Uncategorized Archives - Cross Roads Divorce Advisors

Remarriage and Spousal Support: Think about this before you say “I do”

louf — Thu, 09 Aug 2018 19:53:43 +0000

If you’re wondering how a remarriage after divorce can affect spousal support, you’re wise to think twice before making a commitment.

The remarriage of the payer has no effect on spousal support orders, however most divorce settlements do terminate spousal support after remarriage of the recipient. This is not a legal requirement just an assumption made in most cases and the family law code of many states. Some states even see co-habitation with a member of the opposite sex as grounds for modification of spousal support.

Get the facts.

Make sure you understand the financial ramifications of your new romantic interest before you dive into a new marriage. It is not abnormal for recipients of spousal support to postpone remarriage in order to maintain their spousal support payments. If you are still negotiating your divorce settlement but have designs on getting remarried soon here are some thoughts.

How Cross Roads Divorce Advisors can help.

Circumstances of the family financial picture or the health of the recipient party may support continuing spousal support after remarriage of the recipient. Like any negotiation each possible outcome comes with risks, rewards, costs and benefits. Cross Roads Divorce Advisors can help you understand each angle and see if your circumstances may warrant continuing spousal support after remarriage.

Here are some examples of settlements that could fall into this category:

1.The recipient party is permanently disabled and unable to earn a living for themselves.

In this case the recipient’s remarriage may have no effect on their financial circumstances due to their need for constant medical care. It may also be the payer simply wants to be sure their former spouse can live in comfort regardless of their circumstances and wishes to provide the minimum necessary to support medical expenses even after the recipient’s remarriage.

2. A non-modifiable order has been negotiated based upon other financial factors in the case.

Non-modifiable spousal support orders will include either a specified duration or dollar amount for the support payments regardless of other circumstances. For example, if you negotiate a non-modifiable support duration of 10 years and get remarried in year 5 the spousal support would continue after the recipient’s marriage.

3. Some parties negotiate spousal support by agreeing to a total amount to be paid over the life of the order then work backward to determine the amount and duration.

In other words, $1,000,000 over ten years which results in $8,333 per month for the life of the payment. Usually these types of settlements assume the continuance of spousal support after remarriage of the recipient in order to complete the full payment of the agreed upon $1,000,000.

If you are the payer, the IRS makes one important distinction with regards to the termination of spousal support. Spousal support, or alimony in their language, must terminate upon the death of the recipient for it to be tax deductible to the payer. They do not, to our knowledge, consider remarriage of the recipient to jeopardize the deductibility of the spousal support payments.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.

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Financial Strategies to Consider in Every Divorce Case

louf — Mon, 23 Jul 2018 11:55:28 +0000

When it comes to divorce and financial planning, every case presents different challenges, opportunities and client goals. No two negotiations are the same, but some financial strategies during divorce are important to consider in every case.

IRS rule 72(t)

This allows hardship withdrawals without the 10% penalty from 401(k) plans during divorce. Consider this strategy to help with cash flow problems during dissolution proceedings.

The Government Pension Offset and Windfall Elimination Provision

These are federal Social Security rules that often unexpectedly reduce Social Security retirement benefits in divorce situations and may cause inequity.

Consider that an apples-to-apples comparison may not be possible…

…for before tax and after-tax dollars from an individual brokerage account versus an IRA. Agreeing to an equal offset of accounts with different tax ramifications may result in inequity.

Know the value

Comparing the present value of a currently available liquid asset such as a savings account versus the future value of a non-liquid asset such as a pension may result in inequity.

Child contingency and Alimony recapture laws

These are hard to analyze and often missed in setting support awards but can cause unexpected tax ramifications of great magnitude if left without review.

Capital gains

Unrealized capital gains that may cause future taxes should be included in estimates of value when considering asset division. Agreeing to a division where each party receives an asset of equal value, but one has a large capital gain built in will result in inequity.

Know what has cash value now

Dependency exemptions and tax filing status may have real cash value now and in the future and can be used as bargaining chips for financial settlements.

What about the life insurance?

Life insurance placed as security for support payments should be positioned before a final settlement is reached to ensure a policy will be available with an efficient cost structure.

Retirement plans

Qualified Domestic Relations Orders necessary to divide retirement plans should be drafted and approved by the plan administrator prior to the divorce being final to avoid delays common post-divorce.

Don’t forget the real estate

Consider the advantages of deferring capital gains taxes on real estate assets by using a 1031 exchange or converting a rental property to a primary residence for tax purposes.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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The 12 Steps Involved in Obtaining a QRDO

louf — Mon, 04 Jun 2018 11:00:18 +0000

The QDRO process can take months to complete making it very important to get the process started as soon as possible. Here is a timeline of the process you should expect when filing a Qualified Domestic Relations Order.

