Money and Divorce Archives | Collaborative Law Institute

August 5, 2023August 12, 2023

If you are going through a divorce, you might be feeling anxious about how to deal with spousal maintenance. Spousal maintenance, also known as alimony, is a payment that one spouse makes to the other after the divorce to help them maintain a similar standard of living as they had during the marriage. The amount and duration of spousal maintenance depend on various factors, such as the length of the marriage, the income and assets of each spouse, the age and health of each spouse, and the earning potential of each spouse.

The stereotypical spousal maintenance case is where one spouse stayed home with the kids while the other spent a decade or more advancing their career and now that there is a divorce the stay-at-home parent is going to fall off a financial cliff (because they have little or no income potential) unless the career spouse helps them out financially.

While it may be tempting to rush through negotiations and reach a quick agreement, taking a methodical approach to budgeting and comparing incomes and expenses can save you time, money, and potential regrets down the line, especially when figuring out spousal maintenance.

The Pitfalls of Cutting Corners:

When faced with the daunting prospect of divorce negotiations, it’s only natural to want to expedite the process. However, hastily reaching an agreement without delving into the intricacies of your financial situation can prove to be penny wise and pound foolish. By avoiding the necessary work and disregarding a comprehensive assessment of incomes and expenses, you risk making uninformed decisions that may later backfire.

Fear as a Driving Force:

One of the main reasons individuals may be inclined to cut corners is the fear of what their spouse might ask for in terms of spousal maintenance. This fear often leads to a desire for a quick resolution, even if it means sacrificing a thorough understanding of your or their financial situation. However, succumbing to this fear can be counterproductive and end up costing you more time, money, and emotional energy in the long run.

The Benefits of Methodical Budgeting:

Who wants to create a budget? Hardly anyone! But ask any Family Law Attorney and they will tell you that budgets are the key to figuring out spousal maintenance. Engaging in methodical budgeting and comparing incomes and expenses can yield numerous advantages during divorce negotiations.

Let’s take a closer look at some of the key benefits:

Informed Decision-Making: By thoroughly understanding your financial circumstances, you gain the ability to make informed decisions regarding spousal maintenance. This ensures that any agreement reached is fair and reasonable, taking into account both parties’ needs and financial capabilities.
Transparency and Trust: Demonstrating a commitment to a methodical approach fosters an atmosphere of transparency and trust during negotiations. By openly discussing and analyzing the financial aspects of the divorce, both parties are more likely to feel heard and respected, leading to a higher likelihood of reaching an amicable agreement.
Long-Term Financial Stability: Rushing through negotiations without a comprehensive understanding of your financial situation may result in an unsustainable spousal maintenance arrangement. Taking the time to carefully evaluate incomes, expenses, and future financial prospects enables you to create a plan that promotes long-term financial stability for both parties involved.
Minimized Legal Costs: While investing time and effort in methodical budgeting may seem time-consuming at first, it can significantly reduce overall legal costs. By proactively addressing financial concerns during negotiations, you reduce the need for repeated revisions and potentially costly legal interventions down the line.

Divorce negotiations are rarely easy, but by embracing a methodical approach to budgeting and comparing incomes and expenses, you can pave the way for a smoother and more satisfactory resolution. Rather than succumbing to the fear of what your spouse may ask for in spousal maintenance, investing the time and effort to fully understand the financial landscape can lead to a fair and reasonable agreement that benefits both parties in the long run. So, take a deep breath, roll up your sleeves, and embark on the journey towards a well-informed and amicable divorce settlement. Your future financial stability is worth the extra effort.

You should consult with a lawyer who can advise you on your legal rights and obligations regarding spousal maintenance. You should also consider working with a financial planner or Certified Divorce Financial Analyst (CDFA) who can help you create a realistic budget and plan for your future. You should also seek emotional support from your friends, family, or a therapist who can help you cope with the stress and anxiety of the divorce process.

By making informed and rational decisions about spousal maintenance, you can achieve a fair and reasonable outcome that respects both your and your spouse’s interests. You can also avoid unnecessary conflicts and drama that can prolong and complicate the divorce process. And most importantly, you can protect your well-being and happiness after the divorce. Remember, being penny wise and pound foolish rarely pays off in the complex realm of divorce negotiations.

Carl Arnold is an experienced family law attorney and mediator. He currently focuses his practice on Family Law Mediation (including child-inclusive mediation), Collaborative Divorce and Custody Evaluations. His office is in Northfield, Minnesota and he works with people from all over the state using Zoom. Carl has been a long-time member of the Collaborative Law Institute.

