Finances and Divorce Archives | Collaborative Law Institute

November 4, 2020

It may be tempting to save money in a divorce by drafting a decree with your spouse, or by completing a form decree. This is especially true if it appears that you and your spouse are in accord on all issues. But be warned: unintended consequences can arise months or years after your decree has been filed and entered by the Court. Once your decree has been filed by the Court and entered by Court Administration, your decree becomes the legal guide for everything related to your divorce: custody and parenting time, support, property and debt division. On the surface, these issues can seem simple and many couples attempt drafting their own dissolution paperwork without counsel in an effort to save on the investment of lawyers and other professionals. While it is true that parties are often in the best position to make decisions about what their families need, attorneys are uniquely trained (and perhaps some are even naturally suited) to imagining something their clients may not be inclined to consider: the worst-case scenario. The worst-case scenario is and should be an ever-present consideration for attorneys as they counsel their clients regarding important decisions that will have long-term impacts on parenting and financial issues. An attorney may be a glass-is-half-full type of person, but he or she has been trained to imagine what could go wrong five years out from a divorce or custody determination. The worst-case scenario may not be an enjoyable rumination, but it is critically important in drafting strong contracts. Take Couple A, for example. Couple A was married for 12 years. They have an eight-year-old child and they own a home, which they purchased together during the marriage. Couple A decide to divorce in November and to sell the home in the spring when the housing market is stronger. They agree to share the closing costs and to equally divide the sale proceeds. They also decide that they will have equal parenting time, but they do not create a specific parenting time schedule. Couple A feels pretty good about the progress they are making, and they should feel great – many couples are not able to have fruitful conversations about parenting and property issues in the context of a separation. Couple A signs and files their divorce decree, which awards the home to Wife, pending the sale of the house. Husband has purchased a townhome a few miles away. Couple A is glad to have the divorce behind them so they can focus on their child and on moving forward with life. What could go wrong? Let’s check back in with Couple A one year after their decree is entered. It is late fall and the marital home is still unsold. At the time the divorce was finalized, the realtor recommended repairs that required time and money and the parties were not able to agree on a listing price. Some offers were made, but the parties felt that the property should sell for more. Wife has been paying the mortgage for the past year, and the parties have now just received a solid offer. Wife wants to be credited for reducing the mortgage principal during the year she made mortgage payments and is asking for additional sale proceeds. Husband does not agree – he has done some of the repair work on the home and has paid for lawn maintenance. The decree is silent on principal reduction, and he believes the net equity should be divided equally, as worded in the decree. In addition, Wife has put in an offer on a home twenty miles away from Husband’s new home. Wife wants the now 9-year-old to attend school near her new home, in a different school district. Even though the parties agreed on equal parenting time, Husband has been picking up overtime at work to help offset some of his expenses, so Wife has had significantly more overnight parenting time over the course of the last year. Wife has hired a lawyer and is threatening to take Husband to court to address school choice, parenting time, and the division of equity from the sale of the marital home. If Couple A had attorneys, even to simply review their draft decree, they could have included some provisions to address these foreseeable events. As a family law attorney, I have encountered many “Couple As,” who, with the best intentions, endeavored to divorce without counsel because they believed it would save them time and money. However, in many instances, these couples overlook important details and pitfalls that a family law attorney will mitigate by including provisions that anticipate change and communication breakdowns. In the end, these couples have unnecessarily spent significant amounts of money to resolve issues that could have been avoided by addressing them properly at the time of divorce. If Couple A had engaged in the Collaborative Divorce process and retained collaborative attorneys committed to working only out of court, they would have had conversations focused on problem solving the issues that they later encountered up front. While many divorcing couples can and should make efforts to reach agreements on their own, attorneys offer unique perspective and experience when counseling clients on important agreements. If you are considering a divorce or have questions about whether the Collaborative Divorce process is right for you (there are many wonderful blog posts on the CLI site explaining why it probably is), contact CLI or browse through the online listing of collaborative attorneys (Find a professional) – most of us offer free initial consultations and love the collaborative work we do. About the Author:

Rebecca Randen is a family law practitioner and partner at the firm Randen, Chakirov & Grotkin LLC. She practices collaborative and traditional family law in the metro and greater Minnesota. She is a lifelong Beatles fan. www.rcglawoffice.com

