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Divorce Property Division in Maryland

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Divorce is expensive even without mistakes. Read on to learn of the top eleven most common financial mistakes made in divorce.     

 

1. Mis-Specifying Marital vs. Separate Assets

 

What’s considered marital property and subject to division? Most will say that any comingling of assets (e.g., depositing the funds in a joint account or using marital funds to pay the mortgage) constitutes an asset as marital. And in some states and counties, even if a portion of an asset that was separate on the date of marriage will, over the years, transition to marital. This can impact considerations of real estate, retirement, inheritances, and more.

 

2. Dividing Each Asset 50/50

 

Too often, lawyers, hearing officers, and judges take the easy way out by forcing division of each asset equally. Why? It’s easy and not easily challenged. This approach, though, fails to consider the needs and wants of each spouse, as well as the tax consequences of and administrative effort in dividing each asset.

 

3. Not Considering an Alimony Buyout

 

No one likes alimony. Payors hate writing the check and the recipient hates depending on it. Plus, if the payor dies or is disabled, the payments stop (an example of why insurance is important post-divorce). Instead, if there are sufficient assets to cover it, calculate the present value of the stream of anticipated payments at an appropriate discount rate and build it into the division of assets.

 

4. Errors in Valuing Executive Compensation

 

If there’s one financial topic that befuddles many, it’s how to treat deferred compensation, including stock options, both qualified and not qualified, as well as restricted stock and restricted stock units. Are they marital or separate? Are they based on past or future performance? Can they be transferred to a spouse/former spouse? What is the correct valuation method: intrinsic value, Black-Scholes, or the binomial method? How are taxes accounted for?

 

5. Not Considering the Possibility of Hidden Assets

 

Given the opportunity and motive, many a spouse will start stashing away funds in anticipation of a divorce, whether for financial security, sense of ownership, or vindication. Tax returns, W-2’s, credit card statements, and bank account statements are all sources to identify diverted funds. Even when not suspected by a client spouse, a quick review of these documents may reveal otherwise unidentified assets.

 

6. Not Looking at Creative Settlement Options to Meet Each Spouse’s Unique Needs

 

What if a spouse wants to keep the house for and can’t get approval for a mortgage buyout? It’s easy to just say “sell” and move on, but there are ways to facilitate the desire of a spouse who wants to remain in the home for a period without undue legal or financial burden to the co-owner spouse. As another example, maybe retirement funds are of utmost concern and alimony/cash flow not so much? A skilled divorce financial expert will come up with alternative settlement options to address the unique needs of each spouse.

 

7. Mistakes in Retirement/Pension Valuation and Division Orders

 

Retirement plans, and especially pensions, are widely misunderstood in divorce. The one who’s name is on the retirement plan thinks they are the rightful owners. Some incorrectly think the “current value” on a pension statement is the value of the pension. Pensions of all kinds, and especially military and federal pensions, require an expert for valuation and drafting of appropriate orders for submission to the custodian.

 

8. Failing to Consider Tax Consequences

 

All assets are not alike when it comes to splitting them in divorce. $250,000 in a 401k is not the same as $250,000 of equity in a house. The former is taxed at an ordinary income tax rate upon withdrawal while the latter may be largely excluded from any taxation and otherwise taxed at the capital gains rate.

 

9. Allowing One Spouse to Keep the House When it’s Not Financially Feasible or Beneficial

 

The marital home is an asset laden with emotion and sentimentality. It’s common to want to keep the house for emotional stability without consideration of the impact on future financial health. Houses don’t necessarily appreciate significantly over time, maintenance expenses are often overlooked or discounted, and a house is not a liquid asset. An objective evaluation is critical before deciding to keep or sell the marital home.

 

10. Not Properly Accounting for a Closely Held Business

 

If a spouse owns a business, is it a source of income, an asset to be valued and divided, or both? If a source of income, do we just look at the tax returns for the business? If to be valued, do you pay a business valuation expert thousands of dollars to get an accurate figure? Get the advice of a divorce financial expert is necessary if one of the spouses owns a business.

 

11. Not Accurately Budgeting for Your Post-Divorce Life

 

Do you have a good hold on where your money goes? Have you really assessed how much you will need post-divorce? Your choice in divorce settlement options needs to be balanced between short-term cash flow needs and long-term net worth.

 

Work with a qualified divorce financial professional, i.e., a Certified Divorce Financial Analyst® (CDFA®) to help you avoid costly mistakes in divorce. You only get one chance to get it right.

 

Take Control of Your Future

 

 

 

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

 

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

 

 

 

Schedule Your Complimentary Divorce Strategy Session Today!

