Checklist for Getting Your Best Divorce Settlement

by | Aug 17, 2020

Knowing that you got your best divorce settlement means you’ve considered a lot of things that aren’t necessarily on an attorney’s radar or within the realm of his capabilities. There are many mistakes that can be made. Here’s a list of items that you should include when putting together your divorce settlement agreement. A CDFA® divorce financial planner or mediator is your best resource for ensuring you and your spouse are agreeing on a settlement that is fair and strategically planned for an optimal outcome.

 

ITEM WHY IT’S IMPORTANT CONSIDERATIONS
Proper identification of marital and separate property You split marital assets but keep your own separate property. It’s not always clear about what constitutes marital property. Co-mingling of funds, growth on real estate and owned businesses may have an impact on the amount to be divided. A Certified Divorce Financial Analyst (CDFA) can conduct a separate property tracing to determine what is marital and what is separate.
Assessment of tax implications No all assets are treated the same with respect to taxes. Trading assets of equal value but different tax treatments can have a huge impact on long-term financial health. What are the applicable tax classifications for retirement funds vs. real estate vs. stock options, etc.?
Consideration for both short- and long-term financial implications Alimony, child support, and how you split assets can result in substantial differences in long-term financial health even when the short-term needs are met and the division of assets looks fair. It’s important that you look at the impact of the divorce on near-term as well as future financial health. A CDFA can provide financial projections for both spouses before they agree on a particular settlement.
Provision for allowing spouse to remain in marital home under adverse financial circumstances Sometimes one spouse wants to continue to live in the marital home but can’t re-finance it on their own. Maybe, too, the house is “under water” and can only be sold as a short sale or foreclosed. Additionally, there are capital gains tax exclusions considerations to consider when transferring ownership to one spouse. There are some clever ways of handling the marital home to allow one spouse to continue living in the property for a period of time without the other losing out.
Accurate valuation and division of pensions Many misunderstand what figures to use for division of a pension. Pensions are subject to a coverture fraction, accurate identification of payout amounts, cost-of-living increases, and the appropriate discount rate.
Streamlining of asset division Simplify administrative and legal follow-up Sometimes it’s better to leave a pension, other retirement account, or business owned whole and aligned with just one of the spouses. Other assets or structured notes can be used to avoid selling assets or dealing with Qualified Domestic Relations Orders (QDRO’s).
Treatment of employee bonuses and other non-cash benefits Executives and business owners may receive a large portion of their compensation in the form of bonuses, stock, car allowances, and other benefits that don’t readily show up as income or assets. It’s important to thoroughly review employee agreements for executives and accounting records for business owners.
Proper accounting of stock options and restricted stock units (RSU’s) Employee stock options earned while married are a marital asset whether or not paid before separation or divorce. Determining the marital portion, vesting, and valuation of stock options and RSU’s is complicated and best left to financial specialists.
Option for alimony buyout Nobody likes alimony. Alimony payments are painful to the obligor and uncertain to the obligee. Why not just determine the present value of the future payments and include it in the division of assets?
Accurate identification of separation date The separation date can have substantial impact on valuation of assets. Is it the date the divorce complaint is filed, the spouses started living in separate bedrooms, or something else? What if there is a temporary reconciliation?
Optimizing filing status and deductions The difference between filing single vs. head of household can make a big difference in tax payments. Under shared custody arrangements, child exemptions can be rotated to allow both parents to file as head of household.
Protection of future alimony and child support with life insurance If a buyout isn’t possible, the oblige should have protection is something happens to the obligor. Obtain insurance protection that you know won’t be cancelled.
Inclusion of a detailed parenting plan Even if you and  spouse fundamentally agree on custody and how to raise the children, there may come a time when circumstances change or there is a difference of opinion. Parenting plans that address a wide array of issues should be included in a property settlement agreement to protect the children and both parents.
Impact on future college financial aid for the children Custody decisions and child support can have implications for college financial aid. One should consider how settlement decisions might affect future financial aid to pay for college expenses. 529 plans should be managed so they have minimal impact on financial aid awards.
Assurance that all assets have been accounted for Are there any suspicions that one spouse has been “preparing” for the divorce and diverting assets? Consider the use of a forensics specialist to examine financial records for hidden assets.
Accurate business valuations There are a variety of ways to value businesses in divorce, some more expensive and time-consuming than others. Make sure you have an accurate valuation of businesses owned before settlement options are reviewed.
Timing of divorce on Social Security Timing of divorce can impact future social security payments. You may want to delay your divorce to optimize future social security.
Identify follow-up tasks to ensure compliance It’s not time to rest when the property settlement has been filed and the final divorce decree is received. Follow-up is essential to obtaining and protecting rights to assets. Insurance, QDRO’s, quit-claim deeds, beneficiaries, and more need to be handled after a divorce. Make sure you get a comprehensive list of what still needs to be done once your divorce is final.

