help you make your 529 savings go as far as possible.
Plan for tax-free withdrawals
Qualified withdrawals are federal income tax-free so long as the total withdrawals for the year don’t exceed your child’s adjusted qualified higher education expenses (QHEEs), discussed in #3 below. To calculate these, add up tuition and fees, room and board, books and supplies, any school-related special services, and computer costs, and then deduct any costs already covered by tax-free educational assistance. Examples include Pell grants, tax-free scholarships and fellowships, tuition discounts, the Veteran’s Educational Assistance Program and tax-free employer educational assistance programs.
You’ll also need to deduct costs used to claim or Lifetime Learning Credit. The basic rule: You can’t double up tax benefits for the same college expenses.
Know which expenses qualify
When you pay qualified education expenses from a 529 account, your withdrawals are tax- and penalty-free. As of 2019, qualified expenses include tuition expenses for elementary, middle, and high schools (private, public, or religious). Although the money may come from multiple 529 accounts, only $10,000 total can be spent each year per beneficiary on elementary, middle, or high school tuition.
Money saved in a 529 plan can also be used to pay qualified expenses associated with college or other postsecondary training institutions. Eligible schools include any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the US Department of Education.
While funds from a 529 account can be used to pay for expenses required for college, not all expenses qualify. Tuition and fees are considered required expenses and are allowed, but when it comes to room and board, the costs can’t exceed the greater of the following 2 amounts:
- The allowance for room and board included in the school’s cost of attendance for federal financial aid calculations
- The actual amount charged if the student is living in housing operated by the educational institution
In other words, if your child is planning to live off campus in housing not owned or operated by the college, you can’t claim expenses in excess of the school’s estimates for room and board for attendance there. So it’s important to confirm room and board costs with the school’s financial aid office in advance so you know what to expect. Also, keep in mind that in order for room and board to qualify, your child must be enrolled half time or more.
Textbooks count as an education expense, but only those included on the required reading for the course. Computers and related equipment and services are considered qualified expenses if they are used primarily by the beneficiary during any of the years that the beneficiary is enrolled at an eligible educational institution. Computer software for sports, games, or hobbies would be excluded unless the software is predominantly educational in nature.
It’s important to keep receipts and make sure that qualified items are purchased separately from nonqualified items. Be careful to avoid expenses that don’t qualify—for example, equipment used primarily for amusement or entertainment doesn’t qualify. These and other lifestyle expenses, like insurance, sports expenses, health club dues, and travel and transportation costs, will have to be funded through other resources. If you’re not sure whether a plan covers a particular college expense, the college’s financial aid office should be able to help.
Check with the school to find out exactly what’s required so you can avoid accidentally taking a nonqualified distribution. If you withdraw money for anything that doesn’t meet the qualified expense criteria, any part of the distribution that is made up of earnings on contributions will be taxed as ordinary income and could incur a 10% federal penalty. However, the penalty may be waived if there are extenuating circumstances, such as the disability or death of the beneficiary, or if the beneficiary receives a scholarship, veteran’s educational assistance, or other nontaxable education payment that isn’t a gift or inheritance.
If a distribution from a 529 plan is later refunded by an eligible educational institution, a recontribution can be made to the 529 plan. The recontribution must be made no more than 60 days after the date of the refund. The recontributed amount cannot exceed the amount of the refund.
Keep good records
Your 529 savings plan administrator will, in most cases, provide an annual statement that reports your contributions and earnings, including the amount you withdrew from the plan. But it’s you, not your program provider, who is responsible for accurately reporting to the IRS. If your withdrawals are equal to or less than your qualified higher education expenses (QHEEs), then your withdrawals including all your earnings are tax-free. If your withdrawals are higher than your QHEE, then taxes, and potentially a penalty, will be due on earnings that exceed your qualified expenses. For many people, keeping track is easy because large tuition bills use up most of their 529 savings. But if you are using your 529 plan for room and board expenses, it’s smart to keep those receipts.
When divorced, you’ll need to find a way to make sure the IRS receives the correct information. You’ll either need to work together with your spouse each year on what expenses each of you will turn into the IRS or you’ll want one only spouse to handle a particular child’s education costs and reporting needs.
Decide how to withdraw the funds
It’s important that withdrawals you take from your 529 savings account match the payment of qualifying expenses in the same tax year. Like some families, you may choose to pay the school directly from your 529 account for ease in recordkeeping and matching distributions to school expenses. In this situation, make sure you are aware of school payment deadlines and the time required to transfer funds from the 529 account to the school. It can take several days for investments to be sold out of your 529 account and mailed to the school and then a week or so for the payment to make it through the mail and then processed by the school.
Or you may choose to move money from your 529 account to your bank or brokerage account. Many colleges prefer payments to be made electronically through their website from a bank or brokerage account. You can choose to pay bills first and then reimburse yourself from the 529 account, or you can pull money from the 529 account and then use it to pay bills from your bank or brokerage account. This path also provides flexibility when paying smaller bills like those for books or off-campus room and board.