April 2, 2019

It’s important for divorcees to review and adjust their W-4 payroll withholding or start to make quarterly tax estimates following their divorce. Often, they are so relieved to have reached settlement, they fail to think about these housekeeping items. If divorced in 2018, this is especially important if transferring taxable spousal maintenance. The payor spouse can likely change their payroll withholding to increase their net income. The payee spouse will need to withhold additional tax dollars on their salary or make quarterly estimated tax payments, to account for taxes on the spousal maintenance payments received. If the payor spouse doesn’t adjust their W-4, they may not be able to meet their budget during the year and would probably receive a large tax refund when taxes are filed. If the payee spouse doesn’t adjust their W-4 or start quarterly estimated taxes, they could have a large tax liability when they file their return. Even if there isn’t taxable spousal maintenance, individuals still may need to adjust their withholding. Things that can impact taxes and often require an adjustment are a change in their filing status, pre- tax payroll deductions (retirement contributions, health savings account, health insurance premiums), and itemized deductions such as real estate taxes and mortgage interest. Making these adjustments now will help cash flow match what was projected during the divorce process and save the headache later of a tax surprise.

February 3, 2019

It is important to review and discuss tax planning for the year in which a divorce was completed, especially for high earning individuals who receive incentive compensation and plan to be divorced by December 31, 2018. As part of the 2017 Tax Cuts and Jobs Act, many tax law changes became effective in 2018. One change was to the flat tax rate that is withheld by companies on incentive income such as bonus income, commission income, exercised stock options, and vested restricted stock. As of January 2018, the federal rate changed from 25% to 22%. The Minnesota state rate remains the same at 6.25%. Most highly compensated individuals have marginal tax rates above 22%, so tax on the above income types is under-withheld. To avoid an unpleasant tax surprise come April 15^th, be sure to address this potential additional tax liability and come up with a plan to handle it. Some options to consider are:

Estimate the tax liability now and include and allocate it as part of the property division.
Include language to share in the tax liability when return(s) are filed next year.
Consider whether it makes sense to load-up itemized deductions from the year to the higher earning spouse to help offset liability (i.e. real estate taxes, mortgage interest, charitable contributions).

January 20, 2019

When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1^st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1^st– October 31^st and a second 1099 for the individual account earnings earned on his individual account from November 1^st – December 31^st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1^st – December 31^st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.

The tax liability is projected during the divorce process and an adjustment is worked into the property division.
The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.

June 1, 2018

Your divorce is over. It’s time to start sorting through all the things you need to do, to get your financial life in order. Here are just a few tips to help you thrive financially, as you move into this phase of your life. Pay Off Credit Card Debt One of the most important steps to achieve your financial goals is eliminating credit card debt. Start by paying off the balance of one credit card at a time, by either:

Paying off the highest interest rate credit card first, or
Paying off the smallest balance first, then applying that payment amount to the next smallest balance

And, always pay more than the minimum. Build an Emergency Fund Life has a way of throwing financial curve balls. To pay for these unexpected expenses, it’s important to have an emergency fund. A good rule of thumb is to set aside at least 3 to 6 months of expenses in a savings account earmarked for emergencies. This will keep the money “out of site, out of mind” and help reduce your stress level when financial emergencies pop up. Know Your Credit Score Despite its importance, many people don’t know their credit score. Credit scores assist lenders in determining the interest rate you’ll be charged, so you’ll want to know yours and work on improving it. To get your free credit report, visit www.annualcreditreport.com. Reviewing your credit report may also help you catch signs of identity theft early. Start Saving for Retirement We’ve all heard it before, but it truly is essential to start saving for retirement as early as possible. This is because you want to take advantage of compounding – generating growth not only on the original investment, but also on the return you’ve already earned on the investment over time. Compounding allows the potential for your initial investment to grow exponentially. Also, make sure you contribute at least enough to your company retirement plan to get our employer’s match. Don’t pass up free money! Create a Budget Although it’s not always fun, following a budget ensures you will have enough money for the things most important to you. A budget helps you find money to fuel your dreams. Refer to the attached Create Cash Flow* to help you put your budget together. One of the most important things to remember is to pay yourself first! Always set aside money for your emergency fund and retirement before any discretionary expenses. * a chapter from my book Ultimate Women’s Financial Guide to Thrive after Divorce All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

