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Good Things Can Come From Divorce

August 10, 2020 By Denise French, CVA, MAFF, CDFA, CRPC Leave a Comment

Let’s face it. Change is tough for many people and divorce changes just about every facet of your life. Divorce can often test one’s ability to handle change to an extreme. Some people struggle more than others with change. They fight it, avoid it, fear it, and sometimes feel guilty about it. These notions would make anyone want to keep things as normalized as possible. One would think only adrenaline junkies and dysfunctional people would want to disrupt what could be a perfectly normal situation. However, change can be very positive and powerful, especially if you have been in an unhappy or abusive marriage. Here are five truths in my life I’ve experienced with change. Hopefully this will help readers cope with their own life changes.

1. Change is inevitable

While divorce may not be inevitable, relationships will evolve. Whether you cling to what you have or long for something more, change is unavoidable. Nothing can or will stay the same. You have power when it comes to change. Your actions or reactions to change will determine how positive or negative the change is. Get comfortable with the notion of change as part of the evolution of life and stop resisting.

My divorce meant not only losing a spouse, but losing his entire family, the life I had envisioned and dreams I had of being a stay at home mom. Oddly, I have a relationship with my ex-spouses family today. It’s different than it was, but it’s good. I also had the chance to be a “stay at home” mom for a year, and I found I really didn’t like it. I love to work and I’m a better mom because of it. I own two businesses today which I never would have had the chance to own if I had stayed in my marriage – he would not have given me the freedom to explore these opportunities. What was the absolutely worst thing in 2007 is a gift today.

2. Change helps your brain stay healthy

Science suggest our brains need new and varied problems to work on. When our minds aren’t working out problems, solving mysteries, or figuring things out we can become weak. Change is one of the best ways to keep our brains healthy. This means our lifespan will be healthier, and our mind will not be as susceptible to diseases like dementia. It’s good for your brain to embrace the change in your life as a puzzle you can solve.

I certainly fought the divorce in the beginning, and I went through the stages of grief for at least a year if not longer. No doubt, there was a grieving process to walk through. However, my divorce also brought about new changes which were fun and unexpected, like meeting new friends and having a fun, loving social environment. I was also able to thrive with my career after the divorce which meant learning a lot of new things and experiencing new challenges. When I was no longer subject to emotional abuse I was able to really thrive and grow.

3. Change creates maturity

Sometimes change comes with a price tag. Sometimes change comes with a penalty. Sometimes change requires risk, and sometimes change is forced on us. No matter how change occurs, it causes us to grow. From learning we are tougher than we realized and having to do some difficult things – change creates maturity.

When my divorce was over I made a list of gifts. To my suprise, I had three pages of small, single spaced gifts. Many of them had to do with personal strength and fortitude. I’m so much stronger today. While I certainly would not have chosen this path voluntarily, I’m so grateful today for it.

4. Change teaches you to overcome fear and anxiety

Whether stepping out towards change in doubt or being pushed into the unknown without your consent, change can be scary. The devil we know is easier to manage than the one we don’t. Once the fears are faced, they are often scarier in theory than reality. Change teaches you to overcome fear and anxiety as you learn new coping skills or how to talk yourself through fear.

I was a single mom of a 2 year old child when my divorce was final – that is big change. It was scary. Looking back I’m convinced there is no stronger force than a parent protecting their child. Being a single mom of a young child drove me to bigger and better things with my career. It also lead me to be a better mom and person. I no longer fear financial insecurity (for the most part). I no longer fear being alone. I no longer fear many things – all because of what I went through.

5. Change gives you choices

Once the spirit of change is validated and embraced, change can become part of your normal routine. If you choose something and don’t like it, that isn’t the end of the line. Change things again! From changing your coffee order to the brand of cereal your family eats this week, change can be fun. From picking a new wall color to a new genre of book to read, change can be exciting. From changing where you volunteer your time or which organization you donate to, change can matter to more people.

When my divorce was final I made big changes to my house – I repainted rooms, moved furniture around, rearranged the cabinets and made changes to the yard. These small changes made a big difference. Small things like which cabinet your plates are in can help facilitate change in your head and heart which can give you courage for more change. In my first marriage I really wanted multiple children. As a child I was much younger than my siblings and as a result raised as an only child. I did not like it. I decided very young I would have no children or multiple children – but not an only child! Even though my first husband and I had decided on two or three children when we married, after our first (and only) child was born he decided he didn’t want any more. Well, guess what. When I remarried it was to someone with three young children, and now we have five!! Talk about an evolution of change. It is a beautiful blended crazy mess which this extrovert absolutely loves.

There are many truths about change – some scary and some not so much. Embrace the concept of change, and it will lead to enjoying the realities of change. We at Divorce Strategies Group are here to help you navigate changes from married to single. Schedule a strategy session or call us at 281-210-0057 to schedule your first mediation session today. No matter what your situation we strive to help our clients walk through divorce with confidence, strength and courage!

Lets Just Live Together

February 2, 2020 By Denise French, CVA, MAFF, CDFA, CRPC Leave a Comment

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.