Keep in mind that you must submit your request for the cash within the same calendar year—not the same academic year—as you make the payment. If the timing is off, you risk owing tax because it’s considered a nonqualified withdrawal.
Prioritize which 529 accounts to spend from first
If your child has more than one 529 savings account, such as an additional account through a divorced co-parent or a grandparent, knowing which account to use first or how to take advantage of them concurrently could help. Don’t leave decisions to the last minute—instead, sit down with all plan owners and decide on a withdrawal strategy ahead of time to make sure the qualifying college costs are divvied up in the most beneficial way.
Also, if financial aid is in the picture, a distribution from a grandparent-owned 529 account may be considered income to the child on the next financial aid application, which could significantly affect aid. To avoid any problems, grandparents can take distributions from 529s as early as the spring of the student’s sophomore year—right after the last tax year on the student’s last undergraduate Free Application for Federal Student Aid (FAFSA), assuming the student finishes college within 4 years. Wait until the following spring to employ this strategy if it looks like your child will take 5 years to graduate.
Money left over in your 529 plan?
With careful planning, you can avoid having money left over in your 529 account once your child graduates. But if funds remain, there are several options available. You can let the money sit in the account in anticipation of your child continuing on to graduate school or another post-secondary institution. If so, you’ll want to rethink your investment strategy depending on how soon the funds will be needed so you can take full advantage of the potential for growth over time.
You also have the ability to change beneficiaries without incurring tax consequences. Here are 2 different options for maintaining your tax advantage and avoiding any penalty:
- Change the designated beneficiary to another member of the original beneficiary’s family. IRS Publication 970 has a lengthy list detailing which relatives count as family. This can be done for any reason, but is an option particularly if your child receives a scholarship or decides not to attend college.
- Roll over funds from the 529 account to the 529 plan of one of your other children of the marriage without penalty. This is a good option if there are funds left over after graduation.
Either way, we encourage you to draft in your divorce decree what you will do if your children don’t use all of the 529 account funds. Each child has until the age of 30 to use the funds. At that point, you can either withdraw the funds and gift it to the child or the parents can divide the remaining funds 50/50 at the end of the time period.
Regardless of which option you choose, you will want to spell it out in your divorce decree today. Also, each state has different restrictions on 529 accounts, so check with your financial advisor or ask your plan provider for the specific requirements of your plan.
What if the beneficiary gets a scholarship?
You’ll be happy to learn that there is a scholarship exception to the 10% penalty. You can take a nonqualified withdrawal from a 529 account up to the amount of a scholarship; although you will pay taxes on the earnings, you won’t pay the additional 10% penalty that’s imposed on a nonqualified withdrawal. Remember to ask for a scholarship receipt for your tax records.
Consider how college savings affect student aid and loans
While individual colleges may treat assets held in a 529 plan differently, in general these assets have a relatively small effect on federal financial aid eligibility. Because 529 plan assets are considered assets of the parent, they tend to have a small effect when the government calculates your financial aid eligibility, whereas accounts that are considered assets of the child, such as an UGMA or UTMA account, tend to have a greater effect on federal financial aid eligibility. (This does not affect 529 accounts that are owned by a grandparent.) For more information, read about financial aid planning.
If you’re thinking of taking out loans that start incurring interest immediately, you may want to spend 529 funds first, deferring these loans until later. Another situation that would call for using 529 plan funds first would be if there’s a chance your child may graduate earlier or receive some other funding down the road, such as a scholarship.
Create a Plan for Dividing 529 Plans in Divorce
At some point, you’ll actually need to start spending the money you’ve set aside. You will need to think about preserving gains you may have made so that funds will be there when they’re needed. If your plan relies on an age-based investment strategy, this process is already in place and your asset mix has slowly evolved toward more conservative investments like money market funds and short-term bonds.
Now’s the time to sit down with your divorce team and decide the best ways of dividing 529 plans in divorce, how to use these funds and who will be in control of the funds going forward. The more you decide today, the less you have to decide in the future when the safety of your divorce attorney in negotiations with your spouse is gone.
On March 30, 2020, the Treasury Department and the Internal Revenue Service announced the distribution of stimulus package payments to account for the coronavirus pandemic. When it comes to this tax stimulus and divorce – there are often some questions.
What is the Tax Stimulus?
Payments are intended for taxpayers only, therefore, most qualifying recipients must have a social security number. There may be a minimal exception for members of the military.
Qualifying single adults who have an adjusted gross income of $75,000 or less will receive $1,200. Married couples with no children earning $150,000 or less will receive a total payment of $2,400. Taxpayers filing as head of household will receive full payment if they earned $112,500 or less. Those with dependents age 16 and younger will receive an additional $500 per dependent.
If your income is higher than the thresholds listed, then your payment will be reduced $5 for each $100 over the threshold until it stops altogether for single people earning $99,000 or more, or married couples without children who earn $198,000 or more.
You will not receive payment if someone claims you as a dependent, even if you’re an adult.
What If I Was Married For The Applicable Tax Filing, But I Am Separated From My Spouse Now?
Funds will be direct deposited based on the bank information from your 2019 tax filing. If you have not filed for 2019, then your 2018 filing will apply.
