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Divorce Strategies Group

Denise French

Divorce Finance

Hidden Assets in Divorce

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Untangling family finances during divorce can take some digging. Your spouse may have assets that aren’t top of mind (restricted stock or Bitcoin, anyone?).    

For those going through divorce, these usual suspects when it comes to the division of assets are the house, the bank accounts, the retirement accounts, and the credit cards.  However, there may be other, less obvious assets.  

Here are so-called hidden assets to be considered as you walk through the divorce process which we see on a fairly frequent basis.   

Pension Plans and Supplement Pension Plans

If you or your spouse is a state or federal employee, you most certainly have a pension to consider.   Private companies in industries such as oil and gas often offer pensions as well.   Assets earned during the marriage in Texas are typically valued in divorce and divided, even if not in pay status at the time of divorce.   These pension plans will need to be added to the marital inventory and a QDRO or DRO will need to be created and submitted to the courts to receive this future income.  

High level executives at corporations may also have additional pension plans such as a Supplemental Pension Plan or Additional Payments plan.  These are plans offered to key employees at some firms who are highly valued. They are a marital asset in Texas if earned during the marriage even though not in pay status yet.   They are not as easy to find as pension plans so having a financial expert involved if your spouse is a highly valued employee at an oil and gas firm may be a wise decision.  These plans cannot be divided via QDRO but are typically assets of the estate and have a value today even though these are not available until the employee retires.   Some government plans also offer these if retirement is mandatory before age 62.

Bitcoin and Other Cryptocurrency

If your spouse has invested in Bitcoin and other cryptocurrencies, know there are a lot of different ways to hold these assets.  They can be held at major investment companies like Schwab or individually as you would with stock certificates, and it can be difficult to trace. It’s also a still-emerging kind of investment and can be volatile. You might need to bring in a professional who has expertise in valuating cryptocurrency.

Personal Loans

Has your spouse ‘loaned’ money to a relative?  Has you spouse ‘loaned’ money to a close friend?  Reviewing the bank or brokerage accounts may be necessary to find funds which have been removed from the estate if that is a concern in your case.    If that has happened, those ‘loans’ can be placed on the marital inventory as an asset to be received in the future and given to the spouse who created the ‘loan’.   In Texas waste claims or reconstitution claims can be added to the marital inventory. These are more complex and something you will need to discuss with your attorney. 

Undervaluing Personal Resources

Estate division is not only about property and bank accounts. Jewelry, gun collections, coin collections, that rare record collection or model airplane collection could have significant value. Airline miles are standard protocol in divorces – they can be divided or valued and given to one spouse.   Discuss any collections, antiques, or other valuable items in your home with your attorney.

With that in mind, we do not regularly value the day-to-day items in the house.  Your couch and TV in the living room do not typically have a value on the marital inventory – those items are divided amongst the parties.  If you need help doing so, discuss this with your attorney.  We do recommend you take photos of or keep a log of items in the home so when it comes to division time, you have an accurate inventory of the items and can divide accordingly.  No need to value those items, but they will need to be divided at some point.  

Prepayment of Tax

If you have 1099 income or own a business, you likely make payments to the IRS on a quarterly basis.  If so, overpayment of these taxes is a common way clever spouses can temporarily divert community funds in divorce.  Anyone can send money to the IRS at any time online through IRS.gov.  Fortunately, IRS tax payments are easily traceable with a printout from IRS.gov.    The spouse with the social security number will need to log in and provide the data, but it is very easy to track.     Also, if checks were sent to avoid looking at IRS.gov – that is easily traced by walking through bank accounts as well. 

Another way we usually avoid this issue is splitting the year of divorce tax refunds 50/50 – so if there is an overpayment of taxes each spouse participates in the refund the next year at tax time.

If you suspect that your spouse may have hidden property you need to be particularly cautious when going over financial records and discussing these items with your attorney.  Financial experts may need to be hired to review tax returns to find assets you suspect are hidden or value pension plans.

