Posts Tagged ‘Personal finance’

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.

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Current logo using "Dodgers" Script

Current logo using “Dodgers” Script (Photo credit: Wikipedia)

Have you heard about the post divorce woes of Frank McCourt? Well in case you haven’t…
  • Frank McCourt is the former owner of the Los Angeles Dodgers baseball team.
  • Jamie McCourt is the former Los Angeles Dodgers CEO and Frank McCourt’s ex.
  • The two were married for 30 years and have been divorces since 2010.
  • Jamie received a $131 million (tax free) settlement in exchange for her share of the team. She also got four of the six homes she shared with her ex.
  • Now, three years later, she claims that the settlement was a “huge mistake” and wants it to be thrown out.
  • Why? Because at the time of the divorce the team was valued at $300 million, but was later sold for 2 billion. (Less than a year after the original agreement, the team went into bankruptcy.)
Now you might not be the owner of a famous baseball team, but this case shows that even after the divorce agreement has been signed, your ex can still try to get more money from you.
Maybe you get a raise or a better job. If your ex gets wind of it, they may be able to say, “Hey, I want some of the loot.” That’s right. Even though the two of you are divorced.
How can you prevent this from happening? Make sure a Consent Order is drawn up that records the agreement the two of you made and states that neither of you can make financial claims against each other in the future.
If you ask us, this is a must if you want to avoid the problem that Frank McCourt is facing.

If your ex is honest, they won’t mind signing. If they protest, you now know that this is one of the best financial agreements you’ve ever made.

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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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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.

Today we’re posting an article we found on Forbes.com that addresses a big problem divorcing couples seem to have, no matter how big or small the asset. The examples given in the article happen to have assets that are worth a lot. But don’t stop reading thinking that this article doesn’t apply to you. The lessons learned apply to everyone.

How to Handle Difficult to Divide Assets
by Jeff Landers

Divorce involves the division of marital property.  From the imported porcelain vase Aunt Martha gave you and your husband on your second anniversary to the vacation condo you both bought while you were in Costa Rica just last year, it all must be split according to the rules in your state.

Naturally, some items will be easier to divide than others. Maybe you’ve decided you never want to vacation in Costa Rica again, and you’d rather have a larger portion of the stock portfolio, instead (provided you understand the cost basis of each asset and what the tax implications will be upon a sale, of course). Or, perhaps your husband has absolutely no interest in your family’s heirloom china.

With a qualified divorce team you’ll be able to work through all these nitty-gritty details, and in most cases, negotiations should proceed in a productive and timely fashion (for the most part).

However, every now and then, the division of marital property can become enormously complex. Some couples jointly own “priceless” art or huge, multi-faceted entities, such as professional sports teams. For them, divorce proceedings can take years  . . . and unfortunately, the process can get ugly.

Case in point: The divorce between Frank and Jamie McCourt, who co-owned the Los Angeles Dodgers –or, at least, at one point, the Courts decided they did. Read this excellent re-cap of the McCourt divorce debacle, and you’ll learn that alleged mistakes in the couple’s marital property agreement (signed during the marriage) left ownership of the Dodgers in question. Remarkably, even though it appears the original agreement was for Frank to own the baseball franchise and Jamie to own everything else, certain copies of the documents actually said otherwise. Ultimately, a California court awarded Jamie half of the Dodgers, but as is so often the case in disputes like this, that initial Court ruling was only the beginning of a long and bitter story. (See hereand here, e.g.)

In sharp contrast, the co-owners of the Philadelphia Eagles recentlyannounced they’re divorcing, but said they’re committed to a continued “team effort” both on and off the field. Likewise, it seems as though Julia Calhoun and retired Microsoft executive Christopher Larson had hoped for an amicable divorce –until  emotions flared  over their art collection, valued at a cool $102 million.

What lessons can be learned from these cases involving difficult-to-divide assets?

Here are the key points you need to consider:

 Your best offense is a good defense. Marital property and/or postnuptial agreements (including the establishment of trusts) signed during the marriage clarify who owns what.

Even though the thought of divorce may be the furthest thing from your mind while you are drafting an agreement, it’s essential that you consider “the possibility” of a future breakup while you are establishing the terms. Will your assets be protected from your husband (or other unanticipated recipient) if you divorce? Are the proper safeguards in place?

 “Selling it all” to split the proceeds is not always a viable option.As Ms. Calhoun and Mr. Larson discovered, sometimes the tax implications and/or other associated costs of selling certain assets outweigh the benefits of liquidation. Make sure you fully understand all potential financial consequences before you agree to “sell it all.”

 Not all assets that are valued the same are actually worth the same.  This point can be particularly relevant if you’re deciding whether or not you want to keep your marital residence. Here’s an example to illustrate my point:

Let’s say you’re trying to decide whether to keep a $600,000 bank account or a $600,000 house that’s completely paid off. You really love the house, and you’re leaning in that direction. Great idea? Maybe. But, you need to carefully assess how the house will impact your bottom line –both now and years down the road. Even mortgage-free home ownership involves expenses, such as real estate taxes that need to be paid every year, upkeep and maintenance, fuel costs, etc.

