Separating Your Retirement Assets Pre- and Post-Divorce – Q&A Part 1

Separating Your Retirement Assets Pre- and Post-Divorce:  Q&A Part 1 – By Nancy Kaye, CDFA, CFP

Question: “We’re not divorced yet. How can I control my portion of the marital assets?”

Answer: One of the stickiest aspects of a divorce, and often the greatest point of contention, is the separation of financial assets.

The beauty of choosing the Collaborative Divorce process is that the decisions made between the soon-to-be ex-spouses are bound by what the couple wants, with guidance from their respective attorneys and the neutral professionals on the Collaborative Divorce team. Generally, the financial separation of assets is done at the time of the signing of the divorce agreement.  However, it can occur at any time if agreed upon by the parties.

If a couple has already reached a financial agreement of how the marital assets should be divided, there is no need to wait until the divorce is signed. If each asset is split down the middle, it is an easy task; however the splitting method is not always the best strategy.

Question: Are asset transfers between spouses taxable?

Answer: No taxes are paid on asset transfers between spouses. However, two assets with the same current value may not really be equal. Thus, even if you split assets, you must know the value of the contribution made/invested in each asset. Knowing this “cost basis” will help in the division of assets for “tax impacting” when divided.

Question: How do we know what really is equal?

Answer: For example: The couple owns two brokerage accounts each worth $100,000. Account A started with a value of $75,000. Account B started with a value of $125,000. Are these accounts really “equal” when it comes to splitting assets “down the middle” in the divorce settlement?  While it may seem easier to say to your spouse, “You take Account A and I’ll take Account B,” in the long run this could be detrimental to your financial health.

If both accounts are sold today, Account A would have a capital gains tax on the $25,000 profit.  At a minimum, that reduces the profit and account balance by $3,750 or 15% of the gain. Account B, when sold, will have a loss of $25,000 and will receive 100% of the proceeds or $100,000. Now do they still seem equal? Account B will have a $25,000 tax loss and potential “carry over” of that loss for future years. This in and of itself is a valuable asset that will help to reduce taxes going forward. Now you can see that all assets are not “equal.”

Question: What about our home? I am planning to keep it, but it’s held in our joint names.

Answer: With the help of an attorney, you can change the ownership/title on the home to your name individually.  There is no taxable transfer between spouses.  When you do sell, as an individual, you are entitled to a $250,000 exclusion on any gain (what you purchased the home for, plus improvements, less your net selling price).  As a couple, you would have been entitled to $500,000 exclusion before capital gains are paid.

Question: What if we plan on keeping the home jointly until our youngest child turns 18?

Answer: Again, you will need an attorney to change the title of the home to joint tenants in common.  This way, if one of you were to pre-decease the other, your heirs would get your half of the home.

A qualified financial professional can assist with the tax implications of the division of assets.

Watch our next blog for Part 2 of this topic.

Nancy Kaye is a Registered Principal with LPL Financial, Member FINRA/SIPC. Securities offered through LPL Financial, Member FINRA/SIPC. For a list of states in which Nancy Kaye is registered to do business, visit www.soundview-financial.com.

For more articles, please visit CDRLI.com

Design Your Divorce: Where Do You Stand?

Design Your Divorce: Where Do You Stand? – By Harriette M. Steinberg, Esq.

You can literally design your own divorce today, just like the world’s best-known celebrities do. Yes! Beyond selecting high-profile attorneys, the stars can time the day and place of their announcement, decide which favored tabloids win the scoop, and more – all orchestrated for the most lucrative impact on their star power.

Oh, you say you’re not famous, outside of your family, your neighborhood or your job? And the paparazzi are not camped outside your door, salivating for your up-to-the-minute divorce news?

Not to worry. Just remember, “Where you stand depends on where you sit.”  A bad divorce will contaminate any memories of a good marriage and will often make permanent headlines in your own life story!

Three popular divorce styles are now available to launch you and your soon-to-be-ex-spouse on your separate paths: courtroom litigation, divorce mediation and collaborative divorce. Let’s examine your options.