An attorney experienced in drafting Domestic Relations Orders is identified and engaged by the parties.
The QDRO Specialist drafts the Domestic Relations Order in accordance with specific plan provisions and the agreements reached by parties to the proceedings.
The parties, together with their respective attorneys and financial experts review and approve the draft document.
The Draft Qualified Domestic Relations Order is submitted to the Plan Administrator for pre-approval.
The Plan Administrator responds to the drafter with any necessary revisions.
Requested revisions are made to the QDRO and the revised copy is sent to parties and attorneys for review and signature.
The approved QDRO is signed by both parties and sent to the court for the judge’s signature.
A copy of the singed and court certified Qualified Domestic Relations Order is sent to attorneys or parties.
The certified singed copy of the QDRO must be sent to the Plan Administrator for processing. Some QDRO experts will send the approved document to the plan administrator for the clients. Make sure you know who will take on the responsibility and do not make assumptions.
The Plan Administrator will send a letter to the participant and alternate payee with instructions on how to access the plan and a timeline for completion of the division. It may be necessary for the Alternate Payee to stipulate an outside account for benefits to be rolled to.
The Plan Administrator calculates the division of the plan pursuant to the QDRO and creates a separate account for the Alternate Payee.
The Alternate Payee will receive confirmation that their benefits have been partitioned into a separate account or rolled over into the account previously stipulated.

For more information about the Qualified Domestic Relations Order and how it can affect you, visit our article “What is a QRDO and Why do you Need One?”

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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What is a QRDO and Why do You Need One?

louf — Thu, 31 May 2018 22:48:31 +0000

Retirement plans such as 401(k)’s and defined benefit pension plans are often among the largest assets to be divided during the division of a martial estate. Many of these plans are governed by a set of federal laws known as the Employee Retirement Income Security Act of 1974 or ERISA. ERISA allows an Alternate Payee such as a former spouse to receive a portion of the employee’s benefits with a court order.

A Qualified Domestic Relations Order (QDRO) is the court order required to give notice to a retirement plan administrator that an Alternate Payee is entitled to a portion of the plan. Without a QDRO the plan administrator cannot legally make payments to the Alternate Payee.

How do I get a QRDO?

The drafting of a Qualified Domestic Relations Order is an important step in the divorce financial planning process and should be drafted by an attorney familiar with this subset of legal practice.

Financial planners have specific and far-reaching knowledge of retirement plans and the underlying laws that govern them but are ill-equipped for drafting the actual Domestic Relations Orders as they are usually not attorneys.

Do I REALLY need an attorney?

For a QDRO to be valid and accepted by both the court and the plan administrator it must contain specific requirements under the law as well as be tailored to that specific plan. Retirement plans may even reject court certified orders that were not pre-approved by their own staff. For this reason, it is necessary for a draft to be sent to the plan administrator for pre-approval prior to seeking court certification.

Cross Roads Divorce Advisors suggests the qualified domestic relations order be drafted and pre-approved prior to finalizing the global financial agreements. We have seen many individuals still fighting to get their share of the retirement plans awarded to them years after settlement because the other party refuses to sign.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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Dear Cross Roads: I have a question about my IRA transfer…

louf — Thu, 24 May 2018 18:08:42 +0000

Cross Roads Divorce Advisors,

I just finished going through a divorce and I’m wondering…can an IRA be transferred to or from my former spouse?

Thank you,

Recently Single

Dear Recently Single,

That’s a great question and the answer is YES.

Many divorce settlements require the transfer of some amount of funds in an IRA account from one party to the other.

We suggest this process start immediately. This way, you may be sure you have control of the assets you fought so hard for during the divorce process.

Open a new account.

In order receive the funds we suggest the transferee open a new IRA account in their individual name. If you already have an IRA account, it can be used to receive the funds.

Prepare paperwork for transfer.

Some custodians require a simple letter of authorization signed by both parties and a copy of the divorce judgment to complete the transfer. Others require signature guarantees on the letter which must be obtained from a local bank. The letter should provide the source and destination account numbers. We suggest opening the new account from step one at the same custodian as the currently existing account. It will make the transfer process easier because the custodian remains the same.

Make sure you don’t….

We strongly suggest that you do not take a distribution out of the IRA. If you are under age 59 1/2, you will likely pay taxes and penalties on the distribution. The process you might consider is called a “trustee to trustee transfer.” It may help to contact the current custodian and simply tell them the transfer is pursuant to divorce and you would like to complete the transfer in this format.

