Money & Divorce Blog

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November 22, 2017

Will Alimony Still Be Tax-Deductible Under Trump's Tax Plan?

If President Trump's tax plan passes, it could be bad news for alimony payors getting divorced in 2018...  check out the article from marketwatch.com for more details.

https://www.marketwatch.com/story/under-trumps-tax-plan-divorces-are-about-to-get-a-lot-nastier-2017-11-03

 

Posted by David Chwalek at 1:15 PM

 

 

November 13, 2017

Estate and Financial Planning After Your Divorce- or Why You Need the "Purple Book"

Here’s another entry in our post-divorce TO DO list.

One of the nice things about being married - yes there are some nice things – is that there is someone in your life who knows where everything is should something happen to you. Now that you’re divorced you are likely living on your own, perhaps traveling more and your spouse is no longer the default person on your financial or estate planning documents. How will anyone know where your estate planning documents are, where your bank accounts are, your investments and what you would like done with everything?

Enter the “Purple Book."

I first started my purple book shortly before a post-divorce trip to Europe when I realized that my kids would have absolutely no idea where to find anything if I didn’t come back (which included fantasies of meeting a hot European guy and running away). I bought a large 3 ring binder in bright purple both because I like the color and also because nothing else in my home office was purple – it really stands out.

The binder has multiple sections and I update it yearly – usually before I take another trip.

Section 1 contains an overview of who to contact. My suggestion for you is to include the following names and contact information in here:

          Accountant

          Attorney

          Financial Planner

          Funeral home and cemetery

          Church or synagogue

Section 2 contains a list of all bank and brokerage accounts. Behind the list is a statement for each account so that account numbers and locations are easily available.

Section 3 contains a list of all retirement accounts: IRA, ROTH, SEP, 401k. I would include annuities in here as well. Again, behind the list is a statement for each account along with an explanation for my kids of how to handle retirement accounts – "This money is taxable. DO NOT take it all out at once!!!!!"

Section 4 is an explanation of personal items such as jewelry, artwork, furnishings and things that have sentimental value.

Section 5 is a copy of my estate planning documents: will, trust, durable power of attorney, health care proxy.

Once set up, it’s easy to maintain and update. And, of course, my kids know where to find it.

 

Posted by Renee Senes at 10:11 AM

 

 

October 24, 2017

Baby Boomers are Divorcing at a Stunning Rate

Last week I saw an article on Marketwatch.com that caught my eye so I thought I'd share it here.

The rate of "gray" divorce- or those occuring later in life- has skyrocketed.  For why it's happening and the consequences, check out the article by Angela Moore.

http://www.marketwatch.com/story/your-failing-marriage-is-about-to-make-the-retirement-crisis-worse-2017-03-13

 

Posted by David Chwalek at 9:20 AM

 

 

September 6, 2017

Doing the Numbers

Your attorney tells you that you will be receiving $60,000 a year in alimony.  Are you thrilled or panicked?

How do you know if this is a good offer?

Let’s do the numbers.

The alimony will be taxable to you. Assuming this is your only income and you are single with no dependents, you will pay:

  • 8,145 in Federal taxes and
  • 2,530 in Massachusetts state taxes.

This leaves you with 49,325 for living expenses or 4,111 per month.

Let’s further assume that your rent is 24,000 per year or 2,000 per month.

This leaves you with 25,325 or 2,110 per month for all the rest of your expenses. Your expenses include:

            Heat

            Electricity

            Cable and internet

            Phone and cell phone

            Food

            Car insurance

            Medical insurance if not covered by your ex

            Medical co-pays

            Haircuts, manicures

            Clothing

            Vacations

            Pets

And oh, by the way, the $60,000 you receive in alimony includes 15,000 that will be paid from your ex-spouse’s annual bonus, if and when received. What does this mean? It means that your alimony payment as a stream of steady income is now 45,000 or 3,750 per month and the additional 15,000 will show up in a lump sum when (and if) your ex gets paid.

Redoing the numbers, monthly you now have 3,750, your rent is 2,000 and you are left with 1,750 for everything else until the bonus arrives.

Can you make it work?

 

Posted by Renee Senes at 8:16 AM

 

 

August 7, 2017

The Long Term Benefit of Getting Along

Four years ago David wrote a post for this blog entitled Why Can’t We All Just Get Along?  In it he asked couples to look at whether they could work together to find an equitable solution that would truly benefit both parties. 

Recently I had an opportunity to see first-hand the long term benefit of not throwing your spouse under the proverbial bus in your divorce. While I won’t say that my divorce was amiable, it was civil. We didn’t draw and quarter each other, shed too much blood, there was no loss of life or limb. All kidding aside, we left each other reasonably whole and agreed that the welfare of our children was paramount. At the time they were 16 and 11.

The 11 year old is now 26 and was recently promoted to Air Force Staff Sergeant in a big military graduation and awards ceremony. He asked his dad and me to join him for the event.

My ex and I drove to Logan Airport together, flew to Oklahoma, played tourist in Oklahoma while our son worked, met all our son’s friends and superior officers, joyously attended graduation, played golf (I lost!), took his sports cars to a car show with him, watched him play soccer, walked his dog and did some construction on his house (I supervised while father and son did demolition). Our son proudly introduced us to everyone as his mom and his dad – not my mom and dad who are divorced, or my mom and dad who can’t stand to be in the same room with each other, or my dad who is here but mom wouldn’t come because my dad is here.

Five days later we flew home, missed our connecting flight, spent an unexpected night in Atlanta and flew to Boston the next morning. My ex drove me home, we hugged goodbye and went back to our separate lives.

I hope there will be many more life events that we will get to share.

Think about all of the life events you would like to share with your children. Wouldn’t it be wonderful for all if your ex-spouse and you could be there together. What can you do today to make that tomorrow a reality?

 

Posted by Renee Senes at 10:04 AM

 

 

June 6, 2017

What's Important About Money to You?

Our clients always want to know:

            How much money do I need for retirement?

            How much money do I need in an emergency fund?

            Will what I have be enough?

They always seem disappointed to learn that there’s no easy answer.

Of course, we can give you lots of formulas:

  • 3-6 months of expenses in an emergency fund
  • 3x your current salary by age 40
  • 4x your current salary by age 45
  • 8 times (X) your salary by age 60

BUT

In the end, those are just formulas...

We have clients who live comfortably on social security and not much more.

We have other clients for whom millions is not enough.

What makes the difference?

Lifestyle certainly...

But more importantly – what’s important about money to them.

Everyone has attitudes about money, many of which were shaped in our childhoods.  Why we save, or don’t save, why we spend, or don’t spend, what amount of money in the bank makes us feel comfortable. These are all ingrained.

Money may mean:

  • Security
  • Love
  • Power
  • Status
  • Independence
  • Freedom

Money may be

  • A tool
  • A means to an end
  • THE end

Most of us probably grew up with parents who didn’t talk about money. In fact, most of us would probably rather talk about our sex lives rather than tell each other how much we earn!

Did you know, however, that understanding what money means to you can actually help you set financial goals that are realistic and comfortable for you? Goals that you will be able to keep because they resonate with you deep inside.

While I’m not certain of the question’s origins, I first learned of it about a decade ago when I attended a seminar by Bill Bachrach. It was about the importance of understanding your values when making major financial decisions.

The purpose of the exercise I’m going to describe isn’t to think in terms of goals. It’s meant to go deeper than that, or to get at the reason why we have certain goals. The first answers people come up with are usually easy — things like security and freedom. But once we pause and really think, we can move even deeper still, or into what might be called the “why” of money. This question can get uncomfortable because it forces us to get really clear about our underlying reason for doing things. It also forces us to face some inconsistencies in our lives.

This is a great exercise to do when going through a divorce. In fact, at that seminar all those years ago, I was in the midst of my divorce and panicking about finances. If possible, do this with a friend but you can also do this by yourself.

Each of you asks the other – or yourself: What does money mean to you?

The answer to that question – let’s say security – becomes the next question.

What does security mean to you?

The answer to that question becomes the next question – whether it’s one word or a whole sentence.

Keep going until you’ve done about 7 or 8.

For me, the inconsistency is time – money to me is security, freedom from worry, which allows me to do the things I love, spend time with people I love, give back to the community, and learn new things.

