Money and Finances Archives | Page 2 of 10 | Collaborative Law Institute

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.

October 3, 2016

What are you teaching your children that will best prepare them for a successful adulthood? To be polite and say thank you? To believe in themselves? How about that if they save 15% of every check they ever earn, they will retire a millionaire (1). Preparing your child to handle the financial matters that they will face as adults doesn’t require a finance degree from Harvard. Below are some money lessons they can start at an early age. Lesson #1: Life isn’t one big shopping spree I think we have all experienced the grocery store tantrum when that 3-year-old just has to have the cereal with the cartoon character on the box. You can work with your preschoolers to understand that you go to the store for very specific items. Every trip to the store is not an opportunity for them to get a present. It is a lesson all ages could work on. Lesson #2: If you really want something, it is worth waiting for Teach your child about setting purchasing goals and saving for those goals. Have you given them a piggy bank yet? Every time they earn money or receive it as a gift, have them save at least 10% towards their goal. Lesson #3: It is important to spend wisely No one has an infinite amount of money so spending involves making choices. By the time your child is in elementary school, have them start to think about spending money on things they will still value in a couple of days. Here are a couple ways that you can help your child to develop money skills. #1 Give your child an allowance. You could use their age to determine their allowance amount. For example, my 7-year-old receives $7 a week. Make them understand that you take care of their needs and they use the allowance for their wants. An example of this would be when we went school shopping. I paid for my son’s school supplies that were on the teacher’s list. He really wanted a cool pencil box not on the list so he had to use his own money for this. It made him think about how badly he really wanted it. #2 Give them a birthday budget. Determine what you can afford for your child’s birthday present and party, then let your child determine how they want to spend it. Would they like to have the entire amount spent on a gift for themselves and forgo a party or would they like some combination of the two? Having a little skin in the game, really gets them thinking about spending wisely. During these early years, the overriding idea to teach your kids is that there is a difference between the things we want and the things we need. Giving them a little bit of responsibility at an early age will help them to understand this and set them up for a lifetime of healthy money habits. (1) Assuming that they work full-time for 40 years earning an after-tax salary of least $42,000 per year, and that their savings earn an average annual return of 6% after fees.

September 26, 2016

A will is the cornerstone of your estate plan. It allows for an organized distribution of your assets after you pass. Not only does it make sure that your assets end up with your chosen loved ones, it also reduces the legal and financial obstacles that your family and friends will face after your death. A will does the following:

Outlines how you want your property distributed
Names an executor to ensure that your creditors are paid and that your property is distributed as you wish
Nominates a guardian to care for young children (in situations where needed)

Other documents that are regularly part of an estate plan include:

Power of Attorney
Healthcare Directive
Trust – in some cases

A Power of Attorney gives the person that you designate the authority to act for you on financial matters, if you are unable to make decisions for yourself. Unlike a will, a Power of Attorney form is “in force” when you are still living. If you become incapacitated in some manner, then the person you designated (the attorney-in-fact) has the power to handle your financial affairs for you. Despite the name, the person you designate does not have to be a lawyer, only someone you trust to handle your financial affairs. Instead of financial matters, in a Healthcare Directive, the person you name is authorized to make decisions about your healthcare when you are unable to do so. A healthcare directive usually includes directions to your healthcare provider regarding the extent to which you want life-sustaining measures taken in an end-of-life situation. Don’t procrastinate!! Complete your estate plan now.

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.

July 27, 2016

There’s no question that periods of increased market volatility, like we have seen recently, can be unsettling. However, deciding to move to the sidelines versus staying the course can have long-lasting implications. In fact, making emotionally-based decisions in regard to short-term market events is one of the fastest ways to derail your long-term investment strategy. This is because it’s impossible to accurately time the financial markets. Studies have shown that investors reacting to market events tend to opt out at the worst time – when markets have fallen considerably. They then buy back in when they are certain the markets are back on track, but that ends up being a higher price than when they sold. On the other hand, staying the course and remaining invested and focused on long-term investment goals has proven helpful in creating long-term growth. This is achieved by buying at lower prices when the markets are down and selling only to rebalance your portfolio or fund financial goals. A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation. An asset allocation that is aligned with your financial goals and tolerance for risk allows you to concentrate on your long-term objectives instead of getting sidetracked by short-term market fluctuations. While asset allocation cannot guarantee a profit or protect from a loss, the proper asset allocation can help eliminate the potential for emotional decision-making that could have an adverse impact on your long-term investment strategy. Following a divorce, consider checking in with your financial advisor to make sure your portfolio’s asset allocation is well balanced and appropriate for your risk tolerance and time horizon.