If you filed “jointly” with your spouse for the 2018 tax year, but have separated from your spouse since filing, then it is best to file your 2019 taxes as soon as possible. You will need to notify the IRS of your updated status of “separated” or “single”.
It is not likely that the IRS will have updated information for couples who have separated since their 2019 tax filing. Couples who filed jointly for the 2019 tax year but separated after filing, may need to coordinate division of the stimulus funds. If you cannot coordinate with your spouse, then seek an attorney to divide the funds appropriately. The IRS will be sending a paper notice in the mail detailing information about where your payment ended up and in what form it was made.
How Are The Payments For Children Allocated To Co-Parents?
For each qualifying child age 16 or under, there will be an additional payment of $500. The stimulus payments are based upon the 2019 tax filing. This means that if you claimed your child on your taxes in 2019, then you are likely to receive the $500 benefit for each child that you claimed as a dependent. If you have not filed taxes for 2019, then you should refer to your 2018 tax return.
The $500 stimulus payment for each child will go to the parent who claimed the child as a dependent in the most recent tax return.
Will I Receive Payment If I Am Behind On My Child Support Payments?
No. The Coronavirus Stimulus Bill has not waived offsets for past due child support. This means that if you owe back child support, then you may receive a decreased stimulus check or no check at all. If your payment is intercepted by the department of the treasury, then the funds will be given to the child’s custodial parent.
What if I was married with a high income in 2019 but didn’t qualify, but I will be single in 2020 and likely qualify for the credit?
The law says the rebate is technically an advance credit against your 2020 taxes (the return you’ll file in early 2021). Thus, it eventually will be based on your adjusted gross income, filing status, and kids under the age of 17 for 2020. That is as it should be—the financial situations of millions of people will be worse this year due to the unprecedented pandemic shock to the world economy.
But here is the win/win: If your tax year 2020 rebate turns out to be bigger than the amount you received this year, you will get the excess, which can generate a larger refund when you file next year.
However, you will not have to give back the payment if your rebate based on 2020 income turns out to be smaller than the amount you get this year. Thus, some filers may have an opportunity to strategically time their 2019 returns–if they have not filed already.
Tax Stimulus and Divorce: Stay in the Know
To check on the status of your stimulus check, visit the IRS website. If you believe that your spouse has inappropriately withheld your portion of the stimulus funds or you need more assistance regarding the tax stimulus and divorce, discuss options with your attorney. Need help with your divorce finances? Contact us today!
Thanks to the COVID-19 pandemic, many small business owners face uncertainty. To compound this uncertainty, the White House announced this weekend it will extend social distancing guidelines until the end of April. Thankfully the government also recently completed the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). With a massive $2 trillion allocated for businesses, individuals, federal agencies, and state and local governments, the CARES Act has been designed to distribute capital quickly and broadly. There are a number of provisions that impact small businesses. The regulations (and interpretations of the laws formatted as rules) are fluid, however here is a guide to what you need to know about COVID-19 and small businesses.
EMERGENCY ECONOMIC INJURY DISASTER LOANS (EIDL)
This program was already in existence through the Small Business Administration (SBA). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply.
- Businesses with 500 or fewer employees
- The term employee includes individuals employed on a full-time, part-time or other basis
- Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees
- Non-profit organizations
- Individuals operating as sole proprietors or independent contractors
Details to Know
- EIDLs can be approved by the SBA based solely on an applicant’s credit score.
- EIDLs that are smaller than $200,000 can be approved without a personal guarantee.
- Borrowers can receive a $10,000 emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll; increased costs due to supply chain disruption; mortgage or lease
payments or repaying obligations that cannot be met due to revenue losses.
- Expands allowable use to payroll costs, costs of group health care benefits during periods of paid sick, medical or family leave and insurance premiums; employee salaries, commissions or similar compensations; interest on mortgage obligations; rent; utilities; interest on other debt obligations incurred before the covered period.
- Coverage period January 31, 2020 through December 31, 2020
- Required to make good faith certification that the employer has been affected by COVID-19 and will use funds to retain workers and maintain payroll and other debt obligations
- No requirement that applicant is unable to obtain credit elsewhere
- Business MUST be operational on January 31, 2020
- Must be used for:
- Maintaining payroll to retain employees during disruption/slowdown
- Covering increased costs due to interrupted supply chains
- Paying rent/mortgage payments
- Replaying obligations that cannot be met due to revenue losses
How to Apply
To apply for this loan visit the US Small Business Administration. For everything you need to know about applying for a small business loan, see the U.S. Chamber’s Small Business Loan Guide.
PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans. Currently, the SBA guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll and expands the network beyond SBA so that more banks, credit unions and lenders can issue those loans. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions.
- Businesses with 500 or fewer employees
- Select types of businesses with fewer than 1,500 employees
- The term employee includes individuals employed on a full-time, part-time or other basis
- Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees
- 501(c)(3) non-profits with fewer than 500 workers and some 501(c) (19) veteran organizations
- Individuals operating as self-employed, sole proprietors or independent contractors
- Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020
Details to Know
- IDLs can be approved by the SBA based solely on an applicant’s credit score.
