Posts Tagged ‘Money Management’

We just read the article If the Reason You Earn Money is Just to Spend it, You will Always Financially Struggle on thesimpledollar.com. Of course he’s right. If you look forward to your paycheck so you can get the latest or a bigger this or that, be seen here or there, or go wherever, instead of using it for the essentials and then saving the rest, you will always struggle financially.

But even though that registers mentally, for some, spending money is tied to emotions. For example, I (Tracy) definitely spend more money when I have a job I don’t like or live in a place that doesn’t excite me. My money isn’t buying things. It’s buying happiness. (Yes, I’ve actually analyzed this.) When I’m happy it’s much easier for me to think about where my money is going and to control it.

During a divorce or separation ,one household becomes two. And items that your partner used to pay for (or at least their part)  will have to be paid for by you, or else disappear from your life. This is no time to go on a wild spending spree. Yet, this might be exactly when you fell most like doing it to make you feel better. To buy happiness.

If this sounds like you stop. Don’t make impulse buys. Sleep on it. It’s amazing how something you just had to have in the store is the last thing you think about the next day if it was a “want” and not a “need.”

Also think about what you won’t have if you buy that shiny new thing. Food, the ability to pay your electric bill, money for gas, money for car repairs, rent? You get the picture.

Think about what your money is really buying. And if it’s happiness, believe me, there are free ways to achieve that (exercising, listening to music, being with your real friends, doing something for someone else, for example).

P.S. If it’s social status and that really makes a difference to your friends, are they really your friends? Think about it.


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Christmas gifts.

Christmas gifts. (Photo credit: Wikipedia)

We know that that it’s the thought that counts, but after the thought, you still may have gifts hanging around the house that you just, well, don’t want need. And these gifts can be a burden in two ways if you in the midst of a separation.

1) They add to the things you have to pack if a move is in your future; and

2) They could be replacing things that you do want like other items or cash, both of which can be very valuable if you’re strapped for money due to a separation.

The good news is that by doing these 5 things, these gifts can keep on giving to you. Here’s a list as seen in the article,

5 Smart Ways to Turn Unwanted Gifts Into Extra Cash by Elyssa Kirkham (GoBankingRates.com).

1. Return Unwanted Gifts

Great for: gifts for which you have the receipt and/or know where they were purchased.
Go ahead and ask gift-givers for copies of the receipt if you need them; it might feel awkward, but if they are in a true gift-giving spirit, they will probably want you to end up with something you love. If they don’t have the receipt, you can still try and return the item as long as you know where it was purchased.
How to Return Unwanted Gifts

It’s easiest to return an unwanted present if you have the gift receipt, but there are ways to get around this.
Stores with the best return policies will accept returns or exchanges without a receipt, including Costco, Walmart, Target, Nordstrom and Macy’s. Most stores will require a valid government ID, such as a driver’s license, however. Additionally, many stores will only issue store credit for returns without a purchase receipt.

2. Resell Unwanted Presents

Great for: gifts you are unable to return, valuable or popular products, and gift cards.
If you can’t return an item, you can always try selling it. You might not get the full retail value in return for the item, but cash in hand is better than having to figure out what to do with an unwanted gift.
How to Sell Unwanted Gifts

There are a few venues you can try to resell your extra holiday goodies. The obvious choice is to sell the item yourself, through listing services such as Craigslist or eBay. This is a particularly good choice if you have items with a lot of inherent value, such as name brands or in-demand electronic devices.

If you aren’t up for the risk, responsibility or hassle that comes with selling directly to buyers, you can try the “Fulfilled by Amazon” service. You simply send in your unwanted items to Amazon, which in turn warehouses them and includes your price on the product listing. Once a buyer is found, Amazon will handle all the shipping and give you a check or credit after taking a small cut.

Lastly, if you were given a gift card to a store or restaurant you’re unlikely to frequent, there are several services that make it simple to get cash in exchange for your unwanted gift cards. Some top-reviewed sites to sell gift cards include CardPool.com, GiftCardGranny.com, Raise.com and CardHub.com.