At Divorce Strategies Group we regularly review the tax returns to look for assets which may have been inadvertently left out (whether on purpose or not).   We also have had experience with hundreds of cases involving various corporate and governmental plans; so, we know what to look for in most cases.   If you think you may need a financial expert, discuss this with your attorney.  If you feel like you are aware of items in the estate and are interested in a more collaborative divorce, schedule your complementary consultation to discuss Cooperative Divorce alternatives today. 

Navigating College Costs in Divorce

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It’s the time of year when graduating high school seniors are looking forward to going off to college. Many spend the summer planning their dorm décor and worrying about roommates while parents plan for footing the bill.   Negotiating college costs as co-parents can be stressful for the parents and the children if there is animosity.    Presented herein are several ideas to address higher education costs for children with divorced or divorcing parents.    

Start Saving Early

A 529 Education Savings Plan can be tremendously helpful by allowing you to fund a child’s college savings account allowing it to grow over time. The money in a 529 plan grows on a tax-deferred basis until it is withdrawn. If the money is used for qualified education expenses as defined by the IRS, those withdrawals won’t be subject to either state or federal taxes.  The current IRS rules on qualified education expenses are fairly broad and roomy to include not only tuition but also room and board, food plans, necessary college items such as required books and electronics as well as costs to start a business in your field of study while in school.    They also include many trade or vocational schools.  

Since a 529 education fund is a custodial account only one parent can be the owner. The child is the beneficiary.  The other parent can be a successor owner, meaning if the original owner passes away the other parent automatically becomes the owner. We recommend this with divorcing parents.   Even though only one person can own the 529 plan, it is common in our experience for the other parent to receive statements at their request or have log in information so they can view the account. We also suggest you dictate in the decree what the funds will be used for and keep the definition close to what the IRS allows as the laws can change. For example, language which states these funds will be used first and to the fullest extent allowable under IRS laws for all eligible higher education related costs for the child of this marriage.   Also ask your attorney about language which states these funds are ONLY to be used for higher education (or other qualified education costs up to grade 12) for the children of this marriage – and for no other purpose or persons.

We have also seen it mandated that one parent or both parents contribute over the years to their child’s 529 plan.   The amounts and parent, or parents to contribute have been varied and dependent on their willingness to help their children with college, state this in a divorce decree and their ability to do so.  If this is a choice you make, it can be written into the decree or decided informally without the decree.  This is a discussion to have with your attorney. 

What happens if your child doesn’t use all of the 529 funds? We suggest writing a solution to this dilemma in your decree.  You have options if your child does not use all the funds set aside in a 529 plan for their education.   You can return the monies to the parents or redeem the funds and give cash to your children.  Both of these options involve a 10% penalty and taxation on the earnings portion (not the principal, only the earnings).  Another option is to transfer the funds to another beneficiary or person to use the education funds.  With a 529 plan, you’re allowed to change the beneficiary at any time to one of your beneficiary’s eligible relatives. Examples of eligible relatives include siblings and step siblings, parents, cousins, aunts and uncles, and in-laws. Spouses of these family members are often considered eligible beneficiaries as well.  Again, we recommend writing in your decree that these funds will be used only for children of your marriage. Another option is to roll the 529 funds into a ROTH IRA for the beneficiary over time.  The Secure Act 2.0, which was signed into law on December 29, 2022, allows 529 college savings plan funds (up to a $35,000 lifetime limit) to roll into a Roth IRA for the 529 beneficiary penalty and tax free. The 529 account must have been opened for at least 15 years and the funds must be moved to a Roth IRA in the name of the 529 beneficiary. The annual rollover limit is pegged to the yearly IRA contribution limit, which includes contributions made to any IRA. In addition, the amount rolled over plus annual IRA contributions cannot exceed the designated beneficiary’s earned income for the year. The IRS will likely clarify this process in more detail but as it stands this could be a helpful tax and financial planning tool.