But when I find myself working late nights and weekends am I losing sight of my own personal “why” of money. Am I working more hours to make more money and not having enough time?  When you’re arguing with your ex-spouse about asset division, child support or alimony are you losing sight of your own personal “why” of money?

This year I spent 10 days in Costa Rica with my son, Alec. Obviously, money, and some good financial planning, allowed me to do this. We kayaked, snorkeled, rappelled down waterfalls, went white water rafting, did a free fall Tarzan swing and went superman zip lining. The ability to have that time was precious.

In the Superman style zip line, the rope ties on your back, and you are “flying” forward with your body facing down, like Superman. I thought the scariness level of this Superman style was going to be like the regular zip line, having just done 10 of those. Nope! From the point of view of technique, it’s actually easier, because you do nothing, while in zip line you need to know how to brake and stay positioned so you don’t spin in midair. However, in the regular zip line, your hand is holding on to the rope. While in the Superman style, your arms are stretched wide to right and left like well Superman!

In the regular zip line there is a waist belt, a leg belt for each leg, a shoulder harness and a rope to hold on to connecting the zip lines and me attached through a big carabiner in front of my stomach. A safety rope, is attached just in case the main rope fails.

The shoulder harness is not used in the superman and because you are face down there’s nothing to hold on to. I never thought of this before of this before, but apparently, at least for me, holding on to something, as useless as it is, brings a sense of security. When your hands can’t hold on, you feel helpless. Powerless. Not in control. The worst thing was, not only that you “don’t need” to hold on, but you “must not” hold on! You are sternly told, as they push you off “Don’t touch the rope”!

Holding the rope on your back is virtually impossible anyway, holding the line in front is dangerous. Even if you don’t hurt yourself, you might accidentally slow down and stop in the middle of the ride, hanging high from the ground.

Can you see all the comparisons to a divorce? I can! Holding on to your marriage when it’s over by being unwilling to compromise and continuously arguing about money can also hurt you. Knowing what’s important about money to you can help you quantify just what you’re truly arguing about, how much is really enough and when you need to just let go.

What’s important about money to you? The answer should be an emotion that is your inner driving force.

 

Posted by Renee Senes at 10:47 AM

 

 

Wednesday, April 5, 2017

What happens to the deed to my house after my divorce?

Here’s another entry in our post-divorce TO DO list.

Very often one party keeps the house. Make sure to record a deed transferring ownership of the property. This is a simple transaction that can be handled by your attorney for a nominal cost. This of course assumes you have squared away all issues surrounding the mortgage as we discussed in prior blog posts.

But what happens if you continue to hold the property jointly for a period of years?

Massachusetts has a form of property ownership known as tenants by the entirety. This is a distinctive form of joint ownership available only to married couples. In addition to rights of survivorship it affords unique protection from creditors. Even if you continue to hold your home jointly post-divorce your status as tenants by the entirety will automatically be severed.

Upon divorce the tenancy by the entirety converts, by operation of law, into a tenancy in common. A tenancy in common is a way two or more people can own property together, in equal or unequal shares. Each owner has an undivided interest in the property, an equal right to use the property, and the right to leave his or her interest upon death to chosen beneficiaries.

What does this mean to you? If your spouse dies, his/her share could be passed by his or her will to someone other than you. Obviously, this was not your intent when you decided to continue to hold the house as a joint asset.

We consulted real estate attorney Chris Worthy for advice.

http://www.bullwinkelbrooks.com/christopher-c.-worthy.html

“If you and your ex-spouse have decided to continue to own the house as a joint asset after the divorce, the term “joint” has a very specific meaning.  For people who are not married, joint ownership refers to Joint Tenants With Rights of Survivorship, or JTWROS.  JTWROS is similar to Tenants by the Entirety, in that if one owner dies, the other owner will automatically own 100% of the property.

JTWROS is available to anyone, not just married couples, but JTWROS does not provide the same creditor protection that married couples have as Tenants by the Entirety.  In certain post-divorce situations, JTWROS can be beneficial by keeping the “joint” ownership of the asset intact, so that in the event one owner dies, his or her share will not be passed to a third party.

JTWROS can be beneficial for the knowledge that if one owner dies, the surviving owner will automatically own 100% of the home without worrying about a will or dealing with a court, but you still have to be careful.  JTWROS does not prevent one owner from selling or mortgaging the house without the cooperation of the other owner.  Instead, such an attempt will automatically convert the ownership back to a Tenancy in Common.

If you wish to convert the Tenancy in Common that occurs automatically after a divorce to JTWROS, a deed needs to be prepared and recorded.  In most cases this will be a simple, low cost process that a real estate attorney can handle for you.”

As you can see, there are issues for you to consider and that need to be addressed regarding your house post divorce. Put these on your TO DO list.

 

Posted by Renee Senes at 1:35 PM

 

Friday, March 3, 2017

Could I Qualify as a First Time Home Buyer After My Divorce?

I recently had a wonderful opportunity to attend an informative meeting with Angelo S. Nuby, Business Development Officer for the Massachusetts Housing Finance Agency.  I learned so much and the piece that I want to pass along to you in this blog post is –

                You CAN be a first time home buyer even if you have already owned a house!

This is wonderful news for people going through a divorce because financing for 1st time home buyers could mean the difference between you being able to purchase a new home or renting for the foreseeable future.

Let’s take this piece by piece and see how you might be able to use this:

Who is a 1st time home buyer?

A 1st time home buyer, contrary to what you may think, is not simply someone who has never owned a home. Rather, it is someone who has had no interest in real estate in the past 3 years. Therefore, if in your divorce, you have sold your house, or you deeded your house to your ex spouse as part of the settlement, you may be able to start the clock ticking on that 3 year period.

Why is it preferable to be a 1st time home buyer?

Unlike a conventional mortgage, which may require a 20% down payment, a loan through MassHousing only requires a 3% down payment. On a home selling for $350,000 that’s the difference between coming up with $70,000 vs. $10,500.

Are there eligibility requirements?

  • You meet the definition, above, of a 1st time home buyer – the 3 year rule
  • You may be eligible if your gross income is under $126,900
  • There is no asset test
  • You are able to qualify for a conventional mortgage (FYI – your mom can’t co-sign for you)

What should I do next?

MassHousing requires that all participants in their program complete a 1st time homebuyers class.

For more information please go to www.masshousing.com

 

Posted by Renee Senes at 7:45 AM

 

 

Wednesday, February 1, 2017

Getting a Mortgage Post-Divorce

Continuing with our post-divorce “TO DO” list, many of our clients find themselves needing to obtain a mortgage either to refinance their existing home or to purchase a new home. Hopefully this is something you have considered in the division of your assets and already planned for as a part of your divorce process.

Here are some good facts for you to know:

  • Establishing and maintaining good credit is of paramount importance. To check your credit history log onto www.annualcreditreport.com and obtain a free copy of your credit report.

  • Try to have at least 3 separate lines of credit in your own name, each having a 2 year history. These may include store credit cards, Visa or MasterCard and installment payments such as a car loan. Debit cards and gas cards do not count as lines of credit.

  • Your credit score can be negatively impacted if you have too many inquiries or if your outstanding balance on each card is greater than 1/3 of the limit.  For example, if your credit limit is $5,000 you should try to keep your balance below $1,650 on that card.

  • Alimony and child support can be used as income for the purposes of obtaining a mortgage however most lenders will not consider them as income until you can show that you have been receiving payments for at least 6 months. Lenders need to verify receipt by showing the source of the direct deposit or copies of the checks.  You can take a picture of the check before depositing it and keep it as verification to match up with your bank statements when applying for a mortgage.  Keep the deposits separate from other deposits so the amount of the check can be matched with the deposit.

  • Child support, in order to be counted, must be guaranteed to continue for at least 3 years. This is important!!! Although child support in Massachusetts can run until graduation from college (age 23) there is no mandate that your child attend college. Therefore, the lenders ability to count child support as income for a mortgage can end if your youngest child is over 15.  Please check with your lender about this. 

  • If you agree to hold your house jointly, or not to refinance post-divorce, how does the spouse who is not living in the home (let’s say “the husband”) obtain a mortgage?  If it is written into your agreement that the spouse residing in the home (let’s say “the wife”) is solely liable for the mortgage payment, then the husband can remain on the mortgage and not have it counted against him as a liability when he applies for a mortgage in his own name on a new residence.

