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Divorce: How to Keep Your Money

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As soon as you begin to contemplate divorce, the nauseating, panic-attack-inducing realization of losing half of your net worth kicks in. You find yourself wondering if it’s even worth it to consider leaving if you’re just going to end up broke and starving.

There are ways to ensure that your financial future is not destined for disaster. First and foremost, be sure you involve a Certified Divorce Financial Analyst (CDFA®) or CDFA®-Mediator so that you will be fully informed of all the creative settlement possibilities that may be open to you. They are your best bet when you want to keep your money safe.

A couple married 24 years were referred together to a colleague for assistance with their divorce. They had gone to an attorney together and were completely amicable. The attorney made it clear that he could only do their document preparation since he was ethically bound to represent only one party. That was ok, but they asked how they would determine their property division. He responded,

“This is a community property state so we’ll just divide each asset and each debt exactly 50/50.”

The couple just didn’t feel like that was the smart thing to do. They were referred to the CDFA® to explore options.

After gathering all of their financial documents and completing the analysis, the CDFA® put together two reports for the clients. The first reflected an exact 50/50 split as the attorney had suggested. The second was a creative settlement solution that also resulted in a net 50/50 split but took into consideration tax planning and consequences as well as the needs of each party as they planned for the next phase of their lives.

This couple had less than $800k in total net worth and the creative settlement solution resulted in an additional $20,000 EACH to their bottom line just because some financial intelligence was used to determine their settlement. That’s real money! That’s how you keep your money! Needless to say, the couple was thrilled knowing that they saved $40,000!

Don’t go into this blind. There are so many ways to ensure that both of you get to keep more of your own money. Get the right experts on your team. We’d love to help you! Call us today.

Do You Really Need a QDRO?

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You’re in the last steps of your divorce, you can see the light at the end of the tunnel and you’ve reached a settlement agreement with your spouse. Then your mediator or attorney turns to you and says, “Now we just need your QDRO, and that’s going to be an additional fee.” “Wait, why? What is a QDRO, and do I absolutely need it?”

The QDRO is the final step in your divorce, one you can’t skip because most divorces will ultimately involve a QDRO. QDRO is an acronym for a legal document called a Qualified Domestic Relations Order and is required whenever a divorcing couple needs to divide a Qualified Retirement Account.

A Qualified Plan is usually one being held by an employer and includes 401(k) plans, 403(b) plans, pensions, 457 plans, deferred compensation plans, and some RSU, restricted stock unit accounts.

IRAs or, Individual Retirement Accounts do not require a QDRO. However you can use a QDRO to avoid withdrawal penalties, even with an IRA, during a divorce. Legally, the divorce decree is all you need for an IRA division. For a Qualified Retirement Account however, to assign all or a portion of the accounts to a non-employee spouse, it has to be stated in the divorce decree and the QDRO, must be completed and submitted to the plan for the division to take place.

If you are granted retirement assets from a former spouse via QDRO, this is the only opportunity to take money out of that plan with zero penalties. It will be taxable income and there will be no 10% penalty for the withdrawal before age 59 ½. If you want to be able to do this from an IRA, then you must use a QDRO.
In my practice, I facilitate the preparation of QDROs for my clients by acting as their representative to a QDRO attorney that I have vetted and found to be the most affordable and ethical. Through this practice I have become aware of the multitudes of pitfalls that QDROs present and often, the failure of attorneys and mediators to address the issues in the settlement negotiations. Here is just a short list of some of the subtleties often overlooked.

    • Is the non-employee spouse eligible to receive a lump sum settlement upon retirement?
    • If the employee spouse dies, will the non-employee spouse still receive benefits?
    • Were any outstanding loan balances taken into consideration?
    • If splitting a 401(k), what is the actual date of division? Will the earnings after that date be included?
    • For Pensions, does the plan set up a separate account for the non-employee spouse so they can choose their own payout options and beneficiaries? If not, have you protected the non-employee spouse from early-retirement penalties?

As you can see, the waters of a QDRO are fraught with peril and not for the inexperienced! If that wasn’t bad enough, prices for QDROs can range from $500 to $3,000, all for the exact same document. Each plan is unique and has very specific requirements for the language of their QDROs and it is essential that the preparer have the plan documents in advance to ensure it will meet the requirements. You want to ensure that the QDRO will be PRE-APPROVED by the plan if allowed to prevent rejection and more cost to re-do it correctly.

Once your decree is final, signed by the Judge, then you submit the finished QDRO to the Judge as well. Once it is signed, then and only then is it ready to submit to the plan. At that point, they will contact the non-employee spouse to get instructions for the disbursement or to identify the new account set up on their behalf.
QDROs are complicated. Be sure you have an expert that can guide you through it and make sure you don’t get taken advantage of. It just isn’t necessary to go through more pain and frustration.

If you need an affordable, accurate QDRO, contact us today. We’re here to help.

 

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Parenting Best Practices in Divorce

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Parenting and co-parenting in divorce requires some special attention. None of us wants to bring harm to our own children but there are times when the best decision for everyone in the family is a divorce. While divorce presents its own set of issues to be worked through, it can also give each parent the opportunity to build a stronger relationship with their children and teach them about how to deal effectively with life’s difficult times.

Overall, parenting isn’t easy and this holds as true for married couples as it does for divorced ones. Divorce does, though, bring a new set of challenges. TruNorth Divorce has written before on parenting through divorce. In this piece we want to provide a short list of best practices to help divorcing and newly divorced couples navigate the unique issues that parenting as you transition from a single household to two separate ones.