- The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%.
- The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.
- Generally speaking, as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.
- Required to make good faith certification the employer has been affected by COVID-19
- No requirement of application being unable to obtain credit elsewhere
- No prepayment penalty
- No personal guarantee or collateral is required for the loan
- Business must maintain its March 24, 2020 employment levels through September 30, 2020 as much as practicable, and in any case shall not reduce its employment levels by more than 10%.
How to Apply
To apply visit your local bank or credit union who are conduits for the Small Business Administration (SBA) Loan process. Most firms that already participate in the Small Business Administration’s Loan program will provide a place to apply. Be forewarned, you cannot get a loan for this as of this writing. The SBA lenders have 30 days to gather the documents they feel will be necessary to facilitate the loans. Most lenders should have this information available in the next week or so.
While you wait for the loan process to be available, make good use of this time. Gather documentation supporting your payroll expenses over the last 12 months, netting out the portion of salaries in excess of $100,000 as well as other business expenses – mortgage/rent, utilities, etc. You will also want to gather your business documents – corporate articles, partnership documents, Bi-Laws, or equivalent as that will also be necessary.
CAN I RECEIVE BOTH AN EIDL AND PAYCHECK PROTECTION PROGRAM
Yes, small businesses can get both an EIDL and a Paycheck Protection Program loan as long as they don’t pay for the same expenses. However, be sure to check with your financial advisor or lender before taking both types of loans if you are not sure of the specifics of regulations related to COVID-19 and small businesses.
COVID-19 and Small Businesses
Struggling to keep up with the ever-changing regulations for COVID-19 and small businesses? Check back here frequently for up to date information or contact us for all of your divorce financial needs.
It seems incredibly unfair that at a time when you are dealing with the emotional stress of separating from your spouse, you also have to deal with worrisome and complicated financial issues too. As much as any other time in your financial life, it is vital to get professional help with your money questions when you are experiencing a divorce. One person in particular who take a lot of weight off your shoulders is a Certified Divorce Financial Analyst or CDFA®. For many clients, divorce is the largest financial transaction of their lives. The role of a CDFA® professional is to address the special financial issues of divorce and help litigants achieve a settlement that will work both today and in the future.
The Institute for Divorce Financial Analysts (IDFA™) is the premier national organization dedicated to the certification, education and promotion of the use of financial professionals in the divorce arena. The IDFA sets the standards for all CDFA professionals. The eligibility requirements for CDFA’s are established by the Board of Advisors and reflect the fact that a CDFA is not an entry-level designation but an advanced program.
Individuals with a minimum of three years of professional experience in finance or divorce and a Bachelors degree are eligible to enroll in the CDFA® Program. IDFA will accept ten years of professional experience from those candidates that do not have a Bachelor’s degree. This includes experience as a financial professional, accountant, or matrimonial lawyer. Candidates should also have working knowledge of financial calculators before purchasing the program.
Skillset of a Certified Divorce Financial Analyst
Divorce Financial Planning is the application of the discipline of financial planning to settlement strategies in divorce. The process requires the synthesis of tax, insurance, retirement and other areas of knowledge with their specific application to divorce. CDFA holders must possess experience with a and a strong knowledge base of a multitude of divorce related financial and legal issues, including:
• Personal vs. Marital Property
• Valuing and Dividing Property
• Retirement Assets and Pensions
• Spousal and Child Support
• Splitting the House
• Tax Problems and Solutions
• Expert Witness Testimony
• Tax Law and Financial Issues Affecting Divorce
Maintaining the CDFA Designation
Once a candidate completes the CDFA® course, the designation is valid for one year, after which a fee must be paid annually. To assure continuing competency in tax codes, legislative and other ongoing developments in the field of divorce financial planning, a candidate must report 15 hours of divorce-related continuing education every two years.
Code of Ethics
The Code of Ethics and Professional Responsibility is provided as an expression of the ethical standards that IDFA has adopted and every CDFA professional has agreed to abide by. The code applies to every CDFA designee and candidate in conducting divorce-planning work.
1. Integrity: Maintain the highest standard of honesty and integrity when dealing with colleagues, IDFA, clients or lawyers.
2. Competence: In addition to satisfying the continuing education requirement needed to maintain the use of the designation, every CDFA professional should serve their clients competently. Therefore, acquiring the knowledge and skill necessary to do so in the area of divorce planning is required.
3. Objectivity: Objectivity requires a CDFA professional to be intellectually honest and impartial. Regardless of who hired him or her, a CDFA professional will always be objective when dealing with clients and their lawyers.
4. Fairness: To alleviate the risk of potential conflict of interest as well as to not confuse the public, CDFA professionals should separate their financial practices and their divorce-planning practices to ensure divorce-planning recommendations are made independent of the potential financial planning relationship.
5. Confidentiality: CDFA professionals shall hold client information to the highest standard of confidentiality. Short of client consent or appropriate legal process, a CDFA professional shall not release any information about their client before, during or after the divorce.