Thank you to Chari Goodman for providing this helpful information, NMLS # 424923, Senior Loan Officer at Mortgage Network.

cgoodman@mortgagenetwork.com

www.charigoodman.com

 

Posted by Renee Senes at 8:30 AM

 

 

Friday, January 6, 2017

Don't Forget to Update Your Estate Documents

Happy New Year to all.  I hope this year brings the changes you were looking for or the comfort and acceptance you need.

David and I have written in the past about maintaining a post-divorce “TO DO” list.  Many of our clients have young children, so high on our “to do” list is making sure that you redo all of your estate planning documents, especially to provide guardianship for your children.

Remember that should you die, your spouse is still the legal parent/guardian of your minor child.  So selecting a guardian does not usurp your ex-spouse’s parental rights.  It selects a third party in the event that both of you were to die.  Therefore, it would be best if you and your ex talked about this together.

Envision the scenario: you name your sister as the children’s guardian; your ex names his/her brother.  The guardian who ends up with the children may depend on which of you dies first- not what you truly wanted.  Nor do you ever want a court battle about guardianship.  Talk about this with your ex.  It will be one of many discussions you will have over the years regarding your children, so get used to it now.  My children are 30 and 25, and my ex and I are still having discussions about “the kids!"

There are many other documents you will need to update or redo.  Here, compliments of David and Paula Feakes of The Parents Estate Planning Law Firm, P.C., Acton, Massachusetts is a partial list:

                1.  Make a new will

                2.  Create a living trust

                3.  Update your health care proxy

                4.  Update your durable power of attorney

                5.  Change your beneficiary designations

For more information, go to www.parentsestateplanning.com

You’ve worked hard going through your divorce. Take this last step to protect yourself, your assets and those you love.

 

Posted by Renee Senes at 9:48 AM

 

 

Thursday, July 7, 2016

I love my friends… BUT

I love my friends.  I would not have survived my divorce without them.  They were a wonderful source of support, comfort, love and advice.  They still are.

I’m sure you love your friends, too.  However, their advice is not always the best when it comes to what you can expect, or are entitled to, in your divorce.

“My friend told me…”   We often hear that from a client and so often that advice is completely irrelevant to our client’s particular situation.

 

My friend:

Got child support and alimony:

In most cases in Massachusetts, unless you have a combined family income that exceeds $250,000, you will not get both child support and alimony.  You will likely receive child support on the first $250,000 of income and perhaps alimony when child support ends.

  • Your friend may have received child support that was termed alimony to gain some tax advantages.
  • Your friend may have a spouse who earns more income than you realized.
  • Your friend may have received child support on her spouse’s base salary and alimony on his bonuses.

 

Kept the marital home:

In order to keep the home you will need to be able to remortgage the property in your own name to take your ex-spouse off the mortgage.  In addition you will need to have sufficient income to cover the monthly costs and unexpected expenses of maintaining the house.

  • Your friend may have had a job earning enough to get a mortgage in her own name and refinance the house.
  • Your friend may have had a very small mortgage on the property to begin with.
  • Your friend may therefore have significant equity in her property.
  • Your friend may have had enough other marital assets to “trade” against in order to keep the property as her asset in the divorce.

 

Got 60% of the marital assets:

Most divorces begin with the presumption that assets will be divided equitably which usually means 50% to each party.  In some situations, depending on the fact pattern of the case, assets may be divided 55/45 or even 60/40.

  • Your friend may have waived her right to future alimony in exchange for a larger share of assets up front.
  • Your friend’s spouse may have agreed to an alimony buy out.
  • There may be medical or financial conditions you are not privy to which make the division fair.
  • Your friend’s spouse may have the expectation of an inheritance and therefore not in need of as much of the marital assets.

No two divorce situations are identical.  Advice from a friend is well meaning but may just serve to lead you astray, fan the flames or pour oil on the fire.  Your very best advice in a divorce is a consultation with an attorney who specializes in divorce.  Then build your team by adding a CPA, a divorce coach, a therapist and a certified divorce financial analyst.

 

Posted by Renee Senes at 10:34 AM

 

 

Monday, September 14, 2015

Nothing Saved for Retirement

Recently I read some very scary statistics in the September 2015 issue of Retirement Advisor. The article referenced a report from the National Association of Government Defined Contribution Administrators, Inc.  According to this report 45% of Americans have saved exactly nothing toward retirement. That’s right, you read that correctly – NOTHING! The report further goes on to state that the life expectancy of a woman is 85 years old, causing them to potentially encounter more financial grief than men.

 
So, since this is a divorce blog, and a not an investment or retirement blog, what does this all have to do with getting divorced?
 

While I have no statistics to support my assertion, empirical evidence from years as a CDFA tells me that in a significant number of divorce cases the woman, myself included, chooses to retain the marital home. In order to do so, she often gives up retirement assets of equal value. These retirement assets may include 401k plans, 403b plans, IRA’s and Roth IRA’s. In some worse case scenarios it may mean giving up pension plans which will provide lifetime guaranteed income for retirement.

Compared with retirement savings, a home is more likely to consume funds with both regular as well as unexpected expenses. If you’ve lived in your home long enough it probably has a list of possible parts — the roof, the heating or air conditioning systems, the appliances — that can, and will, fail at any time. You may also find that you’ll have to pay someone to take on many of the home maintenance chores your spouse used to tackle such lawn care, snow removal and minor plumbing or electrical jobs.

Further it can be hard to gauge the future value of your home. You may also have a more difficult time using your house to finance retirement than the money that’s been growing in a 401(k) or IRA.

If you eventually do plan to move, don’t forget the possibility that you may need to spend money on improvements that will keep the house updated for that future sale. Now add in closing and moving costs as a deduction from that value. Also, don’t forget to consider the possibility of capital gains taxes when you sell.

Before you decide to take the marital home as a portion of your share of a divorce settlement make certain that you have carefully worked through the numbers. Remember that you will have a different budget as a single person than you do as a married one. Think about how your life will change post-divorce. What expenses will you still have? Which ones will be lower/higher? What expenses will be eliminated? What new expenses are you likely to face?

It’s important to consult with a financial professional with expertise in both divorce and retirement planning so he/she can help you consider your options.

 

Posted by at

 

 

Wednesday, May 20, 2015

Your Post Divorce "To Do" List

 
The decree is signed, you’ve gone before the Judge, and the nisi period has passed. Is the divorce over?
 
Legally, yes. However, the paper work and the follow up is not.
 
Is there property to be transferred? Are there bank accounts to be divided? Do you need to QDRO a 401k?
 
Whose responsibility is it to make sure that all of the assets divided pursuant to your divorce are retitled and in what time frame is this to occur?

Lots of questions.

Our suggestion is that you have a post divorce “To Do” list.

Here is a partial list of some of things that might be on it:
 
1.         Prepare and record deed(s) to transfer title to all real estate
 
2.         Refinance mortgages to all real estate in accordance with the new ownership and make certain old mortgages are discharged
 
3.         Transfer title to motor vehicles and refinance as needed
 
4.         Change the beneficiaries on all annuities, retirement accounts, life insurance and pensions
 
5.         Contact banks and brokerage firms holding non retirement accounts for paperwork to transfer ownership or divide accounts
 
6.         Contact the custodian of your IRA and ROTH accounts to acquire the paperwork to transfer proceeds to your ex spouse (or vice versa). Do not accept a check made payable directly to you which may have tax consequences. A custodian to custodian transfer is tax free.
 
7.         Divide any pensions or 401k plans with a QDRO. This can be a lengthy process so do not let it linger too long after the divorce.
 
Equally as important as what you need to do is that you designate the party, or parties, that will be responsible for each item: you, your ex, your attorney or your ex spouse’s attorney. Then target a completion date for each item. It is all too easy to find that months, sometimes years, go by and that assets have not been transferred, deeds have not been recorded and the QDRO is still not done.
 
Keep your “To Do” list handy and update it regularly.
 

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Wednesday, February 4, 2015

How You're Making Your Divorce More Expensive

 
Renee was quoted in an article by Geoff Williams which appeared in the online edition of U.S. News & World Report in January.  We are sharing it here...
 