 

 

Divorce Property Division in Pennsylvania

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Divorce Property Division in Pennsylvania | Trunorth Divorce

Which Assets and Liabilities Will You Keep in the Divorce Settlement?

A necessary part of divorce in Pennsylvania is dividing marital property, both assets and debts. Property division is not as straightforward as it might sometimes seem, and the consequences of potential mistakes can be quite costly. What each spouse keeps and how it impacts their future financial health is dependent on

  • Proper specification of what portion of each asset and debt is marital vs separate
  • Your choice of divorce process and the extent to which the court gets involved
  • Proper valuation of each type of asset
  • The impact of taxes
  • Whether the division will allow each spouse to meet both short-term cash flow requirements and long-term net worth goals

Separate vs Marital Property

Definitions. It is marital property, not your individual separate property, that is subject to division. Assets are marital property when they have been acquired during the marriage. In Pennsylvania, they also include the increase in value of any asset that was owned individually before marriage. For example, if the value of the home you alone bought and owned was worth $200,000 when you were married and the current value is $500,000, the marital portion is $300,000.

Examples of marital assets include your home, vacation properties, rental properties, furniture, jewelry, bank and brokerage accounts, retirement accounts and pensions, executive compensation, personal property, and autos. Marital debts are handled similarly to marital assets and they include mortgages, auto loans, personal loans, student loans and credit cards.

Exclusions. Typically excluded from marital property in Pennsylvania is what’s been specified as separate in a pre or post-nuptial agreement, gifts, inheritances, medical malpractice or accident settlements, and debt accrued in marital deception (e.g., affairs, gambling).  Also excluded from marital property is the growth of an individual’s asset, e.g., an employee retirement plan, which occurs after the date of separation.

Commingling. Commingling refers to mixing funds from separate assets with marital funds. Commingling of property may make what was originally separate property entirely marital. For example, if you inherited $100,000 and then deposited it in a joint bank account, it’s no longer considered separate. In some cases it is still possible to distinguish what portion of a commingled asset remains separate based on “separate property tracing.” If that’s applicable to your case, you will need a divorce financial analyst to help you with this, as it is not straightforward, and most lawyers and courts will take the path of least resistance and rule that the commingled asset is entirely marital.

Passive vs Active Appreciation. In separating marital from separate property the court may consider whether the growth in the value of an asset that was separate at the time of marriage was passively or actively created by the spouse who originally held the separate property. Passive appreciation in an asset (e.g. economic circumstances contributing to a retirement fund’s growth) makes it more likely that it will be treated as marital. Active appreciation (e.g., resulting from active management of a business) will substantiate a claim that it remains separate property.

Transmutation of Assets. In some Pennsylvania counties a court may also reduce the amount of an asset’s separate value over the duration of the marriage (called transmutation of separate assets). Using our prior example, if the value of the home you’d owned before the marriage was worth $200,000 and the current value is $500,000 and you’ve been married for several years, the marital portion may be deemed to have increased to $350,000 as its separate value has converted to marital over time.

Hidden Assets. One may believe that their spouse has been secretly funneling money to a separate account. In such cases, you will need a forensic expert to trace these assets. Fraud is the one thing that can overturn a divorce settlement after the divorce decree has been entered.

How Pennsylvania Approaches Property Division

Pennsylvania is an equitable distribution state, not a community property state. This means the legal system doesn’t necessarily see an equitable distribution as a 50/50 split. Instead, the courts will divide property per factors including the age of the parties and their ability to add to their future retirement, monetary and nonmonetary contributions made by each party to the marriage, the circumstances of the divorce, duration of the marriage, alimony awarded, and any other factor the court considers necessary or appropriate. In other words, a 60/40 or even 80/20 split of property is acceptable in Pennsylvania.

The Role of Your Choice of a Divorce Process

How division of property is achieved can be dependent on how you go about your divorce.

Litigation. If you litigate and allow the court to decide, then the judge or hearing officer will divide your property based on their view of equitable distribution. Because there is a fair amount of subjectivity involved, you will have little control over how the hearing officer or judge will rule. Your attorney may be telling you it will turn out one way and the decision might just be entirely another.

Represented Negotiation. If you and your spouse both hire attorneys and have them negotiate on your behalf, you are still relinquishing control and you’re going to spend a lot of money on lawyer fees before you get to an agreement, money that could remain in your own pockets. In attorney negotiation, your lawyers will talk to you, to your spouse, then to each other, file petitions and motions to posture, talk to you and your spouse again, and on and on—all at an outrageous billable rate.