6. Professionalism: A CDFA professional’s interactions shall project the highest level of professionalism. Whether dealing with clients, lawyers, IDFA or any of its partners or subsidiaries, a CDFA professional will behave in a professional manner.
7. Scope: A CDFA professional, by education and training, is a specialist dealing in the financial issues of divorce. Working alongside the lawyer who is licensed to practice law, a CDFA professional must never (unless licensed to do so) advise clients on their legal rights.
8. Compliance: A CDFA professional will comply with all the laws related to the business they conduct and report to IDFA any actions by other CDFA professionals that are illegal or in violation of this code. In addition, a Certified Divorce Financial Analyst professional will comply with any requests from IDFA for information regarding any complaints brought against him or her. If IDFA, after comprehensive investigation, decides that either suspension or revocation of the CDFA designation is the proper remedy, a CDFA professional will comply with the order.
9. Unauthorized Practice of Law: A CDFA professional understands that in order to practice law, one has to be licensed. Under no circumstances will a CDFA professional represent that the IDFA certification is a license to practice law.
10. Support: A CDFA professional will always support our profession and IDFA as the main driving force behind the progress of the profession. Additionally, a CDFA professional will not collude, debase or discredit IDFA or the profession
Do you need a CDFA?
Simply put, if you and your spouse have assets of significant value, the financial ramifications can be quite complicated. At this emotional time, it’s best to trust someone experienced with these kinds of issues rather than trying to learn on-the-fly. Money mistakes made at this time could have far-reaching consequences for your new life.
How do I find a Certified Divorce Financial Analyst?
The easiest way to enlist the services of a CDFA is to ask your divorce attorney for a recommendation. If you want to find one on your own, the Institute for Divorce Financial Analysts can help you locate an analyst in your area. Find them here.
You will likely find having one less thing to worry about—or several less things—during this difficult time is of tremendous value to you. A CDFA can lift some of the burden from your decision-making load. Schedule an appointment today with Denise French, CDFA who not only has the professional experience to help you with the finances of your divorce, but she’s walked through her own divorce and can help you navigate yours.
The U.S. stock market continues to be a daily surprise — sometimes shock — to investors and businesses across the country. While there’s never a promise of financial gains in the stock market, there are times, such as now, during which anxiety about your financial security is heightened. Divorce is also a time when financial anxieties grow. When the stock market and economy go crazy, you might worry you’d be crazy to pursue a divorce in a volatile market.
Economic fears are understandable, but you can get divorced during a tumultuous market and still come out with your financial security intact. You will just have to be extra careful and strategic during property division negotiations. This is also a critical time to enlist a Certified Divorce Financial Analyst (CDFA) on your divorce team.
Know Type of Accounts and Cost Basis
If you are like many working couples, you have money saved in retirement accounts like an IRA or 401(K) as well as other money invested in the stock market.
A retirement account is also called a qualified account. When you take funds out of an IRA to cash in your bank the money is taxed fully as if you had worked for a company and earned that money. If you are under 59.5 years old you may also be hit with a 10% penalty on IRA accounts taken out in cash. Conversely, if you cash funds out of a 401(k) or other ERISA governed group retirement plan owned by your spouse, you will still be taxed on those funds, but you will not pay the 10% penalty if you take them out pursuant to a divorce and a Qualified Domestic Relations Order or QDRO. This all applies to a cash distribution. Any retirement funds you move into your own IRA will have no tax due.
During volatile markets when the values are low, it will be wise to work with a Certified Divorce Financial Analyst to determine if now is the best time to convert these funds to a ROTH IRA. If you do so, you will pay tax now on the lower values but not pay any tax in the future on the growth of the account or distributions from the account years down the road at retirement age. Further you can also use ROTH IRA funds within certain parameters, for a first time home purchase or for education.
The non-retirement accounts are non-qualified accounts. The taxes related to these accounts are handled differently than taxes tied to qualified, retirement accounts. When addressing non-qualified accounts and stocks, pay attention to cost basis. The cost basis of an individual security (stock) is the cost you and/or your spouse paid for it at the beginning. Let’s assume you both decide to split the value of the stocks. You want to look at more than the current value of your investments. You need to know which stocks have increased in value since you bought into them and which have decreased in value. This might sound backwards, but the stocks that have decreased in value compared to their cost basis can be better for your finances in a divorce. Why? Simply because of taxation. If the government sees there’s been a financial loss, you aren’t taxed for that. If you only get the share of stocks that have increased in value, the taxes you pay in capital gains could result in a lower payout for you.
Stock Market Risk Tolerance
Another factor to consider is the experience and comfort of the spouse who originally managed the account versus the spouse who is receiving the account. For example, just because the spouse who traditionally handled the accounts is very aggressive and has a comfort level with stock market risk, the other spouse taking over those funds may not. The accounts may need to be moved into a different set of stocks or other assets for the comfort level of the spouse taking over the stock account, especially in a turbulent market.