3. Regift Your Holiday Loot

Great for: generic gifts like gift baskets, consumables (check expiration dates) or gift cards.
If you get a duplicate gift or already own a similar product that isn’t worth enough to sell, it could be the ideal candidate for regifting. Examples include accessories for electronics, entertainment media, jewelry, and health and beauty products.

How to Regift Unwanted Presents

Consider if there is anyone you know who you think would appreciate or use the item you have. If it is specific to your interests, such as sports memorabilia, chances are there is a family member or friend who is a fan of the same team. Just make sure to follow proper regifting etiquette to avoid any uncomfortable scenes.

Once you’ve decided who to regift the item to, label it with a Post-it with a reminder of the intended receiver’s name and occasion (i.e. birthday gift, anniversary, house-warming, etc.).

Items that have general appeal are ideal for regifting, as they can be given to a wide variety of people. General items can be kept on-hand as easy, last-minute gifts for any occasion. When an occasion comes up that calls for a gift, you’ll already have an item ready to be wrapped and given away.

4. Swap It For Something You Want

Great for: entertainment media, gift cards and apparel.

How to Swap Gifts You Don’t Want for Ones You Do

Gift-swapping parties are a great way to switch out something you’re not crazy about for something you are. One person’s trash is another’s treasure, after all. Arrange a get-together with friends or family and ask them to bring items they were given that they don’t love. Then guests can mingle and check out each other’s loot, and agree on a fair exchange.

If you would prefer a swapping system that is more automated, there are several swap sites out there to help get the job done, such as Swap.com or SwapAce.com for entertainment, and SwapStyle or ThredUP to sell or trade apparel.

For exchanging gift cards, try CardPool.com, which allows you to trade gift cards as well as sell and buy them.

5. Donate it For a Tax Write-off

Great for: unwanted toys, clothes and anything you feel would help someone in need.

How to Donate Gifts

There are several charities that will take gift donations, including Goodwill, the Salvation Army and Toys for Tots. In addition to those larger charities, many churches, synagogues and homeless shelters are in constant need of clothing, food and toys for needy families in their area or people without homes.

Donating gifts is a wonderful way to help those in need, but could also help you with your end-of-year finances. Many donation centers, religious institutions, educational charities and welfare foundations are 501(c) charities, which means that your unwanted Christmas present can become a tax write-off, potentially increasing your tax return next year. To make it easier to write off the donation, make sure to ask the organization for a receipt that denotes the value of the item given.

Do you have any other ideas?

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During the divorce process, whenever you have someone do something for you, you’re going to pay. There are times when you have no choice to do so. There are times, however, when you do have a choice. Gathering your financial documents is one of them.

A recent article in US News & World Report (“How to Get Your Finances in Order Before a Divorce”) outlines the some of documents you might need.

All divorce courts require a financial affidavit, which outlines your earnings, living expenses, assets and liabilities. However, states have different definitions of what mandatory disclosures include. To get an idea of what you’ll need, Freedman (who is also a CDFA) outlines some of Florida’s requirements:

• Federal/state/gift/intangible personal property tax returns from the last three years

• Forms W-2, 1099 and K-1 from the past year

• Three months of recent pay stubs

• Specified loan applications, deeds and lease agreements

Bank account statements, including checking, savings and credit cards

• Retirement plans

• Life insurance

It goes on to say:

If you have children, calculate the costs of their food, shelter and clothing; most discretionary expenses are irrelevant. “Child support doesn’t pay for things like private school, or karate, or dance,” says Len Nassi, a certified financial planner and CDFA in Hollywood, Fla.

In addition, there are some commonly overlooked assets. “A lot of times with collectibles, one party might look at them as things they just like to collect and love, but it can turn out they have a [significant] dollar value,” Freedman says. Experts say it’s also worth hiring an appraiser if you have valuable possessions, like jewelry or art. Big-ticket items, such as houses, cars and vacation homes, must also be assessed for their current value.

Check your credit report. Gerri Detweiler, director of consumer education at Credit.com, says it’s crucial to look at your credit report before a divorce trial. Review your credit history to make sure your spouse hasn’t missed payments on any joint accounts, opened any credit cards in your name or engaged in other behaviors that may have damaged your credit. (It’s also just a good habit to vet your credit report for errors every so often.)