Column A: Looking for an expensive, noisy, acrimonious, long-drawn-out fight-to-the-end? Easy! Pick the traditional adversarial litigation method, with a built-in courtroom drama feature and a presiding judge who will single-handedly decide both of your fates. This time-honored divorce format has provided us with dicey off-screen entertainment from many film and TV icons.

Celebrity divorce litigation couples: Alec Baldwin v. Kim Bassinger. Philanthropist Heather Mills v. former Beatle Sir Paul McCartney. Long Island celeb parents Michael Lohan v. Dina Lohan.

Column B: Prefer a more civilized, cozy, face-to-face dissolution? You and your almost-ex can meet with a neutral professional mediator who will guide you across the great chasm to the other side, outside of the cold courtroom setting. You will both share information and work through your issues for a calmer divorce outcome. Limitation: the mediator cannot give advice to either of you or act as a lawyer for either party.

Celebrity divorce mediation couples: Golf royalty Tiger Woods v. Elin Nordegren. Hollywood superstars Tom Cruise v. Nicole Kidman. TV’s ER actor Noah Wyle v. wife Tracy.

Column C: One more to go. If you can’t stomach Column A or B, then listen up. Eager to lessen the hurt and anger, establish a new common ground based on your shared goals, learn new communications skills to use during and after the process, and build a mutually satisfactory bridge to your separate futures? Then Column C is for you. You ask how can all of these worthy goals be accomplished, if a divorce is still a divorce?

Collaborative divorce uses a unique team approach to address your legal, financial and emotional needs at such a trying time. Team members include each spouse’s attorney, one neutral financial professional and one neutral family specialist. The team agrees on and enforces rules for civil conduct, uses meeting agendas and notes to keep the forward momentum, and encourages a positive attitude.

Celebrity collaborative divorce couples: Singer/actress Madonna v. director Guy Ritchie, considered the first high-profile couple to divorce collaborative-style. Actor-comedian Robin Williams, along with his wife of 19 years, Marcia Garces Williams, told the press, “We commit ourselves to the collaborative law process and agree to seek a positive way to resolve our differences justly and equitably”. Movie director Cameron Crowe v. singer Nancy Wilson of the rock band Heart.

More about Collaborative Divorce:

• An interdisciplinary process that brings multiple perspectives to the table as the divorcing parties seek to untangle their alignments
• Proven to have the strongest and most lasting solutions
• Enables your “family” to continue after the marriage ends – because good endings lead to better beginnings
• Since one spouse’s economic well-being typically remains connected to the other spouse’s to some degree, this method is grounded on open financial disclosure

Read more about Collaborative Divorce on this blog and watch for upcoming articles.

Visit CDRLI.com and www.lawyersonli.com.

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Collaborative Divorce Communications Q&A

Collaborative Divorce Communications Q&A – By Roxane Polak, Ph.D.

Q: How can I ensure that my spouse doesn’t verbally insult or abuse me in the Collaborative Divorce team meetings?

A: Your Collaborative Divorce team will include a mental health professional, referred to as a Neutral Family Specialist (“NFS”), who is specially trained to help spouses agree and adhere to explicit rules of collaborative conduct.  Your NFS will remind you both to use “I” terms to describe your feelings instead of blaming each other.  When necessary, the NFS will stop the meeting and talk to each of you separately to calm and neutralize any intense emotional reactions.  Finally, the NFS will model a more constructive style of communication, and help you learn to speak that way to each other and to your children.

Q: What style of communication is most effective in these meetings?

A: The Neutral Family Specialist is trained to listen and respond empathically, so you and your spouse each feel fully heard and understood in a safe and accepting environment.  Emphasis is placed on each individual’s interests and needs. Underlying assumptions about each other are explained in detail and explored, and alternative viewpoints are then suggested. The communications emphasis stays focused on your future instead of your past. The NFS will ask questions to help clarify confusing or contradictory statements in light of each spouse’s stated goals and priorities.

Q: How is this approach different from going to couple’s therapy?

A: In therapy, the psychologist focuses on assessment and treats symptoms, discussing the past and its implications for the present and future.  In contrast, the role of the Neutral Family Specialist in a Collaborative Divorce is to help the couple focus on the future to make a successful transition to a post-divorce family. The NFS does not make a diagnosis or treat your psychological conditions.