We had a client who’s spouse was a financial advisor. He was very comfortable with stock market risk and understood complex investment concepts. His wife had never had to worry about their investments. We took over her account after the divorce and found it was invested in an extremely aggressive S&P 500 2x portfolio which meant it moved like the S&P 500 did, only twice as far. In up markets that is great, they captured double the return of the markets. However, in down markets it would be catastrophic. We moved her into a more conservative portfolio which proved to be very helpful when the markets fell.
The Wording Will Make All the Difference
When dividing divorce assets and debts, the estate will usually be divided as of a certain date. In Texas, you will typically be mandated to attend at least one mediation. When you choose to finalize the details of your estate in mediation, that tends to be the date of division. After mediation, attorneys will draft your divorce decree from the mediated settlement agreement, review it with you and then schedule a date and time to attend court to finalize your divorce. These steps take time. The date of division could be months away from the actual date of divorce (when you can start dividing the assets) which is why the wording in your division is so important.
For those who finalized the division of their estate in mediation in December of 2019 but didn’t get divorced until March of 2020, the wording would be critical. For example, if you had stated you wanted a set amount you would be thrilled because the market losses would not affect you (unless the account became smaller than what you were awarded). Conversely, if you agreed to take 50% of the estate including gains and losses in the account you will participate in the market swings whether up or down.
No matter which option your choose and agree to in mediation, a set dollar amount or a percent of the estate, you will want to understand what you are choosing and have some level of control over the assets in such a volatile market. This should provide peace of mind in knowing roughly what you are getting in your estate settlement. You can also request the funds be put in more conservative investments while the divorce finalization is pending. You do not have to sit in fear throughout this process, you just need to have help from someone who understands how this works.
Divorce in a Volatile Market: Keep Calm and Invest On
It is very common within a marriage for one spouse to control the investment decisions and the other spouse to not. If you were the spouse who did not make investing decisions, you aren’t alone in not fully understanding how the markets and investments work. For many who get divorced, the marriage ends and, suddenly, they are left wondering how to manage a stock portfolio. This new post-divorce reality can lead to anxiety. Worry about affording life after divorce, along with the felt ignorance when faced with the stock market, can result in a knee-jerk financial decisions. Many with less experience running the finances will choose to simply cash out all the stocks they received through the division of assets. Making the decision to cash out from an emotional place may provide some immediate relief; but could really hurt you in the long run. While cash is the best place for an emergency fund and for safety for part of a portfolio in a falling market, it is also the one asset class proven to lose money to inflation over the long term.
A focus on financial planning for the future, however, can be a growth opportunity after divorce, both in the metaphorical sense and in terms of your net worth. The financial markets can be your friend. That may be difficult to believe, particularly at times when stock market volatility is an everyday headline, but the facts are clear: the US stock market is one of the best investments you can make. History of the stock market has shown investing long-term is a strategic way to financially survive, even with volatile markets.
You Don’t Have to be a Financial Expert
When you decide to divorce in a volatile market, you aren’t signing up to become a financial expert. However, it is wise to hire one. During difficult market times it can be very scary but enlisting a Certified Divorce Financial Analyst or CDFA who is well versed in both the details of a divorce financial division and stock markets can be very helpful. Many CDFA’s are experienced financial planners and advisors who have been through their own divorce and understand what you are going through both professionally and personally. These professionals understand the markets and investing. They are also trained to work specifically with divorcing couples and individuals and understand how divorce finance works. These professionals can help you as they only focus on the finances a divorce case, and will work alongside you and your divorce attorney.
If you have questions or concerns about the financials of your divorce, schedule a call or video conference with us today to get the answers you need.
Divorce can really mess with your mind. I know because I’ve been there. It is like my brain was removed from my head and placed beside me for about a year. (It does come back!) The intelligent together woman that I once was turned into an emotional, brain-fogged, unorganized basket case. I tried very hard to keep it together, but I was not at my best. I felt paralyzed and incapable of coherent thought when I very much just wanted to focus and plan for my future with my young child. Divorce financial planning in Texas would have been the solution.
What’s a person to do? First things first.
1. Know the Basic Finances of the Home
What’s your role when it comes to the family finances? Do you handle the bill paying? Are you “in the loop” on all your bank accounts or are you in the dark? What about investment accounts or retirement plans? Do you have any? If you’re in the dark, you need someone to help you turn the lights on – and FAST! This is where a Certified Divorce Financial Analyst or CDFA® practitioner can really help.
Has your spouse blocked you from your financial life? If so, a CDFA® may help you shed light on the situation. A good CDFA® can walk through your taxes and identify brokerage and bank accounts. He or she can also walk through any financial statements you have and help you identify where assets may be hidden. A Master Analyst in Financial Forensics or MAFF® a different type of professional who can help you forensically trace bank accounts or brokerage accounts to look for hidden assets. There is help available – you do not have to stay in the dark. One client brought in a box of papers from years of stuffing them in drawers and closets. We found 3 rent houses and $100,000 in CD money!
If you and your spouse are cooperative, ask for statements on all your asset accounts and your most recent tax returns so you can find a CDFA® practitioner to help you out with divorce financial planning in Texas and bring you up to speed. A CDFA® professional is specially trained in the financial aspects of divorce and will be your best friend in this process!