After either party has filed for divorce, begin separating your finances, starting by closing joint accounts. “As long as those joint accounts are open, you’re both 100 percent responsible for any debt incurred by either person,” Detweiler says. If you can’t afford to pay off debt on a joint account, create a payment plan with your spouse, so you have a timeline of when you will be able to close the account.

Paste this link in your browser to read the entire article:


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This article is really long, but it’s worth reading and while it’s not meant to be an ad for Certified Divorce Financial Analysts, it shows the value of having someone on your side who can help you understand the financial implications of possible divorce settlements.

Divorce: What’s his, what’s hers

Two weeks after his divorce, Phil Doughty received a blunt letter from his ex-wife’s lawyer. It informed him he’d contravened his settlement by not giving his ex her $100,000 share of his pension within 10 days of the divorce.

“It was a knockdown punch,” says the retired teacher from Montreal. “I had no idea I had to pay her right away, or that the money would come directly out of my pension fund.” Doughty thought his ex would simply get a share of his benefit after he stopped working. “I’d never heard of a company taking money out of a pension eight years before retirement.”

With his pension fund depleted, Doughty’s monthly cheques were reduced by over a third when he eventually retired, yet he was still required to pay spousal support from what remained, leaving him strapped. “I had to find another lawyer to help me get out of those support payments I couldn’t afford anymore.”

Doughty (we’ve changed his name, and those of all the featured subjects in this article) believes his pension arrangement should have been handled differently – at the very least it should have been explained to him properly. “I guess it was just something the lawyers worked out between them,” he says. “My lawyer and I never really talked about the pension.”

It seems hard to believe a lawyer would not talk to a client about how such an important asset would be divided, but Doughty insists he would have remembered such a conversation. His situation is just one example of how partners frequently get divorced without understanding all the financial implications.

“Divorce changes a person’s financial situation dramatically and often there is no planning for it,” says Debbie Hartzman, a Certified Divorce Financial Analyst in Kingston, Ont., and co-author ofDivorce Isn’t Easy, But It Can Be Fair. (CDFAs are planners with additional training in the financial impact of separation and divorce. See “Where to get help,” at the bottom of this page.) “I’ve had clients say things like, ‘I just spent four years fighting with my ex, I have this cheque for $400,000, and I have no idea what that means in terms of my financial future.'”

Surely part of a lawyer’s job entails discussing financial matters surrounding divorce. Apart from custody of children, aren’t money and property the big issues in divorce? “A family lawyer’s job includes giving advice about a number of financial issues, but we are not financial analysts,” says Bruce Clark, who observed many divorce-related financial problems during his 35-year career as a family lawyer in Toronto.

Lawyers may not anticipate the long-term implications of divorce-related financial matters. For example, Hartzman explains it’s possible to have different divisions of assets that all meet the 50/50 requirements of the law but have profoundly different financial consequences for the divorcing partners. Her book includes a case study that presents different ways to legally divide the assets of a middle-class couple. Both are 58 years old, and the largest assets are the house and pensions (his is four times more valuable than hers). In one scenario, the assets are split more or less equally, so the initial net worth of the two partners is about the same. However, her share of the man’s pension is paid out as a lump sum, and the support payments are not structured to reflect the fact his post-retirement income will be higher than hers. As a result, after age 65 the woman’s net worth and monthly cash flow flatline, while the man’s relative financial situation steadily improves. “The person with the pension can end up in a much better financial position than the person with the house, particularly if the pension is indexed to inflation,” says Jim Doyle, a CDFA with Investors Group in Vancouver.

Here’s a different scenario: she keeps the house and gets only a quarter of his pension. To the untrained eye that seems to be simply an alternative way of dividing the pie equally. Yet this arrangement ensures the woman’s net worth stays similar to the man’s for the rest of their lives, without diminishing his financial situation.

Of course, case studies do not translate into rules that ensure ideal financial arrangements for every divorcing couple. That’s why it’s a good idea to consult a financial professional as well as a lawyer if you’re going through divorce or separation.

Don’t assume every asset must be split down the middle. “People often want to split up each individual asset, but not all assets are created equal. It’s usually better to look at assets in terms of how to divide the whole cake,” says Hartzman.