No Savings Plan

If your child is nearing college age and you have not saved over the years, don’t worry. There are other options.  Try having a civil conversation with their other parent.  This may help tremendously (or not but at least you tried!)  Community college for the first two years can significantly cut costs down for your child’s overall education. Your child can live at home with you to save costs and go to a program such as Lone Star College for 2 years at a substantially reduced rate compared to a 4-year university.   They can work part time potentially to help pay for their car, gas, and other needs.  Third, look to FAFSA or Free Application for Federal Student Aid.  This is almost mandatory in today’s age. Entering your child into the FAFSA program enables them to receive grants or loans.   We encourage all seniors in high school to contact the school they wish to attend and talk to the financial aid office. They have experts at each school who can help you successfully navigate the FAFSA program and discuss how to work the system for divorced parents.   If you are a low-income parent, you may have free monies which you do not have to repay available for your child.  Talk to someone in the financial aid office and become educated on navigating FAFSA. 

At Divorce Strategies Group we understand how difficult divorce can be. From financial mediation to financial planning, we can help take the fight out of your future. Call us or click here for a complimentary consultation.

Taxes & Children: What Divorcing Parents Need to Know

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Taxes can be a major concern for parents.  The ability to claim children as dependents can potentially affect the amount of taxes a single parent will be refunded or pay. Here’s what you need to know about claiming children on your taxes when divorced and the child tax credit.   This article does not address the potential Earned Income Tax Credit.

Claiming Children on Taxes & Child Tax Credits

If you are not married on 12/31, your filing status must be either “Single” or “Head of Household”. Head of Household status is reserved for those persons who have a qualifying child, and they pay more than ½ of the cost of keeping up the main home where that child resided for more the ½ of the year.   There are two components of claiming children on taxes.  First, who claims Head of Household status.  Second, who can claim credits for children under current tax law. These are two different issues. 

Let’s address the first – claiming Head of Household or Single status on your taxes.   If you paid more than ½ of the cost of keeping up a home where your child lived (spent the most nights) more than ½ of the year, then you are the parent who has the right to claim the child. If you are unmarried that would be the Head of Household status.   If you split custody 50/50 and you cannot agree with the other parent, then the highest earning parent can claim the status.   

We are often asked if the couple has two children, can’t both parents claim, “Head of Household” and each take 1 child.  The answer is yes – depending on the circumstance.  Both parents would need to maintain a separate home and have at least one child living with them for more than 50% of the year (more nights).   This is not customary with smaller children. As such, if both of your children spend more nights with one parent during a tax year, that parent, only, has earned and can claim Head of Household status. 

As Head of Household, you can pay less tax with equal dollars than the filing status Single. The brackets for 2023 are below: 

2023 Single Filer Tax Brackets

If taxable income is:                                                  The tax due is:

Not over $11,000                                                       10% of taxable income

Over $11,000 but not over $44,725                           $1,100 plus 12% of the excess over $11,000

Over $44,725 but not over $95,375                           $5,147 plus 22% of the excess over $44,725

Over $95,375 but not over $182,100                        $16,290 plus 24% of the excess over $95,375

Over $182,100 but not over $231,250                      $37,104 plus 32% of the excess over $182,100

Over $231,250 but not over $578,125                      $52,832 plus 35% of the excess over $231,250

Over $578,125    $174,238.25 plus 37% of the excess over $578,125

2023 Head of Household Tax Brackets

If taxable income is:                                                  The tax due is:

Not over $15,700                                                       10% of taxable income

Over $15,700 but not over $59,850                           $1,570 plus 12% of the excess over $15,700

Over $59,850 but not over $95,350                           $6,868 plus 22% of the excess over $59,850

Over $95,350 but not over $182,100                        $14,678 plus 24% of the excess over $95,350

Over $182,100 but not over $231,250                      $35,498 plus 32% of the excess over $182,100

Over $231,250 but not over $578,100                      $51,226 plus 35% of the excess over $231,250

Over $578,100    $172,623.50 plus 37% of the excess over $578,100

In addition to the extended tax brackets, the Head of Household status has a higher standard deduction than Single status.  For 2023, the standard deduction for Head of Household is $20,800 while the standard deduction for Single is $13,850.  These amounts are what you deduct (unless you are itemizing deductions which are higher than the standard deduction) from your income for calculating taxes. 