One more thing

An IRA passes to the named beneficiary if you should pass away. Make sure you have removed your former spouse if you do not want them to inherit your share of the assets.

Let us help you.

Cross Roads Divorce Advisors provides comprehensive post-divorce transition management services for our clients and can assist you with the transfer of IRA accounts pursuant to divorce settlements. Let us know if we can help in any way.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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Splitting your Finances and Paying for College After Divorce

louf — Thu, 12 Apr 2018 02:53:05 +0000

Paying for college after divorce becomes a challenge for both parents – that’s no surprise. What you might find interesting is that in a study published by the Journal of Family Issues, they found that divorced parents contribute about one-third of what married parents contribute.

Students with divorced parents face a greater burden in financing everything; from their first car to a college education to flowers for their prom date because their finances aren’t the same as they were before the divorce the reality is that there is often less to go around now that many expenses, like heating bills, are double the amount they were during marriage.

Sometimes ignorance is bliss.

In many cases, the child may be completely unaware of the fact that their parents might be paying less for college than they would have before the divorce. If that’s the case, it’s important that the parents assure the child that they are doing their best to help in every way they can…and leave it at that.

No child will benefit from knowing that Dad can’t pay for all of tuition this year because he has to pay Mom spousal support.

Should you even be paying for college???

My advice to all parents is to pay yourself first. Do not even consider paying your kid’s tuition until you have maxed out all available tax deferred retirement vehicles.

Why?

Your kids can get loans at fairly favorable terms and may even get scholarships and grants they will never have to pay back. No one will give you loans to pay for your retirement and you certainly aren’t going to be getting any scholarships to your local country club. For those who absolutely must limit the amount of work your child takes on (outside of being a student), I advise you to encourage them to work during the summer months, so they can contribute to their education and future.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

The post Splitting your Finances and Paying for College After Divorce appeared first on Cross Roads Divorce Advisors.

Is it Time to Divorce? Here are 5 Questions You Should Ask First

louf — Thu, 05 Apr 2018 21:06:04 +0000

If you’re thinking about starting the divorce process, there are steps you can take before you officially begin. As we all know, separating from you spouse is complicated; it involves money, custody issues, child support, spousal support, and other legal aspects. You need to educate yourself, protect yourself and empower yourself on these issues. Until you’ve done that, you’re not ready.

For example, do you know how many bank accounts you have as a couple and individually? Any other marital assets you might be entitled to? We recommend consulting with at least three attorneys as you explore the option of divorce.

In a 2017 article in the Huffington Post, Dr. Phil McGraw suggests that you take his “Divorce Readiness Test” before moving forward.

Dr. Phil’s Questions about divorce:

Have you done everything you can to save and rehabilitate your marriage?
Do you have unfinished emotional business?
Have you researched, planned, and prepared yourself legally for divorce?
Are you ready to adopt a new standard of conduct with your children?
Are you willing to create a new relationship as a co-parent?

Our thoughts.

Here is our take: These questions are important to consider before embarking on dissolution proceedings. If you enter divorce proceedings without having them answered the process will typically take longer and cost more money because the unanswered questions will play themselves out in conflict during negotiations.

Or course, Cross Roads Divorce Advisors gravitate directly to question #3 because it deals with money and we agree it is absolutely mandatory to do your homework before filing if possible. Find the family bank accounts, copies of tax returns and investment account statements and research the options available for settling your differences outside of court.

However, it is also crucial to work with other professionals – attorneys, mental health professionals, mediators – in order to make the other aspects of divorce go as smoothly as possible. By researching and finding the best team for you and your family, you are more likely to ensure a successful outcome.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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How Does the Death of an Ex Affect Spousal Support?

louf — Wed, 21 Mar 2018 20:04:14 +0000

Q. What if my ex is supposed to pay spousal support for 6 years…but they pass away?

Payments must cease upon the death of the recipient in order for it to be considered spousal support for tax purposes and tax deductible to the payor. Spousal support can be paid after the death of the payor, typically from their estate in some form, but most settlement agreements and divorce decrees state that it will stop upon the death of either spouse.

Our suggestion.

We suggest the payor spouse be required to carry a life insurance policy to cover the lost cash flow for the payee spouse in the event of premature death. If this isn’t required in your settlement you should ask for it to be added. In the event the agreement cannot be modified you should consider buying the policy on your former spouse yourself. You will have to pay for it, but the added security may worth the cost.

In order to help determine the sufficient death benefit amount needed you would do a present value calculation on the stream of cash flow from the spousal support payments.