 

 

 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

Three Critical Financial Steps in Getting Through Your Divorce

by | Aug 5, 2020

Divorce can make it really hard to think straight about what to do next when it comes to most things and especially financial planning. Believe me, I know. The intelligent, together person you are can turn into an emotional, brain-fogged, unorganized mess. You try really, really hard to keep it together but you know this will not go down as “the best of times.” You want to sit down and get it together and plan your future but feel paralyzed and surrounded by a pea-soup cloud of indecision. What’s a person to do to ensure they’re doing the right things to financially plan for your divorce?

Well first, let’s get real.

ADMIT WHAT YOU DON’T KNOW

When it comes to the finances, what’s your role? Do you handle the family’s finances and investments? Are you on top of your investment accounts, retirement plans, bank accounts, etc.? If you’re in the dark, you need someone to help you turn the lights on and fast!  Gather all your financial statements on your asset accounts and your most recent tax returns, then find a specialized divorce financial advisor to help you out and bring you up to speed.  A CDFA is specially trained in the financial aspects of divorce and will be your best friend in this process. If you and your spouse are able to cooperate, you can use a CDFA-Mediator who will educate you and your spouse on the realities of your financial health and what your future might look like under various settlement options.

START ENVISIONING YOUR FUTURE

Maybe you’ve already been fantasizing about your future life or perhaps this has all taken you by surprise. Regardless, it’s time to start really thinking about what the next phase of your life looks like. Unfortunately, this has to happen at the same time that you are grieving what you thought the next phase might look like. But if you allow yourself some space, it can actually be very productive. You now have the chance to start from scratch. What did you used to dream of doing that got lost while you were married? Is it time to go back to school? Maybe live on a sailboat for awhile or move closer to family? Whatever you dream of, you have to have your budget and financial picture top of mind. So the step above has to come first so your dreams don’t outsize your wallet! A financial advisor specializing in divorce would know how to set you up for future success.

BUILD A SINGLE IDENTITY

Often through marriage many of the credit cards, mortgages, loans, etc. are in the names of both spouses. All of those accounts will have to be closed or converted. After the marriage is over, your credit picture may not be nearly as strong, so you want to be sure to put some things in place while you’re still married. Immediately open a checking and savings account in your own name to begin the process of establishing your own financial identity. Get a credit report and start monitoring it. Track your expenses and create a budget for now and post-divorce. Find a good rewards credit card to apply for in your name alone so that you will be assured of having access to credit through the divorce and beyond.  

These steps seem small but are valuable first steps to get you thinking financially and looking out for your future. You can get through this with a little help from an experienced divorce financial advisor. Having the right professionals on your side will be of great benefit to you.

 

 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

An Overview of Divorce in Maryland

by | Jul 6, 2020

 

Most “How to Get Divorced” articles take a rather narrow view, i.e., the legal process. Obviously, these articles are typically written by lawyers. 😉 

How to get divorced can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process. Not surprising, given that there are two spouses, years of history, hot emotions, finances, children, a home, secrets and lies, and hidden agendas involved.

Given all this, though, let me try to keep this “how to get divorced in Maryland” piece as simple as possible for this medium (please contact us for more detail.) Here are what we consider to be three essential components.

#1: Financially Prepare and Protect Yourself Before You Start the Divorce

  • Open a separate checking and credit card account at a new bank
  • Check your credit report and score and then periodically track
  • Establish private communication, e.g., P.O. box, email account
  • Gather and copy financial and legal documents—tax returns, statements for loans, bank and retirement accounts, investments, wills, trusts, deeds, car registrations, insurance policies—and store them outside of the marital home

#2: Talk to Professionals

Most think to first call a lawyer after they talk to a few of their friends and family members. Let me suggest otherwise. Friends and Cousin Amy are great for support but they aren’t likely stellar for advice on how to handle one of the most important and costly events of your life. While well-intentioned, their cases and knowledge of others’ situations are different than yours and you will need the advice of a professional for accurate advice.

You’re best first stop is not with a lawyer but with a far more neutral and resourceful individual: a reputable divorce coach. She or he can help you assess your situation and choose the best path forward and how to execute. They can also help you with setting objectives for how you want to handle the divorce on a personal level, i.e., how to be your “best self.” They can help you better work with a lawyer or mediator, saving you money and significant angst. They are more than anything, the quarterback on your divorce team who can help you assemble the right individuals for the jobs you’ll need to get done.