Mediation or Collaborative Divorce. If you want to control how your property is divided and keep more of your own money, you should instead consider mediation or, possibly, a collaborative process that is committed to resolving your divorce outside of the courts. Mediation involves working with a “neutral” who will facilitate your negotiations and help you find a settlement that will work best for the both of you. The goal using a collaborative process is much the same, but it involves two attorneys, a financial specialist, a divorce coach, and, if applicable, a child specialist. In mediation or collaborative, you make the decisions.

If you mediate with a Certified Divorce Financial Analyst (CDFA®), or have the support of one in collaboration, you get assurance you’ve properly identified and valued all your marital assets and guidance on the impact of various settlement options on both the short and long-term horizon, including capital gains and income taxes, liquidity, and asset growth rates. The relative benefit of mediation over collaboration is that is typically far less expensive than Collaborative Law.

The Cost of Mistakes

Mistakes in settlement agreements are too frequently made. You certainly don’t want to discover that you didn’t get or keep what you were entitled to. Keep in mind that property division, once you have your divorce decree, can’t be modified unless there is evidence of fraud on the part of either party.

Conclusion

You only get one chance to get it right and we’re here to help you get an optimal divorce settlement in Pennsylvania. Download our free 29-point divorce financial planning guide and then schedule a short call and we’ll explore your best path forward.

Take Control of Your Future

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

Schedule Your Complimentary Divorce Strategy Session Today!

 

The Complexities of Child Support

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Complexities of Child Support | TruNorth Divorce

Child support is a key consideration when you’re assessing your finances during and after divorce. While there are some basic calculators found online, there are many components to determining child support that make it more complex than what’s suggested by online state calculators.

Do you need a lawyer to help you determine the right amount of child support? In most cases, no. Lawyers have in-depth knowledge of the law and work within the court system in litigated situations, but most divorce cases do not require lawyers. You may instead choose to work with a Certified Divorce Financial Analyst® (CDFA) to assist, whether as a mediator or consultant, maintaining control of the process and outcome faster, with lower stress, and at reduced expense.

Your State’s Guidelines

Models and Guidelines To understand how child support is determined, you should first start with your state’s guidelines. The earnings of each parent are the most important component. There are basically three approaches that a state might adhere to: Income Shares Model, Percentage of Income, Model and the Melson Formula, a variation on the Income Shares Model. Specific guidelines and formulas are determined by each state.

Adjustments In addition to the basic formula that looks at the parents’ incomes, there are a number of adjustments that might also be considered, e.g., the percentage of time each parent spends with the children (shared physical custody), cost of parent’s and children’s health insurance, childcare expenses, child support being paid for children of a prior relationship, transportation to each parent’s home, private school tuitions, and extraordinary health care expenses.

Exceptions State guidelines provide for calculations based on incomes up to a certain threshold, e.g. $30,000 per month. When parents’ incomes are higher than the state’s threshold, the court determines the appropriate amount based on the needs/lifestyle of the children. Additionally, states have a self-support reserve (SSR), which is the minimum amount for income a parent may keep after paying their child support, ensuring that child support does not completely impoverish the paying parent.

Paying More or Less than State Requirements Most states require that you submit financial statements for both parents and a child support worksheet that complies with state requirements. You can set child support at a higher amount than the guidelines suggest to accommodate your children’s needs and lifestyle. But can you agree to pay less? If the court is not overseeing payments and there is a mutually agreed amount determined in mediation, collaborative divorce or on your own, parents can agree on a figure that is less than the specified amount. Some states, like Maryland, require that parents file a financial statement and a child support worksheet that specifies the amount that is to be paid in child support. However, if the receiving parent becomes dissatisfied with this amount, he or she may petition the court to uphold an amount based on the state’s guidelines. Some states go even further by not allowing parents to waive or bargain away a child’s right to receive support, requiring financial statements from both parents to set a minimum amount of child support.

What Counts as Income?

Income Defined Income isn’t just your wages earned from working. It is broadly interpreted to mean any funds that may is accessible to provide support for a parent’s children. This might include disability payments, interest and dividends, alimony received/paid, trust income, inheritances, and gifts.

Earning Capacity Parents may be held to earning capacity when child support is determined. This is triggered if a parent has chosen to retire early, work part-time, take a less stressful job, or move to another geographic area such that they earn less than they could otherwise based on their education and experience. Even if your spouse was okay with your decision to work part-time when you were married, you may have to pay support based on you could make working full-time in a position for which you are qualified.

Changes in Income Unlike non-modifiable alimony awards, child support is always subject to modification based on changes in income, expenses, and circumstances. In support of this, most settlement agreements or courts will dictate that parents notify one another when there are substantial changes in income and that they exchange yearly income tax returns.