July 11, 2016

Recently, a friend told me that a good Samaritan found and returned the wallet he had lost the previous day. The funny thing he said, was that the credit cards and money were still there but his driver’s license and Social Security card were missing. Not finding it at all humorous, I told him he was likely the target of identity theft. I advised him to file a police report and to contact the three credit rating agencies to place a freeze on his credit report. A credit freeze (also called a security freeze) places a restriction on who can access your credit report. Only your current creditors and government agencies can access your credit report while the freeze is in place. This makes it hard for identity thieves to open a credit card account or take out a loan in your name, because most credit card companies will check your credit report before issuing a new credit card. To set up a credit freeze, you need to contact all three of the credit reporting agencies; Equifax, Experian and TransUnion. Each has a credit freeze website that is listed below, along with their telephone number. Equifax: 800-349-9960 https://www.freeze.equifax.com Experian: 888-397-3742 https://www.experian.com/freeze/center.html TransUnion: 888-909-8872 https://www.transunion.com/freeze The best way to set up a credit freeze is to request it in writing. Check each of the websites above to see the information they require. Typically, requirements include a photocopy of your driver’s license, Social Security card and a utility bill from the address listed on your driver’s license. There is a charge to set up the freeze, ranging from $5 to $20 per reporting agency. All three credit rating agencies offer protection plans that include credit monitoring, but those plans are an additional monthly cost and are not that useful once you have the freeze in place. Once your credit freeze is established, each of the credit reporting companies will send you a confirmation letter that contains a pin number. Keep these pin numbers in a safe place because you will need to provide them when you wish to lift the freeze. Freezes can be lifted permanently or just temporarily via each of the credit company’s websites. There is typically a $5 charge to left the freeze, even if temporarily. You will need to lift your credit freeze at each of the credit reporting companies each time you apply for credit, such as applying for a new credit card or a loan. You will also need to lift them to get your free credit report from www.annualcreditreport.com, or if a potential employer wants to check your credit history. Identity theft can be costly and take years to clear up, so the time and fees involved in setting up a credit freeze is a small investment for some peace of mind. One last piece of advice – never, never, never carry your social security card in your wallet.

May 16, 2016

Being a single parent demands so much of a person’s time and energy that taking care of longer-term financial concerns often take a back seat. So many single parents face financial restrictions that make it seem they are constantly on a financial tightrope. Getting off that tightrope and onto solid financial ground should be a priority for every single parent. Finding solid financial ground starts with determining your financial goals and monthly cash flow. Determine your financial goals The first step on the path to a more secure financial future is to determine your financial goals. Your financial goals should include short-term, medium-term and long-term goals. Short-term goals may be to reduce spending and not rely on credit cards to make it to the next paycheck. Medium-term goals could be paying off your credit card(s) and creating an emergency fund. Long-term goals may be saving for your children’s college expenses and retirement. Figure out your cash flow All of your financial goals require one thing – saving money. To do so, you need to figure out how much you spend and then create a budget that incorporates saving. Tracking your spending can be pretty easy these days with online account aggregators like Mint.com. To better understand your spending habits when using credit cards, you may need to go old school and save the receipts to review your purchases. This is particularly helpful if much of your shopping happens at Walmart, Target or Costco, where your shopping cart could include groceries, video games and clothes. One way or another, figure out how much of your spending is essential and how much is unnecessary spur of the moment buys. Create a budget that accurately matches your essential spending and replaces most of your unnecessary spending with savings. Be mindful of not only what you buy, but also how you buy it. Using high interest credit cards are an impediment to meeting your financial goals. Paying off high interest credit cards is a financial goal that improves the odds of meeting your other financial goals. Save the tax-free way Tax-deferred investment accounts such as Investment Retirement Accounts (IRAs) for retirement and college-funding accounts, such as 529 accounts, are a good way to meet those long-term goals. These accounts often can be opened with a couple hundred dollars. Setting up automatic monthly contributions from your bank account to these accounts can be done for amounts as low as $25. Both types of accounts grow without being taxed until the money is withdrawn. For 529 accounts, there will be no taxes if the withdrawals are spent on qualifying college expenses. Figuring out your budget shouldn’t be a chore done after the kids are in bed. It should be a family project. Developing good financial habits that lead to meeting financial goals is an essential skill that all parents should share with their children.