Attorney/Mediator, Arnold Law and Mediation LLC, carl@arnoldlawmediation.com
507-786-9999
www.arnoldlawmediation.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.

July 15, 2018

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It goes without saying, but I’ll say it anyway…divorces are complicated! There are many questions that an experienced mortgage professional can help answer before you finalize your divorce. For example: Can one of us afford the family home or do we need to sell it? Will I have enough income to qualify for a mortgage after the divorce? Is my credit score good enough to qualify? Will I have enough assets to refinance or purchase a new home? Do I have the right job and/or job history for mortgage qualification? What’s my home worth? Will the family home appraise high enough to pull out equity to cover the cash I owe my spouse, or do I need to pull funds from another source? What’s the consequence if my Ex-spouse keeps the home but can’t refinance it into their name after the divorce? What’s the best loan for me post-divorce? Attorneys are not mortgage experts and there are many nuances in the mortgage world that can totally derail the perfect divorce settlement. Rainbow Mortgage Inc. takes a very proactive role in assisting our attorney friends and their clients in making sure their post decree housing goals are met. We help you to (1) make realistic decisions about what is possible, (2) understand your loan options, and (3) structure a mortgage loan focusing on your post-divorce goals. We are happy to help you by participating in client-attorney meetings to discuss potential initial options, provide revised options (if necessary) prior to the final signing of the decree, provide an estimate of what your home is worth using our AVM tool (which is the same tool used by lenders to evaluate whether a value on an appraisal is reasonable) and at no cost to you or your attorney, review the decree prior to it being sent to the judge. Here are a few examples of items in a divorce decree that have caused client issues in the past: (1) The length of time that a person is to receive support payments does not meet lender guidelines to qualify for a mortgage loan. Different loans have different guidelines however, standard guidelines require that a borrower prove that they will receive the income for a minimum of three years following the funding of the mortgage loan. The dates listed in the decree must be carefully monitored and possibly adjusted if the divorce process goes on for an extended period before it’s finalized. (2) Child care expenses are being shared and the decree lists a payment that is to be made monthly to a specified bank account- underwriters will sometimes consider this child support which can throw off a person’s monthly budget causing them to no longer qualify for a loan. Divorces are complicated but the mortgage doesn’t have to be with the right professionals in your corner. We can offer you the help you need and why wouldn’t you take it? Contact us for a FREE consultation and decree review. We only get paid when you are happy with our service and your loan closes. It’s a Win-Win for you!

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.

February 3, 2018

Spousal support that lasts more than a couple years may be subject to cost of living adjustments (COLAs). This is negotiated as part of your divorce settlement. As the cost of living goes up, spousal support can increase as well, to meet its intent of maintaining the ex-spouse’s standard of living. Fortunately, the State of Minnesota’s Office on the Economic Status of Women (OESW) provides a booklet that contains a worksheet and instructions for calculating the cost of living increase for spousal support, as well as child support. The OESW’s A Guide to Child Support & Spousal Maintenance Cost-of-Living Adjustments also has template forms for notifying the paying ex-spouse of the increase and an Affidavit of Service by Mail form. Why an Affidavit of Service by Mail form? Because if the paying ex-spouse does not increase the support as requested, the affidavit is proof that they had been notified. All these forms and worksheets should also be filed with the court administrator where the decree was filed. This is a lot of paperwork, but OESW’s guide also has a checklist to make sure all of the involved parties get the correct documents. One additional piece of information needed to complete the COLA calculations is the Consumer Price Index Table. This table is also maintained and available for download at the OESW website. The index numbers on this table are used to show the increase in the cost of goods and services over time. These index numbers are used in the calculations to determine how much spousal support (and child support) should increase to keep up. The table shows over 20 years of data but, if one is being diligent about requesting increases, only the index numbers from the past couple of years should be needed. The Consumer Price Index Table contains sets of price index numbers: the CPI-U shows how much prices have increased on average for the entire United States; the CPI-U MSP shows how much prices have increased in the Twin Cities Metropolitan area. Your divorce decree will likely indicate which set of index numbers you should use. Note that while using the CPI-U MSP can most accurately reflect the increase in prices in Minnesota, this set is updated twice a year, in January and July, and it takes an additional month for the updated figure to be published. OESW’s A Guide to Child Support & Spousal Maintenance Cost-of-Living Adjustments is easy to follow and doesn’t require too many calculations. If you are not good at math or filling out forms, it is a good idea to get help from a financial professional or your family law attorney. Link to the Guide Link to the Consumer Price Index Table

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.

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!