Divorce Settlements Gone Wrong

October 23, 2019 By Denise French, CVA, MAFF, CDFA, CRPC Leave a Comment

John and Susan are very typical clients we see in our office regularly. They are educated. John makes a good living as an MBA who works downtown at a financial firm. Susan was a stay at home mom for a while but has a degree in marketing and has recently re-entered the work world. She currently makes a fraction of what John makes, but that is expected to grow over time. They are knowledgeable about what they own and what they owe. They, logically, assume dividing their estate will be simple. How many times have we heard; my divorce case is simple? While logically it may seem simple, it’s usually not in reality. In addition, tax issues may slant a 50/50 division into more of a 60/40 division – which can cause very hurt feelings a few months after the divorce. Their mediation in Texas could have gone very different ways.

Here is an example of a ‘simple’ divorce that proves to not be so simple and how this 50/50 division went very wrong.

The Estate

John and Susan own the following:

Primary Home: $750,000 Value, Mortgage Balance $350,000 = Net Equity $400,000
Secondary, Vacation Home: $400,000 Value, No Mortgage
John’s 401k: $450,000
Checking & Savings: $50,000
Total Net Assets: = $1,300,000

Their Solution

Their kids are grown, and Susan determines that she cannot really afford the primary home on her own. So, John takes the primary home and Susan takes the secondary home. Susan is 53 and wants to stay close to their kids in Texas so she decides to sell the vacation home to purchase her own home. John initially decides to stay in the primary home for a few more years and then sell it down the road to downsize. This is the logical division of assets the couple decides to do:

John: Primary Home: $400,000 Net Equity
John: Half the 401k $225,000
John: Half the checking $25,000
John Total: $650,000

Susan: Secondary Home: $400,000 Net Equity
Susan: Half the 401k $ 225,000
Susan: Half the checking $25,000
Susan Total: $650,000

A perfect, 50/50 split right! No problem. This is simple. Well, it is on paper, but this 50/50 is really a 62/38 division after taxes.

The Reality

John decides he doesn’t want such a big house to upkeep, so he sells it right after the divorce is final. John sells the primary house for $760,000. He pays off the now $345,000 mortgage and pays 8.5% ($64,600) in closing costs and realtor fees for a net equity of $350,400. They purchased the house 10 years prior and put $300,000 down the home and added a pool for $50,000. His net cost basis in the home is $350,000. He has zero tax liability as he has $250,000 exemption as a single person.

Susan sells the vacation home and purchases a new residence for herself. She is only 53 so she is going to take advantage of the opportunity to withdraw funds from her spouses 401k in divorce without the extra 10% penalty, but she still owes tax on the withdrawal. She does this for a financial safety net while she re-establishes her career. Susan sells the secondary home for $405,000. She also has 8.5% in closing costs or $34,425. The property had been purchased for $170,000 and $30,000 was put into a new back patio so her basis in the home is $200,000. Susan assumes her gain of $170,575 is well under her personal exemption amount of $250,000. When tax time comes around the next year, her accountant looks at her with big eyes and breaks the bad news. The personal exemption is only applicable to a primary residence and you must live there for 2 years in order to use it. Since she didn’t, the entire $170,575 is taxable at 15% netting her $144,989. Let’s not forget, Susan doesn’t have the income that John has so she takes $100,000 of the 401k and moves it into cash and the other $125,000 she moves into an IRA for herself. The $100,000 is treated like ordinary income and taxable to her. She owes $28,000 in taxes off the 401k funds she took in cash.

This is what each party really kept in the divorce:

John: Primary Home: $350,400 Net Equity
John: Half the 401k $225,000
John: Half the checking $25,000
John Total: $600,400

Susan: Secondary Home: $144,989 Net Equity
Susan: Half the 401k $125,000 into an IRA plus $72,000 cash from the 401k, the remaining $28,000 goes to the IRS this year for taxes
Susan: Half the checking $25,000
Susan Total: $366,989

Total Tax Effected Estate: $967,389

The net effect is not a 50/50 – within one year of the divorce, given the withdrawals that were taken, they had a net tax effected estate of $967,389. John receives $600,400 or 62% while Susan receives $366,989 or 38%.

There are, typically, no do overs in the final estate division. If Susan had known what was going to happen with the primary home and the secondary home net of taxation – she may have not been so eager to agree to this in a mediation in Texas. Further, if she knew the tax ramifications of taking funds out of the 401k, she may have discussed taxation a little further before determining the 50/50 division or have asked for support of some kind to offset this taxation hit in today’s dollars. A Certified Divorce Financial Analyst could have really helped uncover these issues before a Mediated Settlement Agreement was signed in mediation in Texas or before the divorce negotiations were finalized.

Your Reality

If you and your spouse are entering a do it yourself divorce, we commend you on trying to hash this out cooperatively rather than in a long, drawn out battle. However, it’s important to consult with professionals before signing anything. It is wise to review your estate division with a Certified Divorce Financial Analyst who can walk through financial pitfalls, such as taxation, in your divorce settlement. At Divorce Strategies Group we understand divorce financials, we understand divorce mediation in Texas, and we can help. Call us at 281-210-0057 or schedule a strategy session today to get started!