1. Talk to Your Child(ren) About Your Decision to Divorce

Sometimes, we get so caught up in our own emotions that it’s hard to step outside of them and take the time to check in with our children. Talking to your kids about your decision to divorce can create a safe space in which you can help them better understand your choice, and it can provide them with a platform to express difficult emotions.

Divorce impacts the entire household, and it’s not an easy topic to broach when emotions are still raw. Opening a dialog with your children about your divorce in a neutral and calm way and allowing them to ask tough questions and to express their fears will help your children better accept your decision to divorce and work through their feeling about it in a healthy way.

2. Create a Coparenting Plan

How you decide to move forward with parenting after divorce can have a profound impact on family dynamics and your children. To a significant degree, consistency and harmony between their parents is key to children’s mental well-being in the future.

CustodyXChange.com helps parents build sound parenting plans. Per the experts behind CustodyXChange.com, here are some of the reasons why negotiating a parenting plan can benefit your children:

It allows you and the other parent to state your goals for your children

  • It sets up communication habits between you and the other parent
  • It states the legal consequences if one of you don’t keep to the plan
  • It results in a clear visitation schedule you can both refer to
  • It lessens tension between parents and children because the basic daily decisions are already established
  • It forces you to get familiar with divorce and custody laws in your state
  • It often reduces your legal fees when you don’t have it created by a third party

3. Don’t Put Your Children in the Middle

Make a good faith effort to put any hurt feelings aside and shift your attention to what’s best for your children. Establishing some good ground rules can help minimize the impact of your emotions and will help you focus on fostering healthy communication and collaboration. 

Using children as messengers, sharing negative feelings, and venting or speaking negatively about your ex-partner drags them into the middle of things. Any conflict or issues between you and your ex are just that—between you and your ex. Children want a solid relationship with both parents. Keeping these emotions out things will help you turn your attention to your children’s happiness and wellbeing.

4. Keep Lines of Communication Open

Communication is a substantial ingredient in the recipe for successful parenting, and it’s arguably even more important for divorced parents living separately but parenting together. While you are both full-time parents, the time spent with your children is now divided. Operating in silos can leave your coparent in the dark and create conflict—reiterating how important it is for coparents to be on the same page. The only way to ensure that is through open communication.

Discuss issues that crop up with your former spouse and do so as they arise. Don’t just enumerate the problems, fill your co-parent in on the positives too. Communication between households is crucial to maintaining a united parenting front and making sure that both parents are aware of what’s going on in their children’s lives. One resource you may consider to assist with effective communication is Our Family Wizard, an online custody and co-parenting app

There is no greater common ground between two individuals than the well-being of their children and divorce doesn’t change that. Hopefully, these post-divorce parenting practices can help you negotiate the murky waters of post-divorce coparenting. For more resources on all things divorce, explore our blog.

 

 

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Should You Hire a Divorce Attorney or Divorce Mediator?

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Deciding to get a divorce is a very difficult decision and not one to be made lightly. There are many things you will need to consider, starting with these 7 points. Once you think you want to move ahead, who do you call? Most think to call a lawyer, which most often leads to the traditional path to a divorce. While there are times you will need to have a lawyer  litigate your divorce in court, it should be one of the last options you choose. Do you need a divorce lawyer or divorce mediator?

The reality is that the vast majority of divorces should not be handled within the court system. Today, many choose a constructive divorce process that facilitates a more positive future rather than one that tears them down. At the top of the list of constructive divorce processes is mediation. 

Let’s look more closely at the differences between working with a litigating divorce attorney and a professional divorce mediator.

What is Litigation with a Divorce Lawyer

The court-centered, traditional divorce process is where each party gets a divorce attorney and then battles it out in the courts with petitions, hearings, mandated conferences, and maybe even a full-blown trial. This is a relatively costly, slow, and divisive process. 

Attorneys are trained to be adversarial and most divorce attorneys charge an hourly rate of $350 or higher. They are incentivized to spend more time working through the details of court filings, support, property division, and custody. and divorce settlement agreement. When you have two attorneys discussing the minutiae of your divorce and arguing in court, the couple may be paying well over $700 an hour! It’s no wonder that many litigated divorces cost $40,000 and sometimes significantly more.

What is a Divorce Mediator

Divorce mediation is the first of the constructive divorce processes you’ll want to consider. It’s expert-guided, relatively fast and inexpensive and it allows the couple to control their futures and privacy. Mediation is a process where both parties want to resolve their issues and come to an agreement together about custody and the parenting plan, child support, alimony, and property division. A mediator doesn’t make decisions but they assist through a variety of methods including education, financial analysis, conflict resolution, best practices, etc. 

Divorce mediation is a good choice for those who want a gentler divorce that will allow them to keep more of their money and dignity. The couple doesn’t have to be amicable, they just have to be willing to negotiate in good faith. One thing for sure, their long-term relationship will be much better if they can work through mediation rather than the courts. This is especially valuable for parents who will be interacting throughout their children’s lives but important for anyone’s future well-being and peace. 

A divorce mediator can be a lawyer, a Certified Divorce Financial Analyst (CDFA®) or other appropriately trained individual. Be sure you understand the differences in your alternatives and which would be best suited for your case. The decision of choosing a divorce attorney or a divorce mediator is a personal one.

If you need some help figuring out which approach would be best for you, get in touch with TruNorth Divorce and ask for a Free Divorce Strategy Session to explore your options. They specialize in providing expert divorce mediation advice to individuals and couples considering divorce. They are certified divorce financial analysts and trained divorce coaches who specialize in helping divorcing individuals and couples get their best possible outcome.

 

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Checklist for Getting Your Best Divorce Settlement

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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.

 

 

 

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