January 6, 2018

Divorce has a way of completely upsetting one’s expectations for the future. One day things are moving along just fine, and the next you are making decisions that will impact the rest of your life. One of the big decisions is whether or not to keep the family home. It may really be two questions: “Should I keep the house?” and “Can I keep the house?”. Let’s consider both in turn. Whether you “should” keep the home is more of an emotional question. What does the home represent to you? Often it is an emotional safe haven full of good memories that you have spent years getting just right. It could also be an emotional roadblock to moving forward with your life. “Can I keep the house?” is more of a financial question. Will your income post-divorce allow you to maintain the house? Will taking the house in the divorce mean forgoing other marital assets such as retirement accounts, that may be more valuable in the long run? Perhaps keeping the house will require keeping your ex-spouse as co-owner, do you want that? Due to its functionality, your house is an asset different from a stock or retirement account. So, in many cases, the decision is a compromise focused on the question: “How long should I stay in the house?”. If you are unsure of the best way to handle the house, there are 3 exercises that you should go through to determine your best decision or when you should expect to sell.

Develop a post-divorce budget to see if you can afford to keep the home. Perhaps with child support it may make sense to stay. When the kids go, the house may need to go as well.
Run a retirement projection to see how keeping the home will impact your retirement and other financial goals.
Finally, list the benefits and tradeoffs of keeping the home. The benefits may be proximity to work and school. A tradeoff may be that you are now in charge of the upkeep.

There is no doubt that a house is treated different from a retirement account. Even so, it needs to be viewed with an honest and objective lens to determine how it will influence the unfurling of your new future as you blossom into the new you.

June 12, 2017

In Part 1, vortex was defined as: 1) a whirling mass of water or air that sucks everything near it towards its center; 2) a place or situation regarded as drawing into its center all that it surrounds, and hence, being inescapable or destructible.

The second definition provides a visual for what many think a divorce “looks like.” While the end of a marriage is emotionally tumultuous and devastating, the actual legal process of uncoupling does not have to be. But, it is critical that you choose a process that promotes healing. The Collaborative Process does just that. Collaboration is a holistic approach to divorce. It can be utilized by couples who are ending either a marriage or significant relationship, or who have a child or children together. Although some people question whether it is an appropriate process when domestic abuse or mental health/chemical dependency issues are present, many others think it can (and should) at least be attempted. If you don’t want to be another “divorce horror story,” the Collaborative Process will likely be a great fit. Collaboration focuses on the future (i.e., the relationship of co-parenting in two homes) rather than the past (i.e. the vilification of one spouse); is a win-win for both partners (rather than a court-imposed win-lose); and emphasizes the well-being of the entire family. You don’t air your dirty laundry in court, and you aren’t (literally) judged. In fact, you never set foot in a courtroom. The negotiation model is interest-based/win-win, rather than positional/win-lose. You pay attorneys to help you solve problems, not argue and keep you stuck in the past. Every family is unique, so every family deserves a unique solution. And if you have young children, please keep in mind they need you present and available. You can’t be present when you are fighting the other parent in court. In Part 3, we will discuss the various professionals in the Collaborative Process and how their expertise can help you avoid the divortex.

January 20, 2017

When divorcing, whether one spouse stays in the family home is often a pivotal decision. For most, there are several considerations that go into deciding whether to sell or stay. The tax impact of selling the marital home is unlikely to be at the top of that list, but with home values on the rise, it is worth understanding. The current tax rules are quite favorable to people realizing a gain on the sale of their home. The IRS allows each taxpayer to avoid paying capital gains tax on the first $250,000 of capital gain on the sale of one’s residence. That means that a taxpayer filing “single” could exempt the first $250,000. A couple filing “married filing jointly” can avoid paying taxes on $500,000 in gains. The capital gains tax on a $250,000 gain can range from $0 to about $75,000 so it is worth it for divorcing couple to make sure they cover this in their divorce arrangements. To qualify for the exemption, the IRS requires that the home meet the principal residence test, which is based on ownership, use and timing. For ownership, you need to have lived in the home for at least 2 years, (24 full months) in the 5 years before the sale. These 24 months do not need to be continuous. The use criteria require that the home be your principal residence for those 24 months. This can be an issue if one spouse was employed in another city, where they kept a second residence. One spouse meets the use test, but the other does not. Finally, the timing criteria requires that you have not excluded the gain on the sale of another home in the past 2 years. Tax law gives divorcing couples some leeway in these criteria. Transfer of home ownership between divorcing spouses is not considered to be a taxable event by the IRS. If ownership is not transferred during the divorce, detailing the home ownership arrangement in the divorce decree is key to minimizing taxes when selling the home later. An ex-spouse that continues to be an owner of the home but does not live there, can still use the exclusion if there is written documentation in the decree that lays out this arrangement. Dealing with home decisions during the divorce can be a complex. Be sure that in your home decision analysis, you are clear on your tax implications! And keep in mind that cabins, vacation homes and investment real estate generally will not meet the principal residence test, so they may have tax consequences when sold. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