May 3, 2016

While we financial advisors need to know a lot about numbers, we often use some shortcut “rules-of-thumb” to make quick estimates. Two of those rules-of-thumb are the Rule of 72 and the Rule of 115. The rule of 72 is a shorthand way to figure out how long it will take an investment to double in value, if one knows the annual rate of return or interest rate. The equation can also be switched around to figure out the annual rate of return if one knows how long it took for the investment to double. It is called the rule of 72 because the doubling time is figured out by dividing the rate of return by 72. For example, an investment earning 6% per year will double in 72/6 = 12 years. An investment earning 8% will double in 72/8 = 9 years. Flipping the equation around to determine the rate of return is done as follows. If an investment doubles in value in 10 years, the annual rate of return is 10/72 = 7.2%. The rule of 72 is an approximation that is based on annual compounding. The true results will differ slightly. Many investment returns are based on continuous compounding which grows a bit faster than annual compounding. For situations involving continuous compounding, use 69.3 instead of 72. The Rule of 115 is used to figure out how long it will take for an investment to triple in value. It follows the same process as the Rule of 72. If an investment earns 7% per year, it will take 115/7 = 16.4 years for the investment to triple in value. As with the Rule of 72, the Rule of 115 is an approximation. There are some practitioners that learned this as the Rule of 114. 115 slightly overestimates the time it takes for an investment to triple and 114 slightly underestimates it. If you have REALY big aspirations… use the Rule of 144 to calculate, your investment will quadruple!

April 13, 2016

Determining who is best qualified to help you reach your financial goals, understanding what they can do for you, and getting clarity on how they get paid for their services may be a challenge if this is all new to you. Here are some useful tips to find the right financial professional to help guide you through your financial matters. Designations The finance industry excels at creating financial designations for every conceivable financial situation. If you are looking for a financial planning generalist who can help you with most issues, look for someone with either a CFP^®, ChFC^® or CFA^® designation. A Certified Financial Planner^® (CFP^®) is the dominant designation for financial planners. The Chartered Financial Consultant^® (ChFC^®) designation is similar to CFP^®. A Chartered Financial Analyst^® (CFA^®) is an expert in investment management, but has also studied the basics of financial planning. In addition to one of these designations, many financial advisors who work in the divorce area also have a CDFA™ designation (Certified Divorce Financial Analyst^®). Background Check Once you find some candidates with the right credentials, do your homework and check out their website to see how much experience they have and if they indicate any specialty. You should also look into whether they have had any disciplinary issues with regulators, by performing a FINRA BrokerCheck® search. The Financial Industry Regulatory Authority (FINRA) has a file on every advisor working with a FINRA-registered brokerage firm at www.finra.org/Investors/ToolsCalculators/BrokerCheck Initial Meeting Questions Most financial planners will be happy to sit down with you for an initial meeting at no cost or obligation. The initial meeting is your chance to learn more about the financial planner and their business, to explain your situation and learn what services the planner offers. The following are some essential questions to ask at the initial meeting. What experience do you have? The financial planner may have significant financial experience but it is the experience they have counseling individuals that really matters. What is your approach to financial planning? Ask what types of clients and financial situations the advisor typically works with. For example, a planner that specializes on working with business owners may not be the best choice if you are newly divorced and in need of budgeting help. What services do you offer? Some financial advisors may focus on helping you with your investment needs, where others will also provide comprehensive financial planning (i.e. retirement, education, estate, tax and budget planning). Many planners expect to manage your portfolio along with the other services that they offer. Financial planners may also be good resources for and work closely with tax accountants and attorneys. Do you work alone or with a team? Financial planning is often done with a team approach where several specialists will assist the lead planner. When your financial planner is in meetings, it is good to know if there is someone else in the firm who can answer your questions or take care of basic requests in a timely manner. How much do you typically charge? How do I Pay for your services? Financial planners may charge for their services in several ways. If they are only creating a plan for you, it may be a set project price or by the hour. If they are will be managing your investment portfolio on an on-going basis, they may earn a commission on the investments or a charge a fee based on the size of your portfolio. There are numerous questions that you should consider based on your own situation. Remember that you are under no obligation in this meeting. If you intend to work with this planner over the long-term, it may take more than one meeting to determine if they are the right fit for you. Whatever planner you decide to work with, make sure you know what services will be provided and how the planner will be compensated.