Pinched pensions

Doughty is not the first divorced person to be subject to pension shock. Many people don’t even realize pensions have to be shared after divorce, says Clark. “In my experience, most people consider their pensions to be their personal property, as opposed to an asset that must be shared equally after a divorce. In a longer-term marriage the pension is often the single biggest asset.”

This was the case for Doughty and his ex-wife, who had sold their matrimonial home shortly before separating. By law his ex-wife was entitled to half the teacher’s pension that accumulated during their marriage.

“Pensions are very, very complicated assets,” says Sharon Numerow, a CDFA and divorce mediator with Alberta Divorce Finances in Calgary. “Defined benefit pensions must be independently valued by an actuary, and the rules about paying out a spouse vary from province to province.” For example, in Alberta there are no longer any provincial pension plans that allow monthly payouts to an ex-spouse when the member spouse retires. Therefore, the only option is to give the ex-spouse a designated value that is transferred into a Locked-In Retirement Account or LIRA (called a locked-in RRSP in some provinces). “This almost always has to be done after the separation agreement is signed, and not usually at retirement,” says Numerow.

On the other hand, Ontario recently adjusted its Family Statute Law in the opposite direction. Now a portion of a person’s pension payments can be made directly to an ex-spouse after retirement. Another possibility is for the spouse without the pension to get another asset equal to the value.

Bottom line, don’t underestimate the potential for misunderstanding pension division. It’s important to work with your lawyer to understand the legal issues, then talk to a financial planner who can help you appreciate the short-, medium- and long-term implications of the division of this and your other assets.

Close to home

Another key, says Hartzman, is determining whether it’s viable for one partner to stay in the family home. There are two main questions: Can one partner actually afford to keep the home? And how will keeping the home affect that person’s financial future?

“Most people I’ve worked with live in houses that require two incomes, so after divorce one person would be trying to maintain the home on half as much income, and often it just isn’t affordable,” Hartzman says. “Can you imagine how hard it is to tell someone already going through the emotional turmoil of divorce that they can’t afford to stay in the family home they and their children are so attached to?”

Sandra Baron, an Ottawa mother of two, did manage to stay in the matrimonial home after her divorce. A financial planner helped her figure out how to pull this off. “My first lawyer really didn’t seem to understand my financial situation,” Baron explains. “I went to see a financial planner and asked if I could afford to buy out the matrimonial home from my husband. He helped me work it out.”

Baron and her spouse had always lived within their means. They had no debt other than a mortgage with much lower principal than they qualified for. That, combined with support payments and Baron’s earning potential (she had been an at-home parent most of her marriage but began doing contract work after the divorce), meant she was able to keep the family home.

The financial planner also gave Baron some tax-saving advice on how to invest some money she had brought into the marriage. Since she had that money before the marriage and kept it in a separate account, it was not an asset that had to be shared equally. However, had she used that money to help pay down the mortgage, it would have become part of the value of the matrimonial home and therefore a joint asset.

This is also the case if one spouse receives an inheritance or gift during the marriage. In most provinces, as long as the money is kept in a separate account it does not have to be divided equally after a divorce. But if it is used to purchase a joint asset, such as a house, it becomes the property of both spouses. (In some jurisdictions growth in the value of the inheritance or gift may count as an asset to be shared.)

Perhaps the biggest factor in Baron’s situation was that she and her husband actually saved money for their separation. “It was almost five years from the time we realized the marriage was likely not able to be repaired that we saved for the eventual separation. Unless the relationship was harmful, I felt it was in the best interest of everyone – particularly the children, who are all that really mattered in the end – to plan and wait so things would be better for them financially.”

It’s a safe bet the path Baron and her ex-husband took is not typical of divorcing couples. Obviously they got along well, even after deciding to separate; they had no debts other than the mortgage and were both well acquainted with their family financial situation. The opposite is much more likely, says Numerow. “It’s common for one partner to know very little about the family finances, and they often don’t know the extent of their debts.”

Lady in red

When Anna Masters, of Taber, Alta., separated from her husband she moved in with her sister and started a new job at a bank. She also applied for a new credit card through that bank, so the person doing the credit check was one of her colleagues. When the Equifax credit report came through, the coworker quietly asked Masters to step into her office. “You are behind in all your bills and credit cards. Most of them are in collections,” the embarrassed colleague said.