Q: Why do we need the Neutral Family Specialist? Why can’t my lawyer help with divorce communication?

A: The specialized training of the NFS mental health professional guides your interactions with your spouse. This is not predicated on giving advice or stating opinions, and is not informed by knowledge of the law.  When appropriate, the NFS will tell you both about relevant research on divorce and child development in order to help you make informed decisions about your family. The NFS will also help your lawyers better understand your perspectives so they can communicate collaboratively within the team.  Finally, the presence of just one NFS in the team meetings changes the dynamic of the meetings. Instead of just you and your lawyer sitting opposite your spouse and their lawyer, there is a fifth person at the table: the NFS.  They help the flow of conversation remain open and always focused on reaching mutually agreed-upon goals.

For more information, visit CDRLI.com and http://drpolak.com.

The Tax Return: Never Overlook Its Importance

The Tax Return: Never Overlook Its Importance – By Nancy Kaye, CDFA, CFP

The tax return presents a useful view of a year in time of the family’s finances. In the Collaborative Divorce process, the attorney for one of the divorcing parties and/or a Neutral Financial Specialist often request three years of tax returns to begin to take a financial look at the family.

The Neutral Financial Specialist on the Collaborative Divorce team can be an accountant trained in reviewing tax returns, an investment broker trained to review investments, or a Certified Financial Planner (CFP) trained in all financial aspects of individuals/families (taxes, investments, insurance, employee benefits).

The team may also include a Certified Divorce Financial Analyst (CDFA) trained to work collaboratively by maintaining neutrality. The CDFA is also skilled at analyzing and examining the future impact of any financial settlement on the couple as individuals as well as the children, to ensure post-divorce financial well-being.

The tax return, of course, will reflect the reported income of the family, including W-2 wages, bonuses, and self-employment income.  However, issues of unreported income aside, the tax return may also indicate other important facts that can have a significant impact when making income or asset calculations.  For example:

• If a divorcing spouse works for a company that provides employee life insurance, the employee is taxed on any premium amount over $50,000.  The Neutral Financial Specialist needs to review all employee insurance benefits, including health and disability, to get the complete picture.
• Certain corporate benefits, e.g., pension benefits or stock options, should be analyzed. Contributions made to an employer benefit plan may reduce income and may need to be added back to the taxable W-2 income, as all income is examined on a before-tax basis.
• If contributions are made to an IRA or SEP retirement plan, the discretionary nature of these contributions needs to be considered.
• If a spouse reports self-employment income, some deductions, e.g., depreciation of equipment or a car, should be added back to the gross income to get an accurate picture of available income. The Neutral Financial Specialist will ask about other benefits the self-employed person may be putting through the business to reduce income taxes.
• A penalty for early withdrawal of a retirement account may indicate the family is living above their means. This knowledge can impact post-divorce financial planning.
• A deduction for medical expenses is a telling detail that should be reviewed further.  Medical expenses must exceed 7.5% of adjusted gross income in order to be legally deducted from gross income. Special attention should be paid in the divorce financial planning process to accommodate these medical needs.
• If one party is paying alimony/maintenance to a spouse from a previous marriage, such payments may reduce the income used to calculate child support.
• Gains and losses reported on investments and dividend income can reveal key insights about the couple’s finances. However, market conditions affect performance as well and should be considered. The Neutral Financial Specialist will determine if the stock market has been good or bad, how investment decisions were made, and if interest rates were high or low. They will look for any “loss carryover” from prior years, a valuable piece of information for income tax and asset-planning purposes.
• Declared losses, such as for gambling, can reveal a wasteful dissipation of assets that should be addressed.

With the help of the attorneys and CDFA, the couple will better understand their financial picture and obligations, and be equipped to come to a more equitable settlement.

Nancy Kaye is a Registered Principal with LPL Financial, Member FINRA/SIPC.

Securities offered through LPL Financial, Member FINRA/SIPC.

For a list of states in which Nancy Kaye is registered to do business, please visit www.soundview-financial.com.