Perhaps you've heard: Getting divorced is expensive. Whether you're going to pay alimony or receive it, many partners ending a marriage will soon feel as if they've taken a financial beating. Even if the breakup is amicable, splitting assets isn't pretty.

So if you're looking to not inflate the cost of your divorce, try to do the following.
 
Involve the divorce lawyers as little as possible. Even some attorneys will tell you not to overdo it. "When I worked for a large firm, a divorce client racked up hundreds and thousands in bills by calling every day and having me speak to her parakeet over the phone," says Elura Nanos, an attorney who occasionally does divorce work and co-owns Lawyer Up, a New York City-based educational company for law students. 
 
Nanos says her client believed her ex was paying the legal bills and was trying to stick it to him. "I left the firm before their years-long litigation ended," Nanos says. "Ultimately, she bore the bulk of her own legal bills - birdie time included."
 
Shop around for your attorneys and don't blindly rely on a friend's recommendation, says Sacha Patires, an event planner and designer from Oklahoma City, who cites doing just that and not comparison shopping for divorce lawyers as her biggest mistakes. She estimates that from June 2009 to November 2010, she spent $70,000 in fees with several legal professionals.
 
"Contact your lawyer as least as possible," Patires says. "Write down questions and when you have to call them, do so, and make it quick, efficient and stay on point."

Don't be an emotional spender. If you have kids, you naturally feel terrible that the family is splitting up. You may feel obligated to make it up to them in some way. Maybe you'll buy them new toys. Some video games. Perhaps a pony.
 
Try not to go overboard. "My children's lives were changing no matter what. I needed to accept that and work on new ways to help them adjust. Spending and buying them new things was not the answer," says Cheryl Holland, who runs A'Sista Media Group LLC, a women's empowerment coaching business in Rochester, New York.
 
Holland didn't buy her kids a pony, but she admits, "I continued to spend money and credit as if we still had a two-income household."
 
She recalls buying her sons the latest PlayStation units and games, expensive sneakers and clothing. "I bought my oldest son a $50 T-shirt. He wore it once, got a stain on it and never wore it again," Holland says.
 
"I didn't want my children to feel like they were missing out on what they were used to," she explains. "In the end, that didn't help the situation. I ended up having to sell my home and pay off debt for several years after the divorce."
 
Split the assets as fairly as possible. This is obvious. This is also what gets divorcing couples into so much trouble. Some splitting spouses don't want to divide everything equitably or have a differing view on what is fair.
 
Judy Crockett is divorced after a 20-year marriage, and she regrets that she agreed to take 40 percent of the retirement assets instead of 50 percent.
 
"Because he was older than me, and because I thought his health was not all that great, I agreed," says Crockett, who is a retail management consultant in Manistee, Michigan.
 
But later she had regrets: "Wrong move," Crockett says. "I earned my half, and I should have taken my half."
 
Holland would take another do-over, if she could. She agreed to pay off her credit card, and her husband would pay off his. That sounded fair at the time, but she had far more to pay than her husband - and her debt was generally from shared household expenses.
 
"I would've been able to start my new life off with at least somewhat of a clean debt slate if I'd done things differently," Holland says.
 
Consider selling your house now. If you get the house, you may feel like you've won the divorce lottery. But not so fast.
 
"One of the biggest financial mistakes people make is keeping the house," says Renee Senes, a certified divorce financial analyst in Harvard, Massachusetts, who herself got divorced at age 50.
 
"Most people have no idea how much it costs to keep a home running, the hidden costs of upkeep and the maintenance their spouse did that they will not be able to do themselves," she says. "Several years into a divorce, they then find themselves shouldering the burden of getting the house ready for sale, paying closing costs and perhaps paying capital gains that could have been avoided if the house had been sold as a joint asset while still married."
 
Of course, everyone's situation is different - you may love your house, want it and not care about future expenses.
 
Don't forget about taxes. Who thinks about taxes during a divorce?  Financial advisors tend to.
 
Michael Martin, one of the partners at Legacy Financial Partners LLC, a financial and tax planning firm in West Palm Beach, Florida, says a common error is neglecting to evaluate the true value of retirement assets like pension plans and individual retirement accounts.
 
Martin offers an example of a husband having a pension worth half a million and an IRA worth half a million. "Many people might just assume - Well, [the] husband takes the pension, and [the] wife takes the IRA," Martin says.
 
Sometimes, that works out fine. However, a cautionary tale: Once he had a female client who'd planned on doing just that, but she didn't realize the pension wasn't subject to state income taxes while the IRA distributions were.
 
"It doesn't seem like much at first blush," Martin concedes, but in this case, he says the female client would have paid $20,000 in state taxes while her soon-to-be ex wasn't going to have to pay a cent.
 
Senes echoes similar advice. "Retirement assets will be taxable upon withdrawal and therefore are worth at least a 15 percent less than non-retirement assets," she says. "This is particularly important when older couples divorce and one party may be relying on a distribution of retirement assets to supplement living expenses."
 
Recognize that there will never be a completely fair split. As noted earlier, you want to aim for fairness - but trying to achieve a perfect split is a fool's errand.
 
In other words, if your ex is trying to get custody of the iTunes account you spent hundreds on, don't spend thousands trying to wrestle it back. Sure, maybe your ex is getting something terrific that you wanted, but odds are, you're walking away with something your ex had hoped for, too. If you're both a little unhappy, that may mean you've negotiated well.
 
"I've seen parties to a divorce make the same mistake over and over - and that mistake is fixating on what they are entitled to," Nanos says. "People get all wound up when they get advice from friends, colleagues, lawyers and even soap operas."
 
Heeding all that advice and fighting stupid fights is a good way to turn your life into a soap opera- which is how so many divorced people find themselves returning to their attorneys. But it can't be said enough: If you want to keep your divorce-related costs lower, use your lawyer as judiciously as possible.
 
"The only reason they are listening to you complain and cry about your ex is because they are making money while you are doing it. Every minute you sit in their office is costing you money," Crockett advises. "Go cry on the shoulder of a stranger in the bar, and save your money for retirement."
 
 

 

 

Sunday, January 25, 2015

Personal Finance New Year's Resolutions

 
While this isn't specifically divorce-related, I thought it was worth sharing.  This is taken from a personal finance column I recently wrote for the Concord Journal.
 
I’ve always loved New Year’s Day as it gives us all a clean slate and a fresh start- if only in our own minds.  It’s a wonderful time for reflection as well as looking ahead.  It is in that spirit that I came up with this list of financial New Year’s resolutions.
 
I will take a long-term approach to my long-term investments.  This seems rather obvious, however, it’s pretty common for individual investors to overreact to short-term market trends and news when it comes to their long term investments such as retirement plans.  It’s tempting to sell out of stocks when the market is reeling, but if you have a long term perspective, you understand that markets go up and down and you can keep your eye on the big picture.  In the same way that you need not panic over short-term bad news, you shouldn’t become overly aggressive when things are going great.
 
I will build and maintain an emergency savings fund.  So many American live above their means and save very little.  While many of us are “forced” to save for retirement through our 401(k) plans, no one is forcing us to build up an emergency fund.  An emergency fund should be 100% liquid and safe and should provide 3-6 months’ worth of living expenses.  Even if you are a good investor, you never want to be in a position to have to sell something low when unexpected expenses arise.  Three to six months of expenses is what most financial planners suggest, but if you are self-employed or in an industry that is highly cyclical or one with frequent lay-offs, you might consider a little more.
 
I will increase my 401(k) contributions.  This should be an easy one.  You should try to increase your long-term retirement savings each year, especially if your income is rising.  If you got a raise this year, dedicate half of it to your 401(k).  Even if your income will remain the same, increase your contributions by 1%- you’ll hardly notice the difference in your paycheck.  If you increase your contributions by 1% a year, you’ll be maxing out your contributions in no time!
 
I will keep a closer eye on my credit.  The days of easy credit are behind us now and it’s more important than ever to maintain good credit.  In general, being over more than 70% of your credit limit is detrimental to your score.  It’s better to spread balances equally over a few credit cards rather than have it all on one.  And don’t close accounts with zero balances- by reducing your available credit, it increases your overall ration and is likely to reduce your score.  Even if your credit is excellent, it makes sense to check your credit several times a year with identity theft having become such a major problem.  You can check your credit reports from the three major reporting agencies for free at www.annualcreditreport.com.
 