September 20, 2016

You may find cooking a daunting enough task as it is, but cooking for just one can be downright grueling, and can often lead to unhealthy eating. If you find yourself undereating, forgetting to eat, going through the drive thru, or just grabbing something quick because you don’t have the energy to cook for just yourself, you are not alone. These quick bites are often unhealthy or what should have been a snack size portion of {insert your guilty pleasure here} has suddenly became a 2,000 calorie “dinner.” Even if it’s not just you for dinner, but you and young kids with small appetites, sometimes it still feels too cumbersome to make a “real meal.” We encourage you to be the healthiest you that you can be, so here are our best tips for cooking for one.

Don’t shy away from buying in bulk. Your freezer is your friend, so whether you are buying in 1 pound packages or 10, freeze in manageable portions. Learn what manageable means to you – do you want leftovers to take to work for lunch the next day, or do you only want to eat that meal once?
Speaking of buying in bulk, those bulk bins at the grocery store can save you money by only purchasing what you actually will use. Walk the bulk isle and learn what your store has to offer there.
Prep before you freeze. Make fajitas for tonight, but prep enough to freeze in portions for later. Do so by cutting and seasoning your meats and veggies, so that all you need to do later is defrost and throw in a skillet.
Love lasagna? Probably not enough to eat it for a week strait. Lasagna and casseroles can be cooked and then frozen into individual portions. Convenient and much healthier than store bought frozen dinners, which are full of preservatives.
Make meals that turn into something else – no magic wand required! Pork roast in the crock pot for Sunday night can easily become Monday’s pulled pork sandwich, and Tuesday’s shredded pork tacos, without any extra prep or much thought.
The deli and meat counters allow you the freedom to purchase in as small of quantities as you need. Purchase fresh deli meat when it’s on sale, have them portion out in quarter pound packages right there, freeze, and then you can pull out only what you need to last you a day or two.
Learn what freezes well. For instance, eggs can be frozen individually in ice cube trays and then once frozen dump into a freezer bag or container. While some produce freezes beautifully, some not so much.
If you don’t like to turn on your oven for “just one person” consider purchasing a toaster oven, which can do all the work of a oven and a toaster, and can often still be stored away, in a cabinet.

Hopefully these tips help you to make healthy eating a priority even when you are just cooking for yourself. A little prep work goes a long way, and can help save you from getting lost in a carton of ice cream come dinner time! If you have a good tip for cooking for one, please let us know in the comments below!

August 1, 2016

While researching for this post, I came across a number of divorce-related blogs. The blog medium provides an efficient and concise opportunity to share information and educate the public. This blog focuses on the collaborative process — where clients commit to an out-of-court, non–adversarial process. Here are some other blogs that may provide additional information as you navigate the divorce process:

Jeff Landers writes in Forbes Magazine about complex financial issues that women face in divorce. He is a Certified Divorce Financial Planner who has extensive experience with high asset divorces. His blog is informative and financially savvy.
Divorced Girl Smiling is a personal blog written by a woman during – and now after her divorce. It is a personal account of her experience, as well as a gathering of resources for others who may be going through the same thing. The archived blogs provide a great path through the litigation process, and provides some insight into why a non-adversarial approach may be better.

However you choose to get advice, being armed with information and prepared for the process can help you feel confident and ready for the transitions that come with divorce. There is a lot of information available online, if you know where to find it.