Lawyers, of course, are a critical component for their knowledge of the legal process. They will often unnecessarily steer you, though, to costly litigation, without regard for what will be best for you and your spouse. Many lawyers are now moving into mediation as its become more popular with divorcing couples, but keep in mind that lawyers aren’t necessarily the best choice for mediation. They are also not equipped to handle the emotional, practical, or complex financial issues of divorce, so make sure you talk to more than just a lawyer early on in the divorce process.

Mediators are a good information source as you consider mediation as a divorce process. Other professionals to consider are a Certified Divorce Financial Analyst® (CDFA®) to discuss optimal or creative financial settlement options, or a therapist who may be able to provide extended emotional support.

# 3: Familiarize Yourself with MD Divorce Law and County Procedures

a. Legal Separation

In Maryland, there is no legal separation and as of fall 2023 there is no “limited divorce” which was, essentially, a legal separation. Even without legal recognition of a separation you can still create a legally binding separation agreement that covers such things as child support, spousal support, joint bills, parenting plan, health insurance, loans and other debts, etc.

b. Residency

If the ground for divorce occurred in Maryland, you need only be currently living in Maryland at the time you file for divorce. If the grounds for divorce occurred outside Maryland, you or your spouse must have lived in Maryland for at least six months before filing your divorce complaint.

c. Types of Divorce, Waiting Periods, and Filings

In Maryland, most divorces are no-fault divorces and you can get a divorce without a waiting period if your divorce is mutually consented. A no-fault divorce may also be based on a one year separation.

Additionally, there are at fault divorces which may be treated differently when it comes to awarding alimony and sometimes custody if the fault ground negatively affects the children. At-fault grounds include adultery, actual desertion, and constructive desertion (typically this is cruelty). At-fault divorces will not be granted if the plaintiff is also determined to be at-fault.

Divorce filings are handled by county court. Filing can take place where either of the spouses resides. Each county has its own procedures and fees and should be researched prior to filing.

d. Support, Settlement and Custody Agreements

It’s important to note that if you have financial and custody issues to work out before the divorce is finalized you must do so before the waiting period is over or the decisions will be deferred to the court. The court will look to the filing spouse for their preferences.

If you both hire attorneys and litigate in the courts, you will likely spend a minimum of $30,000 – $40,000. Mediation can reduce fees to less than $10,000. Courts will appoint legal representation for those in need or you can negotiate the financial and custody terms yourselves.

So, that, in a nutshell is “How to Get a Divorce in Maryland.” It’s a bit more nuanced than this as, stated earlier, divorce can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process. For more information on Maryland divorce from a legal perpective, you can go here.

Call or request a consultation if you want more info. 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

How is Child Support Determined in Maryland?

by | Jun 20, 2020

Note: This blog article was revised May 10, 2024 to reflect changes in the Maryland child support guidelines that took effect July 1, 2022.

Child support in Maryland (and 36 other states) is centered on the Income Shares Model. This is based on the concept that children should receive the same proportion of parental income that they would have received if the parents lived together. That amount is related to the level of household income and Number of children. Factors include food, housing, transportation, clothing, $250 in annual  medical expenses for each child, and miscellaneous items that are needed and provided for by their parents. This amount is expressed by the child support guidelines.

Income and Calculations of Support

Calculations for child support in Maryland are based on gross income and includes income from any source. These include employee wages, and businesses owned. It also encompasses pensions and other retirement, estates and trust, social security, tax refunds, awards and verdicts, severance pay, and alimony received. In-kind payments made by an employer that reduce personal living expenses are considered as well. Adjusted gross income is calculated by considering alimony that is intended to finance the support-receiving parent (aka “obligee”) and pre-existing child support. From here, adjustments are made for work-related childcare, health insurance, and extraordinary medical expenses (over $250 per child per year), transportation to/from each parent’s home, and private schooling for special education needs. In Maryland, If monthly combined gross income is above $30,000 the amount may be increased at the discretion of the court. 

When earning capacity is higher than actual income, it may be taken into account. Each parent’s contribution allows for a “self-support reserve” that represents the poverty level of one person. Additionally, there is an assumption that the children will spend up to 35% of their time with the support-paying (aka “obligor”) parent.

Parents’ Individual Payments

The custodial parent receives child support in Maryland. If shared custody, the parent with the higher income pays the child support. When the parents share custody, if the support-paying parent has more than 35% of overnights with the children, adjustments are made.