I will track the performance of my investments according to my goals, not an arbitrary benchmark.  It’s become commonplace to compare the performance of investment accounts to standard benchmarks or indices such as the Dow Jones Industrial Average or the Standard & Poor’s 500 Index.  It makes sense for mutual fund managers to have their performance measured versus a standard benchmark- they are being paid to actively manage money and consistently “beat the market.”  But does it make sense for you?  Your financial objectives may include retiring with $2 million at age 66 or accumulating $100,000 by the time your daughter is ready to begin college, for example.  Has one of your financial goals ever been to outperform the S&P 500?  Probably not.  Make sure your investment plan is designed to help you reach your long-term objectives with a balance of risk and reward that is comfortable for you.
 
I will get a will- and those other things I’m supposed to have.  Chances are, you’ve been thinking about this for years now, but just haven’t done it yet.  It’s important and not too difficult.  Here are a few legal documents you should have: a will, a durable power of attorney and a healthcare proxy.  If you own a home, make sure there is a declaration of homestead.  While you’re at it, check the beneficiary designations on your life insurance policies and retirement plans.  Have you married, divorced or remarried?  If you die prematurely, make sure your money goes to who you intend to receive it.
 
I will measure my financial success based on my net worth, not my income.  Many years ago, I was told, “It’s not how much you make- it’s how much you keep!”  I’ve seen this in action many times over the years when I’ve met clients who never were necessarily high earners, but had amassed impressive estates.  They lived within their means, spent responsibly and saved aggressively.  On the other hand, there are people who earn several hundred thousand dollars a year, but struggle to maintain their lifestyle and invest money for the future.  Your net worth is determined by adding up all your assets (what you own) and subtracting your liabilities (what you owe).  There are several ways to increase your net worth, which is really the truest measure of personal wealth.  You can increase your assets such as savings and investments or home equity; and you can decrease your liabilities by paying off loans and credit cards or reducing your mortgage.
 
 

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Wednesday, January 21, 2015

Social Security and the Graying of Divorce

 
Many people overlook Social Security benefits when getting divorced. While these benefits are not assets that a divorce court can divide, the rules about benefits are relevant to your post-divorce life. This is especially true for those getting divorced in their later years. 
 
If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse's record (even if he or she has remarried) if:
 
•          You are unmarried;
 
•          You are age 62 or older;
 
•          Your ex-spouse is entitled to Social Security retirement or disability benefits and
 
•          The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse's work.
 
If your former spouse dies, you may be eligible to receive survivor benefits of 100% of your former spouse's Social Security benefit. The basic requirements are:
 
•          Your marriage lasted at least 10 years
 
•          You are at least 60 years old, and
 
•          You are not entitled to retirement benefits equal or greater than that of your former spouse's benefit.
 
 One issue that certainly needs to be addressed is that the social security regulations require that
you may receive benefits if your ex can qualify for them i.e. is at least age 62. However, if your ex has not applied for benefits you can receive benefits on his or her record only if you have been divorced for at least two years.
 
This two year restriction is of critical importance to an older couple contemplating divorce.
 
Let’s look at this hypothetical case:
 
Bob and Carol are getting divorced after 30 years of marriage
 
Bob is 66 (full retirement age for social security purposes) but intends to delay taking social security until age 70 to maximize his benefit.
 
Carol is 62 with minimal social security of her own.
 
Because Bob has not applied for benefits, even though he is eligible, Carol will not be able to collect on his social security until the couple has been divorced for 2 years.
 
What are some options for this couple?
 
- Spousal support for 2 years until Carol can collect social security benefits on Bob
 
- An unequal division of assets to give Carol income potential from the additional assets
 
- While still married, Bob can File and Suspend his social security benefits.  This gives Carol the right to claim spousal benefits on his earnings record, although at a reduced rate since she is only 62.
 
- Delay the divorce until Carol is 66.  At that time she can file a restricted application for spousal benefits and reserve the right to collect her own benefits, if greater, at age 70.
 
Each situation for an older couple is different.  A gap in ages may make social security claiming strategies unworkable or irrelevant.  Still, it is important to know your benefits and those of your spouse.  Create an account for yourself at www.ssa.gov.  Print out your benefit statement and request that your spouse do the same.
 

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Advice for Divorced Dads Over the Holidays

 

The holidays can be difficult when you’re going through a divorce, and if you have children, it can be even harder.  The following article popped up on yahoo.com for me last week and I thought it was worth sharing.  It is written by Heather Gray and originally posted at goodmenproject.com.

 

Advice for Divorced Dads Over the Holidays

By Heather Gray

 

Being a divorced dad during the holidays is a landmine of suck. You want to be with your kids but you don’t want to make things harder for them. Everywhere you go, people talk about traditions and you get smacked in the face over and over again with the reminder that traditions don’t really exist for you anymore. Nothing is the same as it used to be and loneliness bites back. Hard.-Divorced Dad of 2

If this sounds familiar, here’s what you can do:

- Get really clear about what you want.

If the holidays could be any way you wanted, how would they be and what would they look like? What is your clear, unedited, and uncensored picture of your perfect holiday? Sit with it for a second.

- Prepare yourself to move to the how.

Yes, there are obstacles like legal agreements and the preferences of others. However, if you get really clear with what you want, it is easier to problem solve around the obstacles. Don’t assume you have to concede defeat and not get anything you want.

- Plan ahead and talk to your ex before talking to your kids.

Don’t be afraid to ask for what you want. The worst thing you might hear is no. Encourage the kids’ mother to share her wishes and needs for the holidays. See what would be easy for you to give, and give it openly. Prepare yourself for compromise and negotiations.

- Think outside of the legal agreement, if at all possible.

If you and your ex are amicable, you can both work together to think outside the box of the standard legal agreement. You can make room for the idea that if the kids are with their mom on Christmas Eve, you can still go over and help them set out the milk and cookies before bed.

Christmas morning might still be mom’s scheduled time but perhaps it can be possible for you to come early in the morning to watch them open presents before leaving and doing separate things. Hanukah spans a week. Be creative with scheduling and visitation so the holiday can be celebrated in both households. If possibilities like this are part of your perfect holiday wish, try to make them happen.

- Create new traditions.

Change has happened to your family. Don’t leave a hole where old traditions used to be. Make new traditions for you and your kids. Remember that vision of a perfect holiday? You might find new ideas for traditions there. Invite the kids to your place to pick out a tree and decorate it. If the home they share with their mom has the menorah, encourage them to help you pick one out for your place. Send Santa a change of address form. Come up with new activities to do together and the ones that are successful become your new tradition for next year.

- Don’t pretend the changes are a secret.

Remember the landmine reference? Yeah, conversations like these are usually where they are found. Once you and your ex have a plan for how the holidays are going to go, talk to the kids about it. Sometimes parents want to skip the hard conversations and pretend change isn’t happening. All that does is send the message that the changes are so hard, they can’t be spoken about and that isn’t necessarily true.

Talk to your kids about the changes. Acknowledge and share your disappointment but also share your wish for new memories and new traditions. Recognize their sadness, disappointment, and grief over the loss of the way their family used to be.

- Don’t compromise the time with your kids away.

No one likes change and kids can particularly struggle with it during the holidays. Seeing their sadness and disappointment will make you want to turn cartwheels or stand on your head to avoid hurting them. After all, “the divorce wasn’t their fault”.

Kids can be masters at avoiding change and they will play every card in the deck to avoid it. Compromise with them, too. If it’s your time with them but there is a holiday party, event, or activity they want to go to, by all means don’t make them miss it. However, at the end of the day, you are their dad and time with you has to be a priority, too.

If conflicts are bumping up against several times with you, you’ll have to make them choose what is most important to them. If you do compromise visit time so they can do something they really want, prioritize making up that time, whenever possible. While this may make things difficult for them, it also sends the message that time with them is not something that just happens when there is nothing else to do. It tells you, your ex, and your kids that the relationship between a dad and his kids in non-negotiable.

- Make sure the holidays happen in your home, too.