The second part of having a child on your tax return is the Child Tax Credit.  The Child Tax Credit follows the child.  The custodial parent (where the child lived more than 50% of the time) is the default person to claim the credit.  This credit has limits.  It is a partially refundable credit. You must have at least $2,500.00 of earned income to claim the refundable part of the credit and it is completely phased out for individuals earning more than $200,000.00.  For divorcing parents, this can be moved from one parent to the other with the use of Form 8332.  If you have just one child together, for example, you could agree to alternate years claiming the child tax credit on your respective returns. If you have multiple children, you might decide to divide them between the two of you. This way both parents can take advantage of the tax credit. Don’t forget that age matters. If you have a 10-year-old and a 5-year-old, the 5-year-old can be claimed for a much longer period of time. Whatever the two of you decide, it is important that parents formalize the agreement in their decree and follow this up with a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.  This form can be used for the current or future tax years. 

Who Qualifies for the Child Tax Credit?

You can claim the Child Tax Credit of $2,000 for each qualifying child who has a Social Security number that is valid for employment in the United States.  To be a qualifying child for the 2023 tax year, your dependent generally must:

  • Be under age 17 at the end of the year
  • Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)
  • Provide no more than half of their own financial support during the year
  • Have lived with you for more than half the year
  • Be properly claimed as your dependent on your tax return
  • Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
  • Have been a U.S. citizen, U.S. national or U.S. resident alien

You qualify for the full amount of the Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return).  Parents and guardians with higher incomes may be eligible to claim partial credit.  Also, dependents over the age of 17 could qualify for a $500 credit if certain conditions apply. 

It is critical to consult with a tax advisor (licensed CPA or EA) who is familiar with tax claiming issues surrounding divorce.   As an example of what can go wrong, read this article from Iowa State University dealing with a couple who thought they had the situation handled but the IRS disagreed, and the claim was disallowed.  Keep in mind, the IRS and taxes follow federal laws and those as far as federal taxes are concerned, supersede your state divorce decree.   

Where do you go from here?

At Divorce Strategies Group we help parents walk through the tax ramifications of who can claim which credit for children when parents divorce.  We can also help with general financial guidance in the divorce whether you are an individual looking for guidance or a couple seeking neutral financial services to help get though the divorce in a more amicable fashion.  Schedule your complimentary consultation today.

What is a QDRO?

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What Is a QDRO?

A QDRO, pronounced “kwa-dro”, or Qualified Domestic Relations Order, is a court order granting a non-employee spouse the right to part of the retirement benefits their former spouse has accumulated in their company’s retirement plan. 

If you are divorcing a spouse with a company retirement plan governed by The Employee Retirement Income Security Act of 1974 or ERISA such as a 401k or a pension plan, you will need a QDRO to receive those funds.   The QDRO process has a definitive flow, its own terminology and can take some time to complete. We will walk through an example of a couple where the husband works at ABC Company and the wife is receiving a portion of the ABC Company 401k from her husband.  In this example we will walk through the process from settlement in mediation to QDRO funds receipt to give the reader a better understanding of QDRO terminology, how the process works and the timeline.   

 

QDRO Terminology

Terminology with QDRO’s is important but thankfully, fairly straightforward: 

  • Plan: This is the specific retirement plan to which the order applies. You need a QDRO for each plan. For example, if you are divorcing an ExxonMobil employee, you could be awarded a portion of ExxonMobil 401k and the ExxonMobil pension plan. Those are two different plans and two different QDRO’s will be needed. (Note there are other plans at ExxonMobil for certain employees such as Restricted Stock Units and Supplement Pension Plans – those are not ERISA plans and do not need QDROs but have their own issues we will cover in a separate article).
  • Participant: This is the individual who will be assigning his or her benefits to an alternate payee. This is the spouse who works for the company and whose name the plan is under.   
  • Alternate Payee: This is the individual (usually a former spouse) who will receive the benefits.
  • Address of Record:  The address on the QDRO form for the alternate payee and the participant is what will be used by the QDRO department to communicate with you.  It is critical to have the correct address listed as this is how you will receive communication. 

Description of Benefits

The order must clearly articulate the benefit to be assigned to the alternate payee. The order could use a flat dollar amount or a formula.

