Coinbase (COIN) went public recently and had the attention of the investment world. Coinbase is a financial technology company that focuses on offering its retail users the ability to buy, sell, and own crypto and digital assets like Bitcoin, Ethereum, Litecoin, Doge Coin, and other currencies on the block chain. Coinbase reported they have more than 50 million retail users.
The popularity of cryptocurrencies has skyrocketed over the last decade. You can’t watch Bloomberg or CNBC or any other financial news outlet without crypto being discussed. Significant wealth has been created for individuals owning crypto assets as well. On April 16th, 2020 Bitcoin was $7,354. On April 15th, 2021 Bitcoin was $63,214.
Some experts believe we are in the very beginning of a long bull market with crypto currencies and at some point the “crypto standard” will replace our current “gold standard”. Financial advisors are struggling with how to offer these assets to their clients as a liquid, compliance approved vehicle is not readily available from a trusted source. This is all rapidly changing. Some experts estimate by the end of 2021 crypto currencies will become common place in portfolios as large financial institutions begin offering them.
Determining the Value of Cryptocurrency
Naturally, as a Divorce Financial Advisor, I began thinking how these types of assets were going to impact divorce settlements. In addition to Coinbase, investors can buy cryptocurrencies through companies like PayPal, Cash App, Robinhood, and Blockify. These relatively new types of investment vehicles should be examined very carefully by client’s getting divorced, attorney’s negotiating a settlement, and financial experts working for clients. In addition, sometimes divorces take 6 or 9 months or even a year to finalize. With any asset as volatile as Bitcoin, you will want to make sure the marital balance sheet is updated before any financial agreement is reached. Imagine the change in value of a Bitcoin holding from my example above. If Joe and Sally are getting a divorce and filed 4/16/2020 and he owned 3 Bitcoin valued at $22,062. A year later, and now that same Bitcoin is worth $189,642.
Analyzing cryptocurrency holdings in a marital estate is going to become more and more common moving forward. It will be crucial for the client, the attorney and the financial expert to work together to examine the potential impacts of taking the crypto asset versus giving it to their soon to be ex-spouse.
Determining the tax consequences will be a major issue as well. What is the tax impact if the crypto asset is sold? Were there any crypto assets sold in the year of the divorce? There could be a huge forgotten tax bill if you are not careful! Investors must report capital gains or losses from sales of cryptocurrencies on Form 8949 and Schedule D just like buying and selling property or stock. However, according to an article in the February issue of Financial Planning, titled Crypto Creates New Hurdles for Financial Advisors This Tax Season, many firms only send out the gross proceeds of the Crypto asset sales. It is the investors responsibility to figure out their own cost basis. This can create many hurdles when determining a marital estate. This information is crucial to determine the impact of how the crypto asset should be split.
If you are handling crypto assets in your divorce contact us to help you navigate these waters to avoid costly mistakes and tax issues down the road. Schedule your complimentary consultation today.
Of all the worries and concerns to think about when going through a divorce, financial planning may not be at the top of your list. It is likely you are working, raising kids, and paying the bills. Many newly divorced women feel the demands never end. Creating a new financial plan is important because you have lost the extra income of your spouse. It is also especially important if your spouse managed your investments and longevity planning. Outsourcing your financial planning makes sense when you are short on time but still need to make sure you manage your money well as you age. We encourage women to consider financial planning for several reasons, but most of all for the woman’s wellbeing and peace of mind. Here are a few tips to get started.
Planning at the Beginning
Your financial life after divorce starts as soon as you sign legal paperwork agreeing to a settlement with your ex-spouse. You need to make sure you know what you are signing, because it will have a big impact on your financial future. We recommend meeting with a financial planner to review the settlement before you agree to it. Financial planners can find opportunities you might have missed such as tax breaks or being able to retire earlier than you expected. This process with allow you to understand all your options before you sign the settlement agreement.
Planning for Longevity
Women generally have a longer lifespan than men. Financial planning in divorce will create a consistent cashflow strategy and budget. You and the financial planner will create a list of priorities you will need money for such as helping to finance your children’s education.
Planning for Financial Confidence
Some women going through a divorce assume they will have to live like a miser because they have an internalized fear. Financial planning gives you freedom by replacing fear with confidence. Investing money is difficult to do when you’re paralyzed by fear, but not investing means you could outlive the money you have now.
Planning for Peace of Mind
As financial planners, the goal we have for all our clients is to give them financial peace of mind. You will know what bills you need to pay every month and how much of your disposable income you can spend. You can spend your money in freedom because you know you have a plan for your budget, taxes, and investing. We can also help you adjust your financial plan if you experience new significant life changes.
Another common assumption women sometimes have during a divorce is they automatically own an asset the court has awarded to them. We will walk you through the steps you need to take before you can claim an asset as your own.