In addition, when you eventually sell your home you may be hit with a big capital gains tax bill. Let’s assume you bought the home for $200,000, and it’s now worth $600,000. Your capital gain is $400,000. Subtract your $250,000 capital gains exclusion as a single person, and you’ll have to pay capital gains tax on $150,000. At the current capital gains tax rate of 15 percent, that amounts to a $22,500 tax bill! (And chances are pretty good that those tax rates will increase in the near future.)

Once you complete this type of analysis, the cash may look like a much better option than the house.

● Thinking Financially, Not Emotionally® is always optimal. You may think you can’t possibly live without your beachfront getaway, that antique watch or the impressionist painting you see every evening in the dining room.  But the truth is this: You can. I’m not saying you have to; I’m saying you can.

I understand that maintaining emotional distance when it comes to negotiating certain assets may not be easy. But if you can successfully do so, you’ll put yourself in a better position to strategically manage your marital property and develop a comprehensive plan for financial stability and security in the future.

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We posted a similar article, by the same author, about a month ago. But since posts get lost in blogs and the subject resurfaced again, we thought that we would post this version for those new to our blog.

Divorce is usually painful, and it can be a career killer or booster, experts say.

Besides the stress potentially hurting their work, those going through divorce may find their employers subpoenaed for information, their businesses in jeopardy or their chances for a promotion disappearing.

“You put a catastrophic or significant stumbling block in someone’s life and it affects their job,” said Ken Gordon, a partner in Brinkley Morgan in Fort Lauderdale, which specializes in family law.

Divorce often is compared to a death.

“But it’s the life that they knew or the dream that they had, which is what’s dying. It feels like a real death,” Gordon said.

Phillip Lytle, a Hollywood, Fla., police officer, went through a divorce two years ago.

“It was tiring and stressful,” said Lytle, 54, who was married for 20 years.

From separation to a final settlement, the divorce took about 18 months. Lytle took refuge in the support of co-workers and friends.

“That whole process is draining,” he said.

Jill Scott was a 19-year-old nurse when she met her future husband, a doctor. Twenty years later, with four children, she was facing divorce.

But Scott, 50, followed her passion for pets and now owns several businesses, including Animal Hospital at the Market in Wellington, Fla. She struggled with reinventing herself, but now “I’m going after my career gangbusters.”

Elinor Robin, a family mediator in Boca Raton, Fla., said people often do better in their careers after divorce.

“In the long run, divorce may ultimately prove to be a career booster. — When the focus is off the marriage, the focus can be on the career,” she said.

But family lawyer Stacy Beaulieu, in Delray Beach, Fla., said some clients find that divorce restrictions can hurt their careers, like being unable to move out of state because of children.

 Written by
Marcia Heroux Pounds
Sun Sentinel (Ft. Lauderdale, Florida)
Related articles

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Welcome to money-issue Wednesday.

Maybe this post should fall under the “don’t try this at home”category. We’re posting it anyway because if nothing else, it shows how critical it is that you get the right wording in your divorce decree.

Are Divorce Attorneys Trying to Wipsaw the IRS?

By Peter J. Reilly

Broadly speaking there are three types of payments connected to divorce. They are property settlements, child support and alimony. The first two do not create taxable income or deductions. Alimony, on the other hand, is deductible against adjusted gross income to the payer and includable in the income of the payee. If the payer is in a higher tax bracket than the payee, characterizing payments as alimony can be a win-win, provided the net tax savings are shared. There are rules to prevent payments that are, in essence, child support payments or property settlements from being characterized as alimony. Suffice it to say, that the rules are a little complicated.

The rules are not so complicated that divorce attorney should not understand them. There are enough Tax Court cases, where people are blind-sided, though, to make me think there are quite a few divorce attorneys who don’t understand them or even have a vague idea that the rules exist. On the other hand, cases like that of Sharon Schilling make me wonder whether there might be divorce attorneys, who are playing the rules to draft deliberately ambiguous agreements to whipsaw the IRS.  Wouldn’t it be great if the payer could deduct without the payee including in income ?  Talk about a win-win.  Here is the story:

Neither the separation agreement nor the divorce decree specified that petitioner’s ex-husband’s monthly support payments to her would terminate upon her death.

On her 2006 Federal income tax return petitioner reported zero taxable alimony income.

The agreement specified zero child support, which as you might expect is less than the guidelines.  The long term spousal support accounted for the variation from the guidelines.  Now the portion of the spousal support that turns off when a child turns eighteen is clearly disguised child support.  So the IRS went along with Ms. Schilling only being taxed on $1,925 per month.  How did she get to zero though ?

She got to zero because there was no specification that the payments cease in the event of her death.  That makes the payment stream look like a property settlement.  Former Major League baseball player, Dave LaPoint was denied alimony deductions under that theory.  The lack of a death termination clause is not determinative, though.  Under the law of the state of Ohio, spousal support payments terminate on death, which is good enough to preserve alimony treatment.

I think somewhere deep in my heart there is a natural naivete that makes me think that people want to have clear and unambiguous agreements.  That inner good doobie thinks that the divorce attorneys should be drafting an agreement that has a single unambiguous number that is deductible to the payer and taxable to the payee.  Much of my time is spent on partnerships, which can have rather challenging agreements to interpret, but I know when I am done, that all the income and deductions will be allocated to somebody. 

 The individual returns of divorced couples are usually not prepared by the same person though.  Closing a deal where one could arguably deduct payments that the other might arguably not report might not seem like such a bad result.  Maybe those divorce attorneys are smarter than I thought.

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