Here are two examples:

  • Flat dollar amount: $500,000
  • Formula: 50% of the participant’s vested account balance as of January 1, 2023, adjusted for any investment gains or losses, stock splits, dividends and/or interest from January 1, 2023 through the date of distribution.

In a turbulent market such as 2022, this is a critical element to understand.  If you were awarded 50% of a 401k balance in April of 2022 which was invested in growth stocks, and then didn’t take receipt until August of 2022 – that balance may be much lower over the time period.  Likewise, if you only owned oil and gas stock during that same time period, you may be very happy you were awarded gains and losses as the account could have grown considerably.   We cannot over-emphasize the importance of considering investment performance as there is a lag between the determination date (January 1, 2023 in the above example) and the date the benefits are actually set aside for the alternate payee (August of 2023 in our example below).

It’s important to understand if you are receiving a flat dollar amount or a percentage split and if the percentages include gains, losses, interest, and dividends.  (And no, you will not usually get an opposing attorney to agree that you only participate in the gains but not the losses.)   

Which option is better?  Well, that depends.  When and if we suggest flat dollar amounts in QDRO’s it is because the parties have usually agreed to a set amount as part of an overall division and for a specific purpose – like paying off debt or purchasing a new house.   Our concern is always if you are awarded a set dollar amount, what happens if the market falls and those dollars do not exist months later when the QDRO order is completed?   That becomes an issue. 

Awarding the alternate payee a portion of the account on a percentage basis with gains, losses, dividends and interest from the date of division to the date of distribution is certainly more prevalent in our experience.  This is more prevalent as both parties participate fully in the risk or reward of the markets from the time of division until the funds are distributed. 

QDRO Timeline – April Division to August Receipt of Funds

It takes several months from the date of division to the date of receipt. Let’s continue with our example. Jane and John went to mediation on April 2.  In mediation, the parties agreed on a settlement which awarded Jane 52% of the ABC Company 401k of her spouse John. They signed a Mediated Settlement Agreement or MSA which was final and binding on April 2.  The next day the wife’s attorney calls a QDRO firm and asks them to draft a QDRO’s for this settlement.    

It then took until May 15 for the decree to be finalized.  The attorneys had to draft the decree, agree on the language in the drafting and then set a court date to finalize the divorce with the court.  This all required effort and time.  During that time a QDRO firm created a QDRO for the 401k, sent the QDRO’s into ABC Company’s custodian for preapproval and it came back approved.   The parties were officially divorced on May 15 via a “prove up” in court.  The divorce decree and the QDRO were all entered together and signed by the judge.

The wife paid extra for the QDRO company to pick up the QDRO in the clerk’s office and send it to ABC Company after a judge’s signature was secured. The county clerk is not responsible for this, the QDRO firm is not automatically responsible for this – the receiving party is responsible.  Sometimes the QDRO firm who drafted the QDRO will do this, but you must confirm with them. It is not automatic and usually involves an extra fee.   In this example the wife paid an extra $100 to the QDRO firm and they picked up the signed QDRO from the county clerk’s office and sent it to the company which manages ABC Company’s 401k.   

About 30-45 later, ABC Company sends a letter to the wife’s address of record notifying her the QDRO has been received and is being reviewed. Now the alternate payee or former wife can call ABC Company and discuss the QDRO with them.  However, ABC must still review the QDRO and confirm it is accurate.  If you had a QDRO firm prepare your QDRO and send it in for pre-approval, this should not be an issue.  In our example, let’s assume the letter was received by Jane on June 25. 

ABC Company must still review the QDRO which takes another 30-40 days.  On approximately August 2 in our example ABC sent a second letter to the alternate payee for the 401k QDRO letting her know the QDRO is approved, an alternate payee account now exists and they provide distribution options.   

In this example, the division of assets was decided on April 2, but the account was not available until August for the former wife.

Distribution  

Although this step frequently occurs at the same or immediately following the account segregation, it is important for the plan to follow the normal distribution process. In other words, the alternate payee must be provided with the necessary disclosures and then must submit the regular distribution request forms. Most plans include language that allows the alternate payee to take a distribution right away, but some plans limit that ability until the participant would otherwise be able to take a distribution. When distributions are permitted right away, it is our experience that the alternate payee is usually eager to do so.