For example, a $5,000 per month spousal support payment payable for 10 years would have a present value of $471,540. (Contact Cross Roads Divorce Advisors if you need help determining the right amount of life insurance.)

No matter the route you take for insuring the payments, make sure you, the support recipient, are both the owner and beneficiary of the life insurance policy. Losing the cash flow from spousal support can have devastating effects on your ability to maintain your lifestyle.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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How You Can Control the Outcome of Your Divorce through Mediation

louf — Thu, 01 Mar 2018 21:02:07 +0000

What is divorce mediation?

The concept of divorce mediation has increased in America in the last thirty years as divorcing parties realize that divorce court should be a last resort. Divorce mediation helps those people whose lives are actually affected by the decisions and allows divorcing individuals a sense of control of the outcome IF it is done right.

Here are 4 things to keep in mind when considering divorce mediation.

1. Balance of Power

Too much power on one side of the table creates an unsafe environment. The power could be due to the marital dynamic, control of financial resources, or access to information. A skilled divorce mediator will recognize the power imbalance together with the dynamic creating it and set out to level the playing field.

2. Safe Container

Lack of a safe container leaves couples feeling lost in the ambiguity of a complicated decision-making process. A skilled divorce mediator will ensure the couple is constantly apprised of where they are in the process. They will inform the client of the next steps in the process, homework assignments to be completed, and timelines for their completion. The mediator will also maintain an awareness for the parties of the legal process they are engaging in.

3. The Mediator

“Mediators” are unregulated. This means that there is no credential that guarantees a divorce mediator has the requisite knowledge and experience to assist a couple in navigating the largest financial transaction of their lives.

The increased interest in divorce mediation means that the number of divorce mediators has risen as well. Individuals with varying backgrounds have hung up shingles as divorce mediators.

Divorce mediation is a process that can be taught. What cannot be taught is the human dynamic that occurs during the process. For this reason, it is important to engage a divorce mediator with experience and training specific to divorce. This probably means a lawyer and/or Certified Divorce Financial Analyst.

4. Costs

Beware the flat fee divorce mediation. It is extremely rare for a couple to successfully navigate and complete a divorce for a flat fee. Often the professional will reach the extent of the time they have allocated for the flat fee and ask for more money or begin to disengage and abandon the parties before the divorce mediation process has been completed.

Divorce mediation is not always cheap. However, failed mediation proceedings may be a complete waste of money and time.

One last thought

Just because you resolve your differences outside of court does not mean you are engaging in divorce mediation. Mediation is a process where a neutral facilitator guides a couple through decision-making around legal, emotional, and financial issues that must be resolved in a divorce.

Couples need to understand that divorce mediation is not the only way to resolve their differences outside of court. Many will be better served by a process where they have legal counsel actively engaged which usually does not occur in mediation.

Divorce mediation participants need to advocate for themselves and demand clarity regarding process expectations and costs.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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Financial Infidelity: What you need to know to protect yourself

louf — Tue, 13 Feb 2018 12:21:34 +0000

When most people thing of infidelity in a marriage, it often brings up personal issues. But what if you’re concerned that your spouse is dishonest in other ways?

What is Financial Infidelity?

Financial Infidelity is the misuse, mismanagement or misappropriation of marital assets and incomes during a marriage. Financial Infidelity can stem from many causes including:

shame from a job loss
extra-marital affairs
addiction
poor communication
downright fraud.

What are the signs?

In some cases, there is suspicion of a spouse buying gifts or lavish trips because of an extra-marital affair or frequenting strip clubs…maybe even incurring major gambling losses. Unfortunately, some clients learn of their spouse’s transgressions only when they see the poor condition of their family finances during divorce proceedings.

Regardless of the reason for the suspicion or the reason for the financial infidelity, it can wreck marriages and the long-term confidence of the victim. A Harris poll (https://nefe.org/Press-Room/News/Americans-Confess-to-Financial-Infidelity) showed 42% of poll respondents have committed some form of financial deception. 39% hid a purchase, bank account, cash or a document of some type like a bill or credit card statement. 16% admitted to a lie about the amount of debt they had or the amount of money they earned. 25% of couples experiencing financial infidelity in the poll ultimately separated or divorced while 25% said it had no effect on their relationship.

Take care of yourself.

You owe it to yourself and your children to be diligent and engaged in the finances of your marriage if only to fight for what is left in a divorce. Read on for a detailed overview.

Click here for a list of 20 questions we ask clients who suspect their spouse of financial infidelity.
Click here for suggestions of first steps to take if you are concerned about financial infidelity.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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