At Divorce Strategies Group, our main services to you is financial planning to help ensure you do not run out of money in your lifetime and to help you to take ownership of assets awarded to you in the divorce. We love the work we do because it empowers women to be financially independent for the rest of their lives regardless of circumstances. If you are going through a divorce and are in need of financial planning, please contact Divorce Strategies Group and schedule a consultation today.
Whether you have a career or are a stay-at-home mom, debt complicates a divorce. Nobody wants to be responsible for paying a spouse’s debts, and you want to avoid having any joint obligations on your side. There is a way forward if you are aware of your options.
Keeping the Debt
You have a few credit cards that you share with your spouse. When you look into your spouses’ spending, you discover that they have used credit cards for all kinds of things you don’t: gambling, alcohol, and a few hotel visits that have nothing to do with business trips.
This naturally is frustrating, so you don’t want to take care of the bill. They’re the other spouse’s expenses and they should have to take care of it, but they are not. The bills don’t get paid and time is moving forward and because the credit cards are under your name, whose credit is getting ruined? Yours.
You want to take care of any joint debt like this, so your credit report is clean. You will be compensated for it in the settlement by getting more of the cash, house, 401K, investments, or asset. Until that happens, you must protect yourself and keep paying the credit cards.
If your spouse is spending thousands of dollars you did not approve, we call that a “waste claim.” These can be difficult to prove and you will need attorneys to help.
In one case, the husband had bought a BMW and an apartment for his girlfriend. We found proof of that spending through receipts that amounted to tens of thousands of dollars. Our waste claim proved that he was stealing from the estate and he had to compensate the estate. With the help of a financial professional and the lawyer, he paid that claim on the estate spreadsheet and the wife was given more in assets as a result.
Digging for Information
If you know your spouse has spent a lot of money, but you do not know exactly how much or where there are ways to find this data. For our clients, we do a lot of digging, starting with the accounts we know about and looking for fishy transactions, such as massage parlors, prostitutes, or rent in New York when you don’t own property in New York. We look for anomalous patterns, flag them and ask for more information. We look at property records, tax records, and all kinds of paper. If the spouse isn’t forthcoming, your attorney can subpoena what we need.
Years ago we had a client with a special need’s child. The husband would not pay for future horseback riding for their child with Down’s Syndrome which had proved to be very helpful for the child in the past. He said they did not have any money. Through five-year-old tax records and pieces of paper that our client had been collecting for month, we discovered two rental homes, a girlfriend, and $200,000 in Certificates of Deposit.
If you think your spouse is stealing or hiding money, collect any kind of information, no matter how old or small, and bring it in for us to look at.
Want to know more about what to do? Please contact Divorce Strategies Group for a complimentary consultation. We’ll talk to you about next steps so you can receive the assets which are rightfully yours!
A Qualified Domestic Relations Order (or QDRO, pronounced “qua-dro”), is a judicial order in the United States, entered as part of a property division in a divorce which divides a retirement plan or pension plan by recognizing joint marital ownership interests in the plan, specifically the former spouse’s interest in that spouse’s share of the asset.
QDROs apply only to employee benefit or pension plans subject to the Employee Retirement Income Security Act (ERISA), the American federal law governing private sector pensions. Domestic Relations Orders or DRO’s divide military retirement pay and Federal civil service retirement plans. A QDRO or DRO may provide for marital or community property division between the plan participant (the employee or former employee) and the alternate payee (the spouse of the employee or former employee). IRA’s, ROTH IRA’s and SEP IRA’s are not subject to ERISA and therefore are not divided typically with a QDRO but rather paperwork from the issuing company.
QDROs and DROs must first be issued by a State-level domestic relations court. The QDRO or DRO is a separate document in addition to your divorce decree. It must be signed by both parties in the divorce as well as their respective attorney’s and the court. Once it is signed by all parties, the QDRO or DRO then needs to be sent to the company’s plan administrator. It must meet the standards of the plan to which it applies. Each company or issuing entity will have their own wording for QDROs and DROs.
Generally, you must have a separate QDRO or DRO for each plan. Each retirement plan is governed by different rules depending on the plan type (i.e. 401(k), Pension Plan, 403(b)). Each QDRO or DRO must be tailored to the requirements of each plan.
The timeline for receiving your awarded funds from a QDRO or DRO is approximately 90 days. We highly encourage you to request the QDRO/DRO process begin as soon as you have completed the mediation process or a decision on the estate has been determined. It is common for a QDRO/DRO to be sent for pre-approval. This is where he QDRO/DRO is completed but not signed, instead it completed with the plan participants information and the divorce decision as far as division is sent to the administrator for pre-approval. This process takes approximately 30 days. Once pre-approval is completed, you know your QDRO/DRO will be approved. We then encourage you to have the QDRO/DRO submitted in conjunction with your divorce decree. This tends to speed up the process and prevents the frustrating delays we have seen multiple times.
If you are in the midst of or finishing up divorce negotiations, we encourage you to schedule a complimentary 30-minute consultation to discuss your situation. We can potentially help you avoid costly delays and frustrations in the QDRO process.
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.