Example Calculations

Example 1: Sole Custody

Consider the hypothetical case of Keith and Audrey. Keith is the primary physical custodian of their children and has a monthly income of $6,000. Audrey has a gross monthly income of $8,000. Alimony will be awarded to Keith at $500 per month. They have three children. Audrey pays $300 per month for health insurance, $200 of which is for the children. Each parent pays $600 per month for work-related child care.

The Math

Keith and Audrey add their monthly incomes together to get $14,000. Keith divides his monthly adjusted earnings of $6,500 by $14,000 to get 0.4643, meaning he earns 46.43 percent of the combined income. Audrey divides her adjusted earnings of $7,500 by $14,000 to get 0.5357, or 53.57 percent. In this case, the child support obligation for combined incomes of $14,500 with three children is $3,215 per month. Adding in the expenses for health insurance that Audrey and Keith each pays and each parent’s child care expenses, the total child support obligation is now $4,615.

Keith’s share of support is 46.4% of $4,615 or $2,141. Audrey’s share is 53.6% of $4,654 or $2474. Taking into account the direct pays for health insurance and child care, Keith’s child support is $1,341 and Audrey’s is $1,874. Therefore, Audrey will pay Keith $1,874 per month for child support in addition to the $500 per month of alimony.

Example 2: Shared Custody

Audrey has the children for three nights per week with the kids. As such, we calculate she has the children for 156 of 365 nights per year.  When parents share custody, the State increases the combined child support obligation by 1.5 times. Therefore we take the child support obligation for combined incomes of $14,000 with three children of $3,215 per month and multiply it by 1.5 to get the new obligation of $4,823. Since Keith has the children 57.3% of the time, his obligation is $2,238 and Audrey’s is 42.7% or $2585. 

The Math

First, we look what each parent needs to pay the other for time with other parent by multiplying the respective support obligations by the other parent’s percentage of time. Keith will pay Audrey 42.7% of his obligation of $2,238 or 955, and Audrey will pay Keith 57.3% of her obligation of $2585, or $1,479. The net is that Audrey will pay Keith $522. 

Next we need to look at the direct payment adjustments based on each parent’s percentage of income. For childcare, Keith will pay 46.4% and Audrey 53.6% of $1200. The difference between the two is that Audrey will pay Keith $43 monthly for childcare. Likewise, Keith must pay Audrey $93 for his portion of the health insurance. The net is that Keith will pay $50 for his portion of these expenses. 

Finally, we subtract $50 from $522. Audrey will pay Keith $472 for child support in addition to $500 per month for alimony. This a significant reduction for the shared custody allowance.

 Basic Calculator?

If this seems complicated, it can be. The calculator provided by Maryland, though, makes it much easier to see. Try it for yourself. 

To understand the many financial issues of divorce, download our free Divorce Financial Planning Guide. 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

How is Alimony Determined in Maryland?

by | Jun 19, 2020

Alimony is but one financial aspect of divorce and there are many for which you should have a qualified divorce financial professional review.

Alimony is a generic term that actually refers to two types of support payments made by the higher earning spouse to the lesser earning spouse:

  • Alimony Pendente Lite – Support after the divorce complaint is filed and before the divorce is final
  • Alimony – Payments mad once the divorce is finalized for a set period of time per the divorce settlement

Alimony in Maryland must be awarded before the divorce decree is issued. Alimony awards are almost always rehabilitative, i.e., temporary. On rare occasions, e.g., when a spouse is disabled or too old to enter the workforce, an alimony award may be indefinite. Courts look at many factors when determining if alimony should be granted, especially the ability of the lesser-earning spouse to be wholly or partly self-supporting and how long it will take for him or her to get the necessary education or training to be self-supporting. Standard of living, length of marriage, and a number of other items may also be considered.  The People’s Law Library of Maryland has a “quiz” to help you determine the likelihood of an alimony award in your specific divorce. Access it here: Maryland PPL Alimony Quiz.

There is no formula for alimony in the state of Maryland and alimony awards are not dependent on whether child support will be paid. However, the American Academy of Matrimonial Lawyers (AAML) has developed guidelines and a calculator for states that do not have their own.

Alimony Buyouts

The vast majority of men and women view alimony with disdain—who wants to have to write a check to their ex-spouse month after month? Likewise, does anyone like waiting for and worrying about the monthly check they’re expecting from their ex? What happens if the payor dies, loses their job, or becomes disabled? Is he or she going to be obsessing about whether their ex is cohabitating with a new partner? One alternative is to add an offset to the distribution of the assets equal to the present value of the expected alimony payments. So long as there are sufficient assets to cover the amount, this is a win-win for both parties and eliminates the ongoing angst of monthly payments.

Read more on divorce financial considerations here.

 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com