So often when I talk to dads at this time of year, I learn that they haven’t decorated their new place for the holidays. They haven’t gotten a tree or done anything outside in the yard with lights, even though they used to when the family was all together. I get it. What’s the point? If you’re not with your kids, it doesn’t really feel like a holiday.

However, this change isn’t temporary. It’s permanent and you want to create a sense of holiday, not just for you but for your kids. If it feels like the holidays at your place, too, it will be easier for them to adjust to the holidays being different. This is an easy way to make the changes more manageable and less suffocating for everyone.

- Give yourself something to look forward to.

Without the kids and in-laws, there are going to be holes in your schedule. Loneliness may be unavoidable. Don’t just hide at your place and count the days until January 2nd.

Plan for what you’ll do during those times. Pick a TV show that you have wanted to check out and plan a marathon. Plan some physical activities to relieve the stress and sadness that comes with this time. Take a daytrip. Volunteer. Finish a project that will feel good to have completed before the end of the year. Start researching and planning a trip or activity you can do with your kids after the holidays.

- Remind yourself that the holidays only last for six weeks and you can do anything for six weeks.

Divorce comes with so much pain and sadness. You’ve already overcome a lot of that just to get to this place. This time of year is hard and will come with adjustment but if you take care of yourself and your kids, you can make new memories that will make next year much easier.

Posted by David Chwalek at 6:58 PM

 

Monday, November 24, 2014

Divorce and the Holidays

As we approach the holidays, David and I would like to reach out to those of you going through a divorce, as well as those of you spending your first holiday post divorce. In this season of family and tradition it can be a sad and difficult time, especially if this is the first holiday without your children.

We urge you to take care of yourselves: eat well, get plenty of sleep, don’t drink too much, remember to exercise. Reach out to friends, make sure you have plans for the holidays and contingency plans in case the first set fall through. Have a good book on hand, a DVD or Netflix you’ve been meaning to watch. This may even be the holiday to get away from it all with a mini vacation.

If you are hosting the holiday consider changing some of the family traditions and starting something new that will make the holiday yours – even if it’s only the stuffing recipe!

Most of all, allow yourself time to grieve. This is a loss and trying to smile bravely, soldier on and sweep it under the rug doesn’t make it go away and doesn’t help you heal. So go ahead and cry – you’re entitled – then eat some turkey, some pumpkin pie and count a blessing…..or two.

We wish you well,

Renee and David

Posted by Renee Senes at 9:54 AM

 

Monday, September 8, 2014

Never Let a Good Crisis Go to Waste

While this quote has been attributed to, and interpreted by, many people, one of the earliest attributions is to Winston Churchill. The alliance between Joseph Stalin, Winston Churchill, and Franklin Delano Roosevelt, which lead to the formation of the United Nations, offered numerous opportunities in the midst of a crisis.

Certainly a divorce can qualify as a crisis.

From a personal perspective, my career choice to become a Certified Divorce Financial Analyst grew from my own divorce. I had been an investment advisor and financial consultant for many years but it took a divorce to make me realize that there were other people, like me, struggling with the financial ramifications of divorce. Hence, a new career path.

This isn’t about being Pollyanna and trying to look on the bright side, find the silver lining or play the glad game. This is about truly trying to find a fundamental opportunity to take control of your life and make a positive change.

Would you like to change careers? Go back to school? Move to a different town or state?

Perhaps the divorce made you realize that you’d let your spouse handle the finances all these years.

If now is the time to step up to the plate and gain knowledge around financial management, we’d like to help you attain that goal.

What opportunities can you find in the midst of your crisis?

Thank you to Susan Phillips, M.Ed., Holistic Health Coach, www.YoungerbytheYear.com, who provided the inspiration for this blog entry.

Posted by Renee Senes at 11:48 AM

 

 

Monday, July 7, 2014

Thinking Ahead

The divorce is over. After hours with an attorney or mediator and time with your accountant and financial planner, you’ve finally come to an agreement. The assets are divided, the house perhaps sold and each of you begins your newly single life.

Fast forward 3 years: your son gets his driver’s license. Do you buy him a car? Who pays? Whose insurance does he go on? What happens when he has his first (inevitable) accident and the rates go up?

Fast forward 4 years: your daughter wants to do a semester abroad. It’s more than you want to spend!  Does she still go? Who pays? How do you resolve it?

Fast forward 5 years: your ex gets remarried. His/her new spouse goes on the family health insurance plan. What happens to you? Do you get a plan of your own with the same company? Are you looking for a plan through the Mass Connector? Who pays?

Sometimes it’s the little issues in a divorce that trip us up many years later. While it’s easy to think about things like car insurance and a semester abroad when your children are already teenagers, these things can easily slip your mind if your children are only 5 or 6 at the time of divorce.

Talk to friends who have been divorced for several years. Talk to people with children who are older than yours. Make a list of potential financial pitfalls and raise them during negotiations. Think far ahead into the future and not just a few years down the road.

Posted by Renee Senes at 1:19 PM

 

 

Friday, February 21, 2014

What Should I Do With My Tax Refund?

Many of our divorce clients continue to work with us even after their divorce is final.  At this time of year we often hear from clients who are expecting tax refunds.  Their big question: What should I do with my refund?

While everyone’s situation is different, here are a few ideas to make good use of your tax refund.

- A basic, but often overlooked, account that everyone should have is an emergency savings account.  In an era when so many people are living paycheck to paycheck, a sudden cash emergency can be devastating.  We recommend that our clients keep at least 3-6 months’ worth of living expenses in a guaranteed, accessible savings or money market account.  Don't worry about low interest rates- the money is there for safety, not to make big returns.

- Once you have an adequate emergency fund, look to pay down any "bad debt" that you may have.  Mortgages are fine, but start with the highest interest credit card, student loan or car loan and add your tax refund to that.

- If you don't have any of those, consider adding your refund to a Roth IRA.  You don't get a tax deduction, but all future qualified withdrawals are 100% tax-free.  In all likelihood, taxes are going up in the future, not down, so why not start adding to an account that will guarantee tax-free retirement income?

Posted by David Chwalek at 1:43 PM

 

Friday, December 13, 2013

"But I really want to keep the house..."

One of the biggest issues we see in divorce situations is who gets to keep the house.  In a majority of cases when the wife has primary physical custody of young children, she wants to stay in the house.  This is understandable as she may want the kids to continue in the same school or she simply wants to keep their lives and routines as consistent as they were pre-divorce.

While we certainly can understand the desire to keep the house, this decision can present some financial risks to one or both of the divorcing parties.

Let’s look at a few possible scenarios and their potential consequences:

1. The parties agree that the wife will stay in the house and buy out the husband’s share of the equity.  In situations where the husband and wife have similar incomes and savings, this may be a perfectly viable option.  The wife will simply get a mortgage in her own name, the husband’s name will be removed from the deed and the wife will pay the husband half of the equity in the home from existing savings or investments.

The situation gets trickier when the wife’s income may be significantly lower or if she has been out of the workforce while caring for the children.  It may be difficult or impossible for her to qualify for a mortgage in her own name based on her current income (or lack thereof).  Although lenders will include child support and/or alimony received into their calculations, most will want to see 6 – 12 months of consistent payments and a court order before they will consider the support as income.  So even if your divorce becomes final next month and the agreement calls for you to receive monthly support, until there has been a trail of 6 – 12 months of payments, the bank will likely not include those payments as income for you.  In addition, many spouses may receive financial support during separation but before the divorce is final.  Because these payments are not subject to a court order, they will also not be counted.

2. Because the spouse who will stay in the house cannot qualify for a new mortgage, it is agreed that this spouse will pay the mortgage and related expenses even though the loan is in the other spouse’s name.  This might seem like a reasonable decision at first.  In the interest of keeping the children in their home, the spouse whose name is on the mortgage agrees to let his or her ex live in the house as long as they pay the mortgage, taxes and insurance.  At some point in the future- perhaps when the kids are out of school- the house can be sold and the equity can be divided then.

There are a few potential pitfalls with this scenario.

First, the spouse who will not be living in the house may want to buy another home someday.  While some high earners may be able to qualify for a 2nd mortgage, most people will not be able to get a loan to purchase a new home if they still have a mortgage on the first house.