Bonuses When a portion of a parent’s income is based on a variable bonus or commission, child support calculations get a bit complicated. If there is a history of consistent bonus pay, the income used for support calculation may include the base salary plus a conservative estimate of the expected bonus. An additional lump sum payment may be then assessed based on the actual bonus earned.

Financial Windfall As you know, income is not just earned wages. An unexpected inheritance, gift, lottery win, investment gain, or gambling windfall can have a substantial impact on child support and may require a lump sum payment to the receiving parent and/or adjustment of the monthly obligation.

Payments In-Kind Some obligor parents would prefer to directly provide for their children by buying them things they need, e.g., clothing and school supplies, rather than making cash payments to the obligee parent. While this may seem like a reasonable thing to do, payments in-kind and direct payments to the receiving parent are not credited against support due if the court is involved in administering your child support. In cases for which the court is not overseeing payments, though, parents have the latitude to offer/accept in-kind payments towards the child support obligation so long as it’s mutually agreed.

Providing for Children Over Age Eighteen

 State Requirements The general rule is that parental support obligation ends for a child at majority, which for most states is 18 or when the child has completed high school, whichever occurs later. There are exceptions, though, so it’s important to understand your state’s guidelines.

Special Needs Child support is considerably more complex for children who have special needs and are dependent on their parents for support into adulthood. Even before the age of majority, there are extra expenses associated with caring for a special needs child. It will be essential to plan for the transition of your special needs child’s transition into adulthood and beyond. This type of planning requires expert professional guidance.

College and Other Major Expenses While most states terminate child support obligations at the age of majority, parents may still want to address how future college, wedding, and other major expenses will be handled and shared. Such plans can be readily incorporated into your parenting plan and settlement agreement.

When to Involve the Court

 Don’t involve the court any more than necessary. Courts are often controlling, rigid, confusing, slow, and you may require involving attorneys at significant expense. Nonetheless, there are times when it really is unavoidable and the court will step in and assist, whether you are accompanied by an attorney or not.

Your co-parent may habitually make late payments or even stop payments altogether. It’s best to try to resolve this on your own but if you’ve exhausted your options without success, you’ll need to petition the court to enforce payment. The court will set a hearing date and may then take control of future payments. This means the paying parent (“obligor”) will send checks directly to the domestic relations section of the family court who will in turn send a check to the receiving parent (“obligee”). If payments have been missed prior, the court will also establish the amount that must be paid (“arrearage”) and over what time. Many states will go even further and regularly garnish the obligor’s wages, having the employer deduct child support from paychecks and send them to the court.

Conclusion

 Child support is a major component of one’s post-divorce financial reality. Many, including attorneys, do not consider the nuances of child support calculations and these can have a significant impact. Be sure to work with a qualified divorce financial expert to make sure you’ve got the numbers right.

Take Control of Your Future

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

Schedule Your Complimentary Divorce Strategy Session Today!

11 Costly Financial Mistakes in Divorce Settlements

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11 Costly Financial Mistakes in Divorce Settlements

Divorce is expensive even without mistakes and getting comprehensive guidance on divorce financial planning is critical. Read on to learn of the top eleven most common financial mistakes made in divorce.

1. Mis-Specifying Marital vs. Separate Assets

What’s considered marital property and subject to division? Most will say that any comingling of assets (e.g., depositing the funds in a joint account or using marital funds to pay the mortgage) constitutes an asset as marital. And in some states and counties, even if a portion of an asset that was separate on the date of marriage will, over the years, transition to marital. This can impact considerations of real estate, retirement, inheritances, and more.

2. Dividing Each Asset 50/50

Too often, lawyers, hearing officers, and judges take the easy way out by forcing division of each asset equally. Why? It’s easy and not easily challenged. This approach, though, fails to consider the needs and wants of each spouse, as well as the tax consequences of and administrative effort in dividing each asset.

3. Not Considering an Alimony Buyout

No one likes alimony. Payors hate writing the check and the recipient hates depending on it. Plus, if the payor dies or is disabled, the payments stop (an example of why insurance is important post-divorce). Instead, if there are sufficient assets to cover it, calculate the present value of the stream of anticipated payments at an appropriate discount rate and build it into the division of assets.

4. Errors in Valuing Executive Compensation

If there’s one financial topic that befuddles many, it’s how to treat deferred compensation, including stock options, both qualified and not qualified, as well as restricted stock and restricted stock units. Are they marital or separate? Are they based on past or future performance? Can they be transferred to a spouse/former spouse? What is the correct valuation method: intrinsic value, Black-Scholes, or the binomial method? How are taxes accounted for?