After the Romance Is Over: Preserving Your Family In Divorce

After the Romance Is Over: Preserving Your Family In Divorce – By Neil S. Grossman, Ph.D., ABPP

When couples falls in love and marry, they expect it to be forever. However, far too many marriages end in divorce and children become collateral damage in a divorce war.

Although divorce causes stress and prompts painful emotions, it does not have to mean the end of the family. It merely signals changes in the form of the family unit as parents discontinue their romantic relationship and go in separate directions. The children will still have two parents who, hopefully, both love them and help raise them. Studies have shown that it is almost always best for the children to continue to be involved with both parents and have contact with their extended families.

Ideally, when you decide how to approach your divorce, you and your spouse will keep in the forefront your love for and concern about your children’s welfare. And you will agree to plan your divorce to minimize long-term adjustment problems for the children.

Achieving such a positive, united resolution requires two simple steps. First, realize that your hurt and anger are not more important than the health and happiness of your children. Second, commit to using the Collaborative Divorce process.

In a Collaborative Divorce, you and your spouse agree to do everything you can to end the marriage in a peaceful way, work together regarding your children, and never put the children in the middle of conflicts. Fortunately, specially trained professionals are available to help you overcome challenges you will encounter along the way.

Here are three all too common examples that can be avoided with a Collaborative Divorce:

1.    One of the parents becomes overly nice to the children, lavishing them with gifts, toys, trips to fun places, and / or giving them special privileges. This parent clearly wants the children to “chose” him or her as the custodial parent. Unfortunately, this behavior usually undercuts effective discipline for both parents.

2.    The police are called to the house when the parents’ arguments in front of the children lead to a pushing match – or one parent successfully provokes the other into physical action. In a similar scenario, disputes that develop at transfer times necessitate  police presence. The reason for the call could be as simple as wanting the police to document that the other parent arrived past the agreed-upon time to pick-up the children for a visitation.

3.    Sometimes the battle between parents involves withholding money as leverage for preventing the children from visiting the other parent. In the heat of a divorce, parents lose sight of how destructive this behavior is for their children.

Collaborative Divorce has been proven to help divorcing spouses put aside their differences to give their children as much stability and love as possible during this difficult time and going forward. Preserving the family becomes their ultimate, mutual goal.

For more information, visit CDRLI.com and www.drneilgrossman.com

The Realities Of A Divorce Trial: Do You Get Your Day in Court?

The Realities Of A Divorce Trial: Do You Get Your Day in Court? – By Latonia Early-Hubelbank, Esq.

Imagine this.  You’ve been happily married for 20 years to your childhood sweetheart. Soon after the wedding, you started a business together because who better to partner with than your life mate and best friend?

The economy was good and your business quickly grew. You were able to afford to buy a nice piece of land, build your dream home in an upscale neighborhood, and have two perfect children to complete your “perfect life”.

All was well until, one day, you discovered your husband has another wife, and other children, living in a nearby state. Your world crumbled and you initiated a divorce to protect your children.

But did you ever think that the husband who spends 70% of his time traveling for work and 100% of his time lying to you would ask the court for sole legal custody of your kids?  And did you expect a judge would ever consider giving him custody ­– when you are a stable, stay-at-home mom with no history of drug or alcohol abuse, or infidelity? Sounds like the plot of an Arthur Miller play. Sadly, it’s all true.

Now let’s look at a different family’s divorce scenario. Would you find it implausible, even ludicrous, that the courts would rule that a “recently recovered alcoholic” father was entitled to receive spousal support from his ex-wife? “How could this happen,” you ask? Due to the father’s habitually drunken state, the mother was the kids’ primary caretaker and thus was seen by the judge as the stable family breadwinner.

Both of these are real-life scenarios, and the court’s rulings boggle the mind! How can this happen?

The fact is, overworked judges are incapable of adequately handling every case that comes before them and giving each litigant the time to explain their situation.  Further, the judges deciding your divorce case are real people who bring their own biases to each case,  notwithstanding their judicial pledge to remain impartial.  Some judges are known to be “better” in cases brought by male litigants, while others are “better” for females.  Some judges favor the “stay-at-home” mom, while others lack any understanding of a woman who is forced to return to the workforce after giving up her career 15 years earlier to fend for her kids.