2. Think About Your Future
This part will be hard but start thinking about what the next phase of your life looks like. Unfortunately, this has to happen at the same time that you are grieving what you THOUGHT the next phase was going to look like. But if you allow yourself some space, it can actually be healing and fun. You now have the chance to start over again.
What did you used to dream of doing that got lost while you were married? Is it time to go back to school? Maybe a cool downtown loft condo should replace that huge family home that you had to keep clean. Whatever you dream of, you will need your budget and financial picture top of mind. That way, if your dreams outsize your wallet, you know you have some serious planning to do!
3. Build A Single Identity for Yourself
Often through marriage all the credit cards, mortgages, loans, etc. are in the names of both spouses. All of those accounts will have to be closed or converted. Immediately open a checking and savings account in your own name to begin the process of establishing your own financial identity. Be sure to put some things in place while you’re still married because after the marriage is over, your credit picture may not be nearly as strong. Next, find a good rewards credit card to apply for in your name alone so that you will be assured of having access to credit after the divorce and maybe even during if legal fees are necessary.
These steps may seem small but they are valuable first steps to get you thinking financially and looking out for your future. You can get through this, and a little divorce financial planning in Texas help from a CDFA® friend is a great place to start.
We have 5 children in our blended family and now the first of them is about to hit his 20’s and looking for Mrs. Right, I’m concerned!!! Millennials and Generation Z young adults could be the first generations of children-of-divorce. By 1983, all but 2 states had adopted no-fault divorce laws and over the next decades, the divorce rate rose to our now norm of about 50%. That resulted in many of those kids watching their parents’ divorce and suffering the emotional consequences that often accompany that. When you really consider the early years, there were few resources available to couples and families on how to go through the process in the most humane way. But let’s face it, even with the resources today, there are still plenty of ugly divorce tales out there.
So, for a lot of these kids, as they grow past their 20’s and into their 30’s, a very interesting trend is persisting. The divorce rate, the number of divorces per marriages, continues to rise but the actual number of divorces each year is dropping steadily. Why is this? Because young people are not getting married! They are choosing instead to be in serially monogamous, long-term relationships, often including children and joint home purchases, but forgoing the tradition of a recognized marriage. I understand. They don’t want to go through what their parents went through so the heck with marriage! However, the result of this when life doesn’t go as planned can be disastrous. No burden of marriage also means no protections of marriage.
Consider this: Josh and Beth have been together 4 years and decide to have children. They agree that Beth will stay home and care for the kids while Josh finishes his degree and works nights to support the family. Once he’s done and gainfully employed, the kids will be a little older and Beth will then go back to school and finish her degree.
Well, life happens, and three years into this fabulous plan, Josh is about to graduate and drops the bombshell on Beth that he’s been having an affair with a fellow student. He’s in love and just can’t go on like this. He’ll be a good dad to their children but he’s leaving her. (Didn’t see it coming, did you?) Oh, and by the way, last year they bought a home but since Beth had no income, they didn’t want her low credit score to drag down their interest rate, so the house and mortgage are in Josh’s name.
So, what’s Beth entitled to? She’s like entitled to child support. The house was purchased by Josh and now that Josh is about to finish school and have a great job he can move on with his life in house. But they had plans! They had an agreement and she sacrificed her education to pay for his! Too bad. Had they been married, she could have been entitled to half the equity in the home, possible reimbursement for half of his education expenses and a portion of anything they acquired during the marriage. But boy, isn’t she lucky that she doesn’t have to go through a divorce? Josh kicked her out a week later and she and the kids had to move home with her parents.
Now, Texas does recognize common law marriage, but you will likely need an attorney to determine if you are married or not. What does that mean for Josh and Beth? It means Beth hires an attorney to prove they were married while Josh hires an attorney to prove they were not – after they fight about being married or not they then go on to fight over the house, the debt, the kids and anything else they own. What does that sound like? It sounds like the litigated divorce the parties set out to avoid in the beginning by not legally saying “I Do”.
This is SO REAL!! We highly encourage young people who wish to cohabitate take the time to visit an attorney to walk through the legal ramifications of this prior to moving in together. A simple Cohabitation Agreement can change many things. There are free ones available all over the internet or you can visit a family law attorney for more specific advice pertaining to your set of facts. Never move in with someone without one! It could end up saving you your entire financial life.
Few things savage your personal finances more than divorce. The closer you are to retirement, the worse the damage. At Divorce Strategies Group we have seen couples who planned their retirement to look one way but now the same money for one retirement has to work for two. Financial planning for anyone facing divorce is important but vital for those who are closer to retirement.
The divorce rate for Americans over age 50 has doubled since the 1990’s. In 2015, for every 1,000 married persons ages 50 and older, 10 divorced – up from five in 1990, according to data from the National Center for Health Statistics and U.S. Census Bureau. “Especially in a gray divorce, you have only one shot to get it right,” says Diane Pappas, a divorce financial analyst in the Boston area. “The husband and wife have to understand their expenses. The only way to live within their means is to understand what they’re spending and how much income they will have.”