 

Taxes

When an ex-spouse receives a cash distribution of plan benefits pursuant to a QDRO, he or she is responsible to pay the associated income tax.  You are taxed on these funds at your ordinary income rates as if you had a job which paid you the same amount. 

One key difference is that a cash-out distribution from a QDRO is not subject to the 10% early withdrawal penalty.  For example, going back to Jane Smith, she is 45 years old. If she were to take funds out of a pre-tax retirement account to use as cash, she would pay tax on the proceeds in addition to a 10% penalty.  However, if the cash withdrawal is from the QDRO funds directly, the 10% penalty is not applied.  Let’s assume Jane needs $100,000 to establish an emergency fund, pay divorce debt and buy a new car.  She would take $100,000 of her QDRO in cash and pay taxes based on her marginal tax bracket that year.  The remainder of her QDRO funds could be rolled into an IRA in her name alone without any tax liability due today.  Divorces can be messy, and financial negotiations can make an already heated situation reach a boiling point. We find it is helpful to have someone who understands this process and can guide you.   If you have QDRO questions, please schedule a strategy session with us to discuss what your next step should be.  We can not only help you receive your QDRO funds but we can help you map out a plan for how much tax you should send to the IRS, how much you need in cash and an investment strategy for the funds you move into your own account through our partner investment firm.

High Stakes, High Net Worth:

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Why hiring a Certified Divorce Financial Analyst can make or break you

By: Melissa Provence CDC,DCC

When it comes to divorce, more than emotion has to come into the equation. High net worth couples can have a particularly difficult time. They have saved all their lives and now face losing a portion of those savings. When it comes to dividing high net worth estates, a highly skilled Certified Divorce Financial Analyst (CDFA) is one of your best lines of defense.

Planning for more than tomorrow:

Oftentimes fiscal decisions are thrown to the wayside due to the emotional effects that divorce can have on a couple. The role of a CDFA is to look at your estate with more than a short-term band aid to get you back on your feet. They work with you during and after your divorce to help you make financial choices when best serve you now and in the future.

Many clients have never dealt with investments like 401K’s, RSU’s, and pension plans. These are complex investments which can greatly impact your retirement. What are the tax implications down the road when dividing the assets awarded to you in your divorce? Does a 50/50 split become a 70/30 split when considering tax effect on your estate? These fact sets are often presented to the client so they can make sound financial decisions.  A seasoned CDFA will take an all-encompassing approach to assist you in making wise financial choices.

CDFA’s Role in Your Divorce:

You may be wondering why you wouldn’t just use a financial planner. CDFA’s are often financial planners who also have specialty training and experience working in the divorce financial realm.

CDFA’s will work with you to organize and help you understand your finances. Collecting years of financial data, researching separate property, and division options for the estate.

Let’s not forget parenting after divorce. Who is paying for college? What will child support look like? What about children’s car expenses? These and others are topics a CDFA can review with you, your mediator, and your attorney.

Dissolution of a marriage, not your net worth:

At Divorce Strategies Group, we do divorce differently.  Denise French founded the company in 2014 after her own divorce disaster. She had spent a six-figure price tag and a few years of her life trying to close one chapter and begin a new one. After she was divorced, Denise desired to build a company based on creating a better divorce experience. She is highly trained in the areas of high net worth divorces, divorce tax, separate property tracing, executive compensation in divorce, and pension plans. We don’t just facilitate the last stages of the negotiation. We walk with you every step of the way.

To schedule a call…

Ending a marriage? Don’t get divorced from financial reality in the process.

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Sound financial planning may be the last thing on your mind when divorcing but it may never be more valuable.  A lawyer may be your first call when you decide you want a divorce.  A financial advisor knowledgeable about divorce matters should be your second

In many cases, a divorce has more impact on a person’s current and future financial well-being than any other event in their lives. Sound financial planning may be the last thing on your mind when your marriage ends — particularly if it ends in conflict — but it may never be more valuable.