5. Not Considering the Possibility of Hidden Assets

Given the opportunity and motive, many a spouse will start stashing away funds in anticipation of a divorce, whether for financial security, sense of ownership, or vindication. Tax returns, W-2’s, credit card statements, and bank account statements are all sources to identify diverted funds. Even when not suspected by a client spouse, a quick review of these documents may reveal otherwise unidentified assets.

6. Not Looking at Creative Settlement Options to Meet Each Spouse’s Unique Needs

What if a spouse wants to keep the house for and can’t get approval for a mortgage buyout? It’s easy to just say “sell” and move on, but there are ways to facilitate the desire of a spouse who wants to remain in the home for a period without undue legal or financial burden to the co-owner spouse. As another example, maybe retirement funds are of utmost concern and alimony/cash flow not so much? A skilled divorce financial expert will come up with alternative settlement options to address the unique needs of each spouse.

7. Mistakes in Retirement/Pension Valuation and Division Orders

Retirement plans, and especially pensions, are widely misunderstood in divorce. The one who’s name is on the retirement plan thinks they are the rightful owners. Some incorrectly think the “current value” on a pension statement is the value of the pension. Pensions of all kinds, and especially military and federal pensions, require an expert for valuation and drafting of appropriate orders for submission to the custodian.

8. Failing to Consider Tax Consequences

All assets are not alike when it comes to splitting them in divorce. $250,000 in a 401k is not the same as $250,000 of equity in a house. The former is taxed at an ordinary income tax rate upon withdrawal while the latter may be largely excluded from any taxation and otherwise taxed at the capital gains rate.

9. Allowing One Spouse to Keep the House When it’s Not Financially Feasible or Beneficial

The marital home is an asset laden with emotion and sentimentality. It’s common to want to keep the house for emotional stability without consideration of the impact on future financial health. Houses don’t necessarily appreciate significantly over time, maintenance expenses are often overlooked or discounted, and a house is not a liquid asset. An objective evaluation is critical before deciding to keep or sell the marital home.

10. Not Properly Accounting for a Closely Held Business

If a spouse owns a business, is it a source of income, an asset to be valued and divided, or both? If a source of income, do we just look at the tax returns for the business? If to be valued, do you pay a business valuation expert thousands of dollars to get an accurate figure? Get the advice of a divorce financial expert is necessary if one of the spouses owns a business.

11. Not Accurately Budgeting for Your Post-Divorce Life

Do you have a good hold on where your money goes? Have you really assessed how much you will need post-divorce? Your choice in divorce settlement options needs to be balanced between short-term cash flow needs and long-term net worth.

Work with a qualified divorce financial professional, i.e., a Certified Divorce Financial Analyst® (CDFA®) to help you avoid costly mistakes in divorce. You only get one chance to get it right.

Take Control of Your Future

 

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

Schedule Your Complimentary Divorce Strategy Session Today!

How to Win in Divorce

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In a recent post, I addressed the notion of “winning” at divorce. There are many lawyers who claim they can do just that, and they will be happy to take your hard-earned money while they fight your war for you. The reality is, in the vast majority of cases, you’ll wind up no better off than if you’d negotiated to begin with, and all the while you’re funding your lawyer’s kids’ college education instead of your own. 

Winning might instead be viewed as getting through this divorce transition with integrity, keeping more of your own money, and maintaining your and your children’s emotional health throughout. Ideally, you’ll do this without ever stepping foot into a courthouse or even speaking to an attorney. 

So, how do you get better outcomes, at a lower cost and without judges, courts, or even lawyers? If you have minor children and marital assets, don’t attempt a do-it-yourself divorce unless you want to risk costly mistakes that cannot later be reversed. If you want an easy, affordable, and legal solution, seek a qualified divorce mediator. 

You will want to find a mediator who has the knowledge, skills, and experience to guide you and your spouse to a financially optimized settlement agreement and, if applicable, with a parenting plan that preserves the integrity of your family. A mediator with the divorce financial expertise of a Certified Divorce Financial Analyst (CDFA®) is ideal.

How, though, to address the legal piece of your divorce? You will find that legal agreements and divorce papers are straightforward in a mediated case. These can be easily facilitated by your mediator so that you never even have to work directly with an attorney to process your divorce. (It’s never a bad idea, though, to have an attorney review your agreements before they are finalized, and this can be done at a minimal cost.)

Rationally approaching your divorce, along with a dose of grace, can result in a lower-cost and faster process while addressing your financial needs and preserving your family’s emotional well-being. Now, wouldn’t you agree this would be a “win” at divorce?