What’s more, women are disproportionately affected financially by divorces: The average woman sees her standard of living decline by 45% after a split; the average man sees it go down 21%. Why do women fare so much worse? Carol Lee Roberts, president of the Institute for Divorce Financial Analysts, which trains people in divorce financial planning, has seen many splits where the man takes the retirement account and the woman gets the house. The result is the man receives assets to help fund his retirement and the woman is saddled with the maintenance costs and property taxes of a house. “Often keeping a house, or any large asset that isn’t giving you an income stream, isn’t the best idea,” Roberts says. Women who stay home to raise children also often pay a Social Security penalty in retirement. If they didn’t work enough to qualify for benefits on their own, they receive half the Social Security benefits of their husband if married 10 years or more.
Health insurance is another big area of impact when couples split. Many people receive employer-sponsored health coverage through their spouse’s employer, and they often lose it in divorce. “The No. 1 issue that keeps people up at night is health insurance,” says Jennifer Failla, an Austin, Texas, divorce financial analyst. People losing employer-sponsored insurance due to divorce can get coverage for up to three years through a federal program called Cobra, but it is expensive. We at Divorce Strategies Group help clients find private health coverage options and we review COBRA options. Often, you can find less expensive coverage but we must review the benefits. In addition, we have to review meds, cost of regular doctor appointments and any other special needs each client may have.
Even upscale couples feel the pinch in a split-up. Justin Reckers, a divorce financial analyst in San Diego, handled a case where the main source of income, the husband, earned more than $500,000 a year. The 54-year-old wife had quit working seven years earlier to raise their children. She received roughly $3 million in assets as part of the divorce settlement, enough to give her $7,000 a month for life after taxes, but that pales in comparison to the $15,000 or more a month the couple was spending before the divorce.
If you are considering divorce and want to know if you can successfully divide one household into two financially, call Divorce Strategies Group for a Strategy Session. If you have already filed for divorce and want a financial advocate, contact us for a complimentary phone consultation. Our goal to help educate our clients and provide peace of mind. You only have one shot to get this right, be sure to have the right people on your team!
“I’ll get my day in Texas divorce court!” ……. “The judge won’t like what you did!” …….. “I’m going to spread your dirt all over the courtroom!”
We’ve all heard someone say these things. Guess what…You really don’t want your day in court! Here’s why:
Expensive Legal Fees
The longer you drag out the process, the more your estate will suffer. You could spend $50,000, $60,000 or more on the divorce process and that is less money for you to divide! Wouldn’t you rather use that money for…hmmm…ANYTHING ELSE?? Texas divorce court costs so much money because there is so much preparation. Court is war. You want your attorney (or lead warrior) to be fully prepared which requires time and information. We’ve seen multiple families spend $50,000, $60,000, $100,000 or more on their divorce. Fighting just to “get him” or “nail her” could likely just transfer your kids college funds into your lawyer’s kids’ college funds without much for you to show for it.
Time in “Limbo”
Divorce is beyond painful. I know!! I’ve been there. I’ve sat in front of the judge and even though I “won” that battle, the war was lost by everyone in our family. It was excruciating. I know there could have been a better way to achieve the same goal without the long, drawn out battle which cost us so much effort, time, energy and hurt our child. As long as you are in the process of divorce, it will be impossible for you to begin the process of healing and moving on with your life. Ask yourself how much time you really want to spend in this “limbo” state.
A Stranger Deciding the Future of your Family
The stranger in the black robe that has never met you, your spouse, or your children will be deciding your future and more importantly your children’s futures! To make it worse, they’re basing these decisions based on a fraction of information they’ve been given about your life…and then a fraction of THAT is what they’ll actually consider relevant. Frightening!
In most Texas counties, you will be required to attend mediation before the court will hear your case. For the reasons stated above, embrace the idea of creating solutions for your future that will work for both of you. This is your chance to keep control of what you really want while creating a cooperative environment of giving your spouse what’s important to them as well. There is a solution – it may take hours to get there, but there is a solution. You only need the right people to help you find creative settlement options. You need a strong attorney and if your estate is of any significant size and/or you are middle age or older, you’ll need a financial expert helping you as well.
Preparing for Mediation
Your attorney is your strongest ally and support. They are there for legal counsel and guidance. You hired them, now trust them! They know the law, the court you are in, and have walked through thousands of divorces before you.
A Certified Divorce Financial Analyst or CDFA®
While attorneys know the law and the courts, a CDFA knows divorce finance and tax. We are financial advisors specifically trained to work with divorcing clients. I’ve been the client so not only do I understand the work professionally, I understand it personally. When you have property, investment accounts, savings accounts, retirement accounts, etc., it’s important to realize how you split things today will have a significant effect on your future. We have saved clients thousands of dollars in tax savings, helped create win-win solutions, and provided peace of mind by using the settlement options in mediation to create financial plans. We help you by working out those details in mediation before you sign an agreement. Leave mediation knowing you made informed financial decisions and with a clear vision of your future.
If you’re facing Texas divorce court, call Divorce Strategies Group!! You only have one chance to get the estate division right – having a financial expert on your team just makes sense!