Divorce happens in an emotionally charged environment.  While in this state of mind, you are making financial decisions which will affect the rest of your life.  It is critical to have a knowledgeable financial advisor on your divorce team walking along side you and your attorney.  Financial planners will give you the overview of financial guidance while your attorney will explain the law and guide you with legal decisions.

In general, for everyone except the very wealthy, divorce will hurt your standard of living. Two households are more expensive to maintain than one, and if one person in the marriage has been a stay-at-home parent, there is less income and assets to go around.  In addition, unless your marriage was short-lived and is ending amicably, you have no children and little marital assets and income, you should consult both a lawyer and financial advisor.

Online divorces are dirt cheap but a good idea only for very simple circumstances with mutually acceptable terms. Mistakes made in a divorce settlement have long-lasting financial effects.

Five key issues to consider in divorce

1. Mediation versus litigation:

A divorce settlement mediated with a collaborative approach has major advantages over litigation for the divorcing family. It typically costs less and has higher compliance rates than with litigated settlements. It often requires much less time and emotional turmoil.

More importantly, it can save a parent’s ability to co-parent minor children after the divorce.  The biggest potential downside is that if the mediation doesn’t work, you’ll end up in court anyway prolonging the ordeal.

2. Budget for the long-term:

A clear understanding of your long-term living expenses is crucial to negotiating support payments and a settlement you can live with. That’s particularly so for parents who retain primary custody of children.

Larger expenses such as tutoring, special needs, extracurricular activities, vehicle purchases and insurance, senior trips and college are among the future expenses which need to be addressed in a settlement. Ideally, child-support payments should be protected by term life insurance.

When you come to the negotiating table, it is critical to think about your expenses not just two to three years after divorce but ten and fifteen years out. The more you can discuss about current and long-term needs — particularly if there are children involved — the better.

3. Watch your assets:

Marital assets are not all created equal. A savings account with $100,000 is worth much more than a joint retirement account that will eventually be taxed or illiquid equity in a home of that amount. Make sure you consider the liquidity and after-tax value of all assets and the different risks that they present.

Holding onto the family home could be a very heavy financial burden. While it may be a source of comfort in a difficult time, it could come back to haunt you.  Mothers with custody of children often understandably want to keep the house. Then they come to us, and we walk them through the costs to upkeep the home and a plan to do so, if possible.   We also find it valuable to have older homes inspected to uncover are any potential large costs ahead such as termite damage, foundation repair or major plumbing repair.

If there are more complicated marital assets such as private equity, restricted stock, business interests or even cryptocurrency holdings, an advisor is essential to evaluate and advise on those assets.

4. Mind your taxes:

Like everything else in life, divorce settlements have big tax implications. Understanding how different assets and income streams are taxed is crucial to the equitable division of assets.

It is also important to be aware of less obvious items such as pre-paid taxes which may have been paid already out of the marital pot but could be refunded to or used by a former spouse or tax-loss carry forward benefits if a large amount of non-qualified brokerage funds are owned.

5. Update your life:

The key things to address when your divorce settlement becomes final include updating your will, powers of attorney, beneficiaries, and other estate-planning documents to reflect your changed circumstances.

If you have been out of the workplace for an extended period, think about whether you need to return to it and if you need training to help you get back to work.  If you need training, it is wise to research how much it will cost and negotiate for that in your divorce.  It’s hard telling a stay-at home parent that they should go back to work but in some cases they really should. A person’s largest asset may be their earning capability.  It can help you add to your nest egg and enable a better retirement.

A knowledgeable, experienced divorce financial planner can show you where you will be with or without returning to the workforce and if you are working, help you readjust your retirement plan to get back on track.

Divorce Strategies Group, LLC is a full financial planning firm for those engaging in divorce with a forensic accounting arm.  We understand the laws as they relate to finance in divorce, and we understand financial planning.  In conjunction with our sister firm, French Financial Group, we can help you walk through divorce and emerge with a strong financial plan for your future.   Please call us at 281-505-8177 or reach us online to schedule your complimentary consultation today.