Second, what happens if the spouse living in the house is late paying the mortgage?  Or, even worse, stops paying it altogether?  Even though the divorce agreement may explicitly state that the spouse in the house is responsible for paying the mortgage, the lender only recognizes the name on the note.  If there are delinquencies or even a foreclosure, it will affect the credit of the spouse whose name is on the mortgage.  Because there are no adverse consequences for late payments by the spouse in the house, he or she may decide to pay other expenses first, while knowing that the late payments will only affect the ex.

3. One spouse insists on keeping the marital home, so the other spouse ends up with most of the savings, investments and retirement accounts.  This is another common situation we run into.  I’ve seen many divorce agreements which divide all the marital property equally, but one spouse ends up with primarily liquid assets (like savings accounts, stocks, mutual funds) and the other ends up with the house, which is very illiquid.  If the spouse who gets the house has little or no emergency fund or backup savings, they are truly playing with fire.  An adverse situation like a job loss, disability or major home repair can ruin them financially.  If you decide to forgo other more liquid assets in favor of keeping the house, make sure you plan for the unforeseen issues that inevitably seem to occur.

The point here is to consider all the “what if’s” that could occur in the future before making a decision about what to do with the marital home.  It’s often your biggest marital asset, so think about all the pros and cons before signing your agreement.

Posted by David Chwalek at 12:39 PM

 

 

Wednesday, November 20, 2013

Money & Divorce classes in Massachusetts

We regularly teach a course, Money & Divorce: Costly Mistakes You Don’t Want to Make, in several local towns.  This two-hour class is designed for people who are contemplating divorce, starting the process, in mediation or looking at settlement options.  Our last class of 2013 will be held Wednesday, December 4th at 6:30 pm at Concord-Carlisle High School in Concord, MA.

We will restart the classes again in mid-January and generally hold them in Concord, Acton, Littleton, Groton, Fitchburg, Bedford, Chelmsford, Westford and Newton.

For a complete listing of our Winter/Spring 2014 classes, please check our website in early January.

Posted by David Chwalek at 4:29 PM

 

Friday, August 30, 2013

Dividing IRA Assets- Do It Right the 1st Time

I’ve seen this situation in recent years: a couple who are already divorced request a meeting because they disagree on what their divorce settlement actually says.

The problem typically arises when IRA assets are to be divided. Rather than simply split the specific accounts, I see divorce agreements reference payments from the wife to the husband from one source, then payments from the husband to the wife from another source.  In a separate paragraph there may be yet another equalization of assets to be netted out from the final amount with references to various schedules in the agreement and the mention of payments “grossed up” for taxes.

These situations take hours of number crunching in order for me to figure out who owes what to whom. This is then followed by another meeting with the clients and multiple emails to explain it to both parties. Once we reach agreement the spouse who owes the money, let’s say the husband, submits the paperwork to his brokerage firm to transfer a portion of his IRA to an IRA that has been established for the now ex wife.

And then … the brokerage firm rejects the transfer!

Why? Because nowhere in the divorce agreement was it ever really clear what account was being transferred and how much was being transferred.

The lesson in these situations is clear: When you are transferring IRA assets as part of the divorce process CALL THE BROKERAGE FIRM FOR INSTRUCTIONS. Explain the situation and ask them what specific paperwork they will need to transfer an IRA from spouse “x” to spouse “y”. Ask what language needs to be in the agreement to facilitate this transfer. Does the specific account need to be referenced by account name and number? Do they need a specific amount or will a percentage be acceptable?

Do it right the 1st time or you may find yourself going back to court to get a document signed by the judge in order to complete the transfer.

Posted by Renee Senes at 9:02 AM

 

 

Monday, July 15, 2013

Don't Overlook Taxes When Dividing Assets

A common mistake that we often see in a divorce settlement is when one party fails to consider the impact of taxes on the assets they keep in the divorce.

For example, let’s take a couple with the following assets to be split in their divorce: savings and money market accounts= $120,000, car 1= $15,000, car 2= $22,000, securities account= $60,000, rental property= $300,000, cash proceeds from home sale= $247,000.

Spouse 1 proposes that she keep the cash from the house sale ($247,000), the bank accounts ($120,000) and her car ($15,000).  Spouse 2 will keep the rental property ($300,000), his car ($22,000) and the securities account ($60,000).  On the surface, this seems fair as both spouses end up with $382,000 worth of assets.

But consider the effect of capital gains taxes for Spouse 2.  Let’s say the stock in his securities account was purchased a few years ago when the market was lower and the cost basis is $40,000.  And the rental property was purchased for $200,000 and has been depreciated on his tax return for several years, leaving a cost basis of $150,000.  So, with long term gains of $20,000 and $150,000, he would be liable for $25,500 in capital gains taxes when he sells the stocks and rental property.

While Spouse 1 owes no taxes on her assets and nets the full $382,000, Spouse 2 only nets $356,500 after taxes.

Be sure to consider the effects of taxes on your settlement, especially when dividing securities, retirement plans and real estate.

Posted by David Chwalek at 11:11 AM

 

Thursday, April 18, 2013

When Does Alimony End?

When does alimony end?

Almost every divorced or divorcing person living in Massachusetts knows that alimony laws changed dramatically when Gov. Deval Patrick signed a new bill on alimony on Sept. 26, 2011. The new law went into effect March 1, 2012. The law provides that:

            general term alimony orders shall terminate upon the payor attaining the full retirement age when he or she is eligible for the old-age retirement benefit under the United States Old-Age, Disability, and Survivors Insurance Act, 42 U.S.C. 416, as amended and as may be amended in the future. 1

In plain English, alimony ends when the person paying the alimony reaches his or her full retirement age (FRA) according to Social Security (although the court may set a different alimony termination date for good cause this blog post focuses solely on social security FRA).

For social security purposes, your FRA is based on your year of birth. For example, if you were born between 1943 and 1954 your FRA is 66. If you were born in 1960 or later, your FRA is 67.

What happens then to everyone born between 1954 and 1960? Is their FRA 66 or 67?

The answer: neither one.

Each year between 1954 and 1960 has its own FRA that is stepped up in increments of 2 months (1955 – 66 and 2 months; 1956 – 66 and 4 months; 1957 – 66 and 6 months). The full chart is at http://www.ssa.gov/retire2/retirechart.htm

For example, when reviewing a client's draft separation agreement, I find that the alimony termination date is stated as age 66. However the husband's social security statement gives his FRA as 66 and 10 months. This is 10 additional months of alimony payments to her.

Remember to check the actual full retirement date for yourself and your spouse using the chart above or log onto the social security web site at www.ssa.gov to create an account for yourself.

1.http://www.mass.gov/courts/courtsandjudges/courts/probateandfamilycourt/documents/enacted-alimony-bill.pdf as of April 11, 2013.

Posted by Renee Senes at 9:06 AM

 

Wednesday, March 27, 2013

Why Can't We All Just Get Along?

In our Money & Divorce classes, it’s always refreshing to see couples who come in together.  While this is not entirely unprecedented, it is on the unusual side.  Most of the attendees at our classes tend to come solo- men and women.  Sometimes, it is a spouse who has just begun to contemplate that divorce may be in her future and just wants to understand her options.  Other times, it’s the less financially-savvy spouse who is there to make sure he won’t be taken advantage of by his spouse.

Sometimes I see couples that come in together, wanting to be well-informed so they can reach an agreement in the best interests of their children - and themselves.  As you can imagine, we hear plenty of stories about really difficult, antagonistic divorces, so it’s always refreshing when we meet couples who have reached the decision to separate, but wish to do so in a respectful and educated manner.  No one wins in a divorce- at least from a financial point of view.  But some people lose worse than others.  Spending thousands of dollars on attorneys who fight it out on your behalf, while arguing over minor details, is a good way to lose big in a divorce.  If more people could see the big picture and work through a divorce while cooperating with each other, they’d be much better off.

There are many ways in which divorcing couples can work together toward an equitable solution that truly benefits both parties.  If you’re starting the process, ask yourself if that could work for you.

Posted by David Chwalek at 9:53 AM

 

 

Tuesday, February 19, 2013

What’s it Really Worth?

Are you stuck in an argument about the value of the bedroom furniture? Great grandmother’s china? The living room set you bought when you were first married 15 years ago? What is it really worth?