“I was horrified,” says Masters. “Even the cell phone bills weren’t paid. I didn’t even know my ex had his own cell phone.”

That’s not the worst of it. Masters’ ex-husband had a line of credit she didn’t know about it, which listed her as a co-signer. Masters says he must have forged her signature on the application.

It’s not hard to find similar tales of woe. Alan Leclair of Winnipeg tried to remortgage his house not long before he and his wife split up. “When the credit check came in the banker said to me, ‘You’ve got debts you didn’t tell me about. You’d better go home and talk to your wife about it,'” says Leclair. These debts were considerable – between $30,000 and $40,000 in unpaid credit card balances. Fortunately, Leclair’s ex-wife eventually agreed to take responsibility for them.

Masters was less fortunate. She got stuck with a big chunk of debt – loans and credit cards her husband was supposed to pay off, but didn’t – as well as the line of credit he’d fraudulently put her name on. “I could only get part-time work at the bank, but I worked every other junk job I could find. It took me three years, but I paid off my share, and in a way I’m glad I went through the experience. I’m in control of my finances now,” Masters says.

The one smart thing Masters feels she did in the lead-up to her separation was to start setting aside money (“Omigod money,” she called it) so she’d have something to fall back on in an emergency. “Even before I realized the full extent of the financial mess we were in, I knew my ex was spending irresponsibly, so I started squirreling money away.” That money – about $3,500, which she kept in a sock hidden under a pile of towels in the linen closet – ended up being used to cover her living expenses during a spell of unemployment after moving to a new town after she was separated.

Leclair did something similar. “I had a friend who was going through a divorce and I asked him for advice. He said, ‘Put a few bucks away.’ So I did.” He hid cash in his house and even left about $500 at a friend’s house. “When the separation happened I was in scramble mode, dealing with all kinds of things. It was comforting to at least know that money was there,” he says.

Clark, the family lawyer, explains any money you stash prior to separation “will still be subject to division, but you will have the use of it while property issues are being sorted out. There is nothing illegal about this as long as you declare the amounts you have put aside.”

Other eye-openers

It’s hardly surprising that people have trouble working through issues like asset division and debt. But the path to divorce is laden with other potential financial mistakes.

One is trying to settle too fast. “People want it settled tomorrow,” says Jim Doyle, the financial planner. “Emotions often determine the choices rather than making the numbers make sense. I say to people, ‘Let’s slow down and do the math.'” He says it’s common for partners to make hasty, ill-advised decisions about asset splitting just to avoid conflict. “Sometimes in relationships where there is an imbalance of power, one person might simply capitulate, resulting in a financial decision that may have negative consequences down the road.”

Don’t ignore the tax implications. “One of the biggest items that is often overlooked in separation and divorce agreements is tax deductions, such as child-care expenses, and credits that may apply to separated and divorced parents,” says Numerow. For example, a divorced parent can claim one child as a dependent, but both parents cannot claim the same child.

Another dangerous road is trading property for time with children. “Big mistake – just don’t do it,” says Numerow. In addition, remember that spousal or child support and asset division are, for the most part, completely separate issues.

Finally, if you’re a common-law spouse, don’t assume the process is the same as it is for married couples. Generally, legal requirements regarding spousal and child support are the same, provided a couple has been living common-law for at least two years (three in some provinces). However, the division of assets is not automatic, as it is in a marriage, which comes as a surprise to many people, Numerow says. “Go to a lawyer and find out what you do and don’t have to share. Laws concerning common-law separations vary by province.”

One message Clark, Numerow and Hartzman all want to get across is this: both partners should always be aware of the family’s financial situation. If one partner is more hands-on with the money, the other at least needs to understand the big picture. “I’ve met a lot of spouses who weren’t involved in the finances and they’re ashamed,” says Numerow. “I tell them, ‘Don’t beat yourself up over it. Now is the time to begin your learning.’ However, if both partners were on top of the family finances it would make divorce a lot easier.” – written by John Hoffman

Where to get help

Certified Divorce Financial Analysts usually charge between $175 and $250 per hour. “If people do their homework and bring in all the relevant financial information, we can usually get a fairly good handle on the situation in two hours,” says CDFA and author Debbie Hartzman. “For an individual, it usually takes no more than three hours overall. With couples it usually takes three sessions of an hour or an hour-and-a-half each.” She notes that a better understanding of your financial situation can save your lawyer’s time, which is much more expensive.