In addition, all judges must answer to a “higher authority” – the court calendar, which compels them to push cases at a fast pace to keep their schedule moving.  This means you and your spouse are required to appear with your lawyers at every court date, even if it conflicts with your job or medical needs, and you likely will wait for hours.

But you will never get to see or speak to the judge, who will hold a 10-minute conference with only the lawyers for both parties, without your presence and without an opportunity for you to have any input or witness the conversation. Your lawyer will re-emerge and make you wait to find out what was discussed until you are outside the courthouse. Too bad for you.

Chances are you and your spouse will spend tens of thousands of dollars on lawyer’s fees and court costs, and will settle your divorce case out of court on terms very close to what one of the lawyers proposed at the outset, long before your legal bills reached the five-figures.

These are many of the reasons to consider the Collaborative Divorce process, where litigation-related procedures and delays will be avoided. And you will keep control of how your case proceeds and have a say in the outcome. That’s a real life scenario you can live with!

For more information, visit CDRLI.com and www.TenLeaders.com/Law

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Today’s Grey Pre-nup

Today’s Grey Pre-nup – By Harriette M. Steinberg, Esq.

The number of second or later-life “grey marriages” – where both spouses are baby boomers or older – is growing each year. These unions are typically entered into with great optimism, hoping for a new opportunity to “walk off into the sunset together”.

Senior longevity is also dramatically increasing. A recent AARP article reported that during the 20^th century, life expectancy grew by nearly three decades. “We are approaching a time when older adults will outnumber children for the first time in history.” Our longer life span is creating new concerns as long-standing social norms become outdated.

This means more seniors are considering tying the knot again – and again – in an attempt to ensure companionship as long as possible. On the Jan. 16, 2011 episode of Desperate Housewives, Lynette’s elderly mother (played by Polly Bergen) married a grouchy, obnoxious octogenarian (played by Larry Hagman) because “he needs me and you don’t anymore,” as she told her busy career-mom daughter.

Encore-wedding couples face many of the same mundane wedding-related dilemmas as first-timers: money-saving elopement vs. formal ceremony, reception seating challenges, band vs. DJ, and whether a non-virginal bride dares to wear white.

But beyond the “fluff”, seniors face unique challenges not experienced by wedding newbies:

• Developing relationships with children and grandchildren from one or more previous marriages
• Responsibility for paying lifestyle expenses
• Separating vs. co-mingling assets accumulated before this marriage
• Inheritance and estate planning issues between established families
• Wills that acknowledge the new spouse without angering other heirs
• Retirement planning, including lifestyle choices, income sources, residency, travel, and more
• Long-term health care planning for future chronic illness
• Asset disposition in case of a separation or divorce
• Advance directives including durable powers of attorney, living wills, healthcare proxies.

How can an older couple handle this landmine of issues without derailing their wedding march?

The smart solution is fondly known as a “grey pre-nup” – a prenuptial agreement that jointly addresses specifically “grey” (pun intended) issues in addition to those common to all marriages.

Will the attorney listen to the client’s needs in preparing the pre-nup?

The traditional legal model for the preparation of a prenuptial involves one attorney for each party, drafting and redrafting a standard agreement from the attorney’s point of view, not the client’s. The spouses-to-be are not given the opportunity to discuss their individual issues in an open and genuine sharing of ideas. This unpleasant process – for attorneys and clients – often causes misunderstandings, arguments, and in some cases, cancellation of the impending marriage.

Is it possible to write a pre-nup without destroying the couple?

Yes. The new Collaborative approach to prenuptials offers couples a superior option for planning for their upcoming union. A team comprised of a trained Collaborative attorney for each party, plus one neutral family specialist is assembled. In an open, non-litigious manner, the team helps the couple explore each topic on their pre-nup agenda and create mutually acceptable solutions. By engaging in this process, honest and transparent communication becomes the foundation of the couple’s future. Nothing could be better.

For more information, visit CDRLI.com and www.lawyersonli.com.

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