We asked downsizing expert Marie LeBlanc, of Transitions Liquidations Services, http://www.transitionsliquidation.com/, for her help with this.

Marie says, “While we are all emotionally attached to the items in our homes after years of searching and acquiring them, in today’s market most items offered for resale will bring 10% of the original sale price or less.  Current exceptions include fine art by a traded and established artist, period piece furniture in mint condition and precious metals which have scrap value.  In today’s economy, most dealers and consignment shops are more selective about what they will and won’t take.   A solid course of action would be to take digital photos of the items you would like to sell and send them to multiple shops and dealers asking if they are interested in purchasing or consigning the items.  Approaching multiple potential buyers will insure that you have comparative data on which to base your decision.   Expect most dealers to pay in the 30-50% of expected purchase price range.  Consignment shops typically require the items to be brought in by the seller and charge 50% commission.  Take all of these costs into consideration when making your final decision.  Another option is the general auction house such as Trudell or UBIDTOBUY.  These companies offer both online and gallery viewings and bidding.  All auction houses work on a sliding scale commission rate and sometimes do free pick-up if your items total a minimum revenue value.”

So, before you spend a lot of time and money on legal fees, arguing about who gets what, take Marie’s advice to heart.  Is it worth spending $1,000 in legal fees on the china that will sell in the consignment shop for $100? Yes, I know it was your grandmother’s, but really …

Posted by Renee Senes at 4:40 PM

 

 

Sunday, January 27, 2013

Where Am I Going to Live?

I've seen this situation over the years; a client calls me full of excitement.

She’s found a condo and the bank has qualified her for a mortgage! Her request: please send her the 20% down payment from her retirement account.

For some clients, the years of long, difficult and acrimonious divorces have drained their savings and retirement accounts for legal fees, living expenses and taxes. The downturn in the real estate market has made it difficult to sell larger homes or necessitated the need for substantial home equity loans to maintain the standard of living. When the marital home finally sells it often has an equally large mortgage and doesn’t yield much cash at closing. From this set of circumstances comes the request to take the down payment on a new home from retirement assets, often finally depleting them entirely.

The more I think about these cases, the more upset I become.

Here are the practical realities:

- Taking the money from a retirement account leaves a huge tax bill and no cash reserves to pay the  bill when it’s due

- Taking the money from a retirement account leaves no reserve cash for any sort of emergency

- Due to changes in the alimony laws, many older ex spouses, closing in on retirement age, will go to court for a modification of their obligation to pay alimony.  Without alimony, or even with reduced alimony, these women won’t be able to pay the mortgage.

When I’ve gently laid all of this out for my clients most have simply said, “Well, I qualified for the mortgage”.

In some cases I’ve been able to persuade them to find a less expensive condo. Maybe not one they love as much but one that is much more affordable. In other cases we’ve compromised on 10% down which, on the downside, leaves them paying PMI. On the upside it reduces the tax bill and leaves a reserve in the account for that rainy day that will certainly come.

Just because you qualify for the mortgage doesn’t mean you can afford the house.

Posted by Renee Senes at 8:41 PM

 

 

Friday, January 11, 2013

Money & Divorce Meetup Group

We're pleased to announce the formation of our new Money & Divorce Meetup group.

Our group will meet one evening a month at our offices in Concord Center.  The Money & Divorce Meetup is a forum for people contemplating divorce, going through divorce or dealing with the financial realities of life on the other side.

We will facilitate the discussions, bring in guest speakers and offer guidance with regard to the financial practicalities of divorce in Massachusetts.

Our introductory meeting is Wednesday, January 16th at 7:00 pm.  There is no cost to join or attend meetings.

For more information, please give us a call or checkout the Meetup website listing at http://www.meetup.com/Money-Divorce/ .

Please feel free to share this with anyone you know who may find it of interest.

Posted by David Chwalek at 12:06 PM

 

 

Friday, January 4, 2013

Divorce Planning and Your Retirement Plan

I recently met with a client who is planning to get divorced. Not an uncommon client meeting in our practice. What made this client different is that he doesn’t plan to get divorced for another 2 years! That’s when his son will graduate.

His question: What can I do over the next two years to position myself financially to prepare for a divorce?

While this may sound macabre, and horribly unfair to his unsuspecting spouse, it is a valid question.

Along with advice on carefully tracking assets, liabilities, income and expenses, I offered the following surprising suggestion: stop contributing to your 401k.

The 401k retirement plan is a marital asset. All money contributed to the plan over the next two years would be divided in the divorce. Essentially, he gives up $.50 on every $1.00 he puts into the plan. In the alternative, reduce the contribution to just take advantage of the company match.

Posted by Renee Senes at 3:47 PM

 

 

Tuesday, December 18, 2012

Taking Control of Your Finances in Divorce

Do you know your credit score or the details of your Social Security report? Can you find the deed to your house, mortgage, life insurance policies, car title, car insurance policies, tax returns for the past 5 years, brokerage and bank statements for the past year? Do you know what your spouse earns or how much is going into a 401k plan annually?

Getting divorced is often a wake up call when it comes to finding out what you know and don't know about your family finances.

Managing your finances is not about knowing which stock, bond or mutual fund to buy. It's about knowing what you own (assets); what you owe (liabilities); what's coming in (income) and what's going out (expenses). It is about paying attention to where your money is going and being organized.

You're going to be asked to produce a lot of financial paperwork and documentation for the court, your attorney or mediator and for your soon-to-be ex spouse. So, let's get started:

Clear off a workspace and gather all your statements: bank, brokerage, credit cards, etc. Other supplies to gather: paper, pen or pencil, 3-ring binder, hole punch, index dividers, highlighter and sense of humor.

First, we're going to tabulate your net worth (difference of what you own versus what you owe): make a list of everything you own: house, car, brokerage accounts, life insurance, retirement accounts and their value (the internet can help- try KBB.com and zillo.com). Then, list everything you owe: mortgage, car loan, credit card debt, school loans and their outstanding balance. Keep this information stored in the first section of your 3 ring binder.

Next, find where your money is going (the cash flow), or the reality of not having a clue as to where you spent all that money. The easiest way to determine your cash flow is a computer program like Quicken or QuickBooks. A useful website is mint.com. If you prefer not to use the computer, this can be done with Excel, columns on lined paper or on graph paper.

To make a budget, gather your checkbooks, check stubs and charge card statements. Give each expenditure a category and a subcategory. Example: Utilities: phone, Utilities: cell phone, Utilities: cable and enter your expenses for each month. You will get a total for each subcategory as well as a total for the whole category of Utilities. Don't forget to enter your income, including income from child support and alimony. Print a report every month, and a quarterly report every 3 months. Put these in a Cash Flow or Budget section of your binder.

It may take you several months to get a picture of your income and expenses but it will become the foundation to manage your finances as well as negotiate child support and alimony.

With a handle on your cash flow, you can look for places where you can reduce expenses or control spending. Try taking 10% off the top of your income as savings. Then, rework your expenses to see if you can still manage. Utilize whatever amount of money you are able to save to:

• Get out of debt - pay down credit cards and loans

• Have an emergency fund not invested in the stock market. Aim for a minimum of 3 months of household expenses in savings. If possible, have an additional 3 months in a short term CD or money market account

• Take advantage of retirement plans

Put this information in your Savings Goal section of the binder.

Armed with this information, a consultation with a Certified Divorce Financial Analyst, early in the process, can help you meet the challenges of divorce with more confidence and dignity than might otherwise be the case.

Posted by David Chwalek at 1:03 PM

 

Friday, December 14, 2012

Welcome to our blog!

Nobody who gets married ever expects their marriage to fail, yet nearly 50% of all marriages now end in divorce.  Having worked with divorcing clients for years- and both having gone through it ourselves- we have a unique perspective when it comes to divorce situations.  We aren't lawyers and don't seek to replace sound legal decision making.  We do, however, work with divorce attorneys and mediators to help our clients make choices that will impact them for years to come.

Going through a divorce is one of the hardest things that most people ever have to deal with.  It's easy to throw in the towel with regard to money matters simply to "get it over with."  During such an emotionally difficult time, you need someone to help you sort through the financial quagmire.

We hope our future posts will give you some good ideas, support and the feeling that "YES, I can do this!"

David and Renee

Posted by David Chwalek at 10:28 AM