To find a CDFA, do a web search for your town and CDFA, or visit the website of the Institute for Divorce Financial Analysts (www.institutedfa.com) and search by city, town or area code.

Source: Divorce: What’s his, what hers

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When it comes to divorce, many women still believe that all they need to do is hire a good lawyer –and then, they’re all set.

These days, however, ending a marriage typically involves much, much more than “just” legal considerations, and that’s why it can be extremely beneficial to build a team of qualified professionals who can help you achieve the most positive outcome possible.

Read more…

Article by Jeff Landers

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Welcome to money-issue Wednesday.

The article we’ve reposted below has some great advice that lots of people don’t realize until it’s too late. Keep your emotions out of the process and pay attention to what it has to say before it’s too late for you and your children.

Managing Finances Through a Divorce
by Andrea Murad

Divorce is a trying time for anyone—especially when children are involved.

The separation process is long and filled with paperwork, especially when it comes to sorting out finances and budgeting for separate households. Experts advise parents strive to maintain their children’s lifestyle during and after the divorce to keep a sense of normalcy and planning a budget for potential custody or child support will help to make the split easier for all parties.

The problem in every divorce is that you have the same income but two households, says Randy Kessler, founding partner of Kessler & Solomiany. “Very few people make enough money to support a child the way they want to.” Lawyers and judges try to fix this problem by determining the minimum amount one parent can accept and the most the other can afford to pay for their children.

“Before you break up, become a better parent—take your kid to school, make them lunch,” says Kessler. Spending time with your kids as well as staying calm and saying nice things about the other parent, will help the custody case process.

Before heading into the legal process, work to create the custody outcome you want, recommends Kessler. If a judge has to make a decision about custody, he or she may keep the parents’ current arrangement. “If they share the child like they would in a divorce, they don’t have to pay a lawyer.”

Understand How Much your Child Costs

Maintaining a child’s lifestyle post-divorce requires parents to negotiate expenses and child support. “Every state has guidelines so a judge has a starting point for child support,” says Kessler. A judge will calculate child support and explain any deviation from the guidelines because of, for example, housing, extreme travel costs, medical needs or tuition for a child requiring extra training because of a learning disability.

Child support can be adjusted up or down after the divorce since a person’s income can change due to a raise or job loss. To avoid future trips back to court, Kessler suggests making payments a percentage of income.

To know how much you spend on your child, review 12 months of bank and credit card statements, says Tracy Stewart, certified public accountant and personal financial specialist in College Station, Texas. “Break down expenses for mom, dad and the children into categories like clothing, groceries, transportation and dining.” Also include summer camp and other activities. For categories like groceries that are shared by family members, figure out each person’s percentage of expenses. Adding up the numbers will help create a baseline for the money spent on your children in the last year.

It’s important to be clear about your expenses and that you’re able to live within a certain budget, says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “In general, the court will ask you for budgets or for you to provide records to help determine the amount of child support payments.”

While you review your child’s expenses, experts suggest examining your budget as a single parent. As a general rule, Jonathan Clements, director of Financial Education for Citibank, suggests keeping fixed costs like housing, utilities, food, insurance and property taxes at 50% of pre-tax income. The great litmus test is whether you can save on a regular basis—if you can’t, your expenses are too high and you’re probably spending too much on housing, says Clements. “You want to live within your income reasonably comfortable. Your finances will spiral out of control if everything is too tight.”

Experts suggest deciding whether you can spend the same amount of money on your children after the divorce. “If [child support] plus your income isn’t enough to maintain your child’s lifestyle, you’ll have to make tradeoffs for your child or yourself,” says de Baca.

Financially Protect Your Children

Consider insurance polices. The parent paying child support should have a life insurance policy, as well as disability insurance, recommends Stewart. The life insurance beneficiary should be the children or structure the policy such that the money is used to raise the children. Disability insurance will replace lost income if the person paying child support becomes disabled.

Negotiate medical costs. “You’ll want to look to the working parent to put the children on their health insurance,” says Stewart. Decide which parent will pay out-of-pocket expenses and how you’re going to pay and reimburse each other.

Prepare for the Future and Begin to Co-Parent 

You’ll have to make joint decisions for your children years after the divorce, says Stewart. In the future, they may have to discuss whether to send a child to summer camp of if a child can get a car, cell phone or tattoo. “You want the parents to be able to come to an agreement on these things in the future years. You cannot predict some expenses at the time of the divorce because you won’t know what can occur in the future.”

“Depending on the divorce situation, your spouse may not want to talk and the judge may decide on guideline support,” says Stewart. Parents who aren’t talking during the divorce may not talk after, which makes for uncomfortable parenting.

Although divorce is enormously upsetting, Clements doesn’t suggest funneling your emotions into the battle over finances—everybody ends up worse in this situation. “You want a reservoir of goodwill because you’ll need to ask your ex to watch the kids. If you have a nasty divorce, a flexible parenting agreement is likely to be impossible.”


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Welcome to money-issue Wednesday.

We aren’t tax experts, but we really like finding information related to the tax implications of divorce decrees. It’s something that many people don’t consider or, if they do, take too lightly. Read on to see what we mean.

Dependency Exemptions — Divorce Court Orders Not Binding on Tax Court

by Peter J. Reilly

Orders signed by probate court judges don’t cut a lot of ice with tax court judges.  That is what Dylan Moody learned in a memorandum decision last week.  He was representing himself, which is understandable given the relatively small stakes in the case, a deficiency of $3,737 for 2008.  The issue was dependency exemptions for two kids.  Mr. Moody presented a copy of his divorce decision from 1997:

[Petitioner] shall be entitled to claim the children as tax exemptions on * * * [petitioner’s] state and federal income tax returns for the present year and for all subsequent years so long as * * * [petitioner] is current in child support payments at the end of that year. If * * * [petitioner] is current in child support for the year claimed, * * * [Ms. Moody] shall execute IRS Form 8332 by January 10th of the following year to effectuate this agreement.

It really does seem like it should be enough unless you have read as many Tax Court decisions as I have.  The nuances of these cases can get a bit lawyerly, so if I just had those facts, I would have wavered a bit in my prediction of the outcome.  I’m not at all surprised that it turned out to be not enough.

The Forms 8332 attached to petitioner’s 2008 tax return were not signed by Ms. Moody. Clearly, therefore, petitioner did not satisfy the conditions articulated in section 152(e)(2). As an alternative position, petitioner during the pendency of this case introduced into evidence the divorce decree in an effort to demonstrate that he was entitled to the exemption deductions at issue. Petitioner has not argued that the divorce decree was “attached” to his return as mandated by section 152(e)(2)(B); however, even if the decree is relevant to our inquiry, it was signed only by the presiding judge in that case. Such a signature does not permit a taxpayer to circumvent the explicit “custodial parent” signature requirement.

So maybe if the agreement had been signed by Ms. Moody rather than just a probate judge, he might have gotten somewhere.

The Tax Court tends to be a little sympathetic to fellow like Mr. Moody:

We are sympathetic to petitioner’s plight; however, we are bound by the statute as written and the accompanying regulations when consistent therewith.

That and a nickel will get him – Can you get anything with a nickel anymore ?

Often these cases have a long story explaining why the Form 8332 was not signed.  That is missing here.  Assuming, for the sake of argument, that Ms. Moody was at fault for not signing the Form 8332, Mr. Moody might have recourse in probate court.

My own conclusion in this area is that if a non-custodial parent can get any concession at all for passing on dependency exemptions, he or she should take it.  An extension of that is that if both parties are reasonably situated and will most likely end up leaving their estates to the same kids, the noncustodial parent should be magnanimous and just pass on the exemptions.

If, however, they really want to make a big deal about it then the noncustodial parent’s attorney should demand an executed Form 8332 as part of the “closing package”.  The custodial parent can always revoke the Form 8332 if the noncustodial parent fails to meet child support obligations.  I can hear a legion of divorce attorneys yelling “Easier said than done.”  The dependency exemption seems to carry emotional significance far beyond its financial impact.


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