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73582147-wedding-cake-top-with-groom-bride-and-lawyer-gettyimagesWhen a couple divorces, the final decree or order from a Court typically dictates how property shall be divided, how the children shall be parented, and what support will be paid moving forward.  The decree will give you the dates and amounts of payments.  The decree will also tell you what amount each of you is awarded of accounts or who shall keep the house.  But there are some things a divorce does not dictate. After a divorce is final, here are six things you (or your attorney) should do to finalize the division and move forward:
  1. Divide cash accounts. Bank accounts and investment accounts can be divided on your own. You both may need to work together to close joint accounts or transfer funds from one individual account to another. At the end of the process, you should have no joint accounts unless you have agreed to own something jointly.
  2. Pay-off and close joint credit cards. Joint credit card should be paid off and closed. You can take care of this on your own.
  3. Divide retirement.  Retirement accounts need to be divided precisely as outlined in the decree. Non-qualified plans (like IRAs) can be divided with a copy of the decree and direction from the account holders – you can do this on your own.  Qualified plans (like pensions, 401(k)’s or 403(b)’s) need a court order and you will have to have your attorney draft this or hire a consultant.
  4. Property title transfer. Title for any real estate that was awarded in the decree needs to be transferred to the individual owner. This can be done with a quit claim deed or order from the court that needs to be recorded with the county property office.
  5. Health insurance. Set up your own health insurance if needed or work with your former spouse to continue coverage for them.
  6. Estate planning. Your original will (if you had one) is no longer valid after divorce so you will need a new one.  Hire an estate attorney to draft up a new will.
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182478021-cashflow-gettyimagesOne of the challenges of divorce is separating income that used to be joint income, along with separating into two households versus one. This is a recipe for cash flow drain for most couples.  All of the sudden the same income(s) that supported one household must now support two households. I want to share an example of how cash flow solutions can be achieved through the collaborative divorce process.  Assume we have a couple struggling to make their cash flow positive which is often the case with divorce.  A substantial strain on their living expenses is secondary private school tuition for two more years for their child. This amounts to approximately $15,000 for tuition the first year and another $18,000 for the second year.  They are attempting to make these payments from existing income.  The strain of these payments coupled with divorce has become unbearable.  The parents are both determined to keep their child in this private school through the eighth grade. Additional assumptions include this couple having a small first mortgage on their home.  This mortgage requires a monthly payment of approximately $1600.  In our example, we would research refinance options including home equity loans.  After researching options an acceptable bank loan could provide them with the flexibility needed to lower the monthly cash flow shortage from over $1300 to approximately $220.  While this does not completely cover the entire cash flow shortage, it improves it significantly. The parents could draw from other savings if needed to make up this shortfall or look to further reduce some expenses.   An agreement could include that each parent would pay one-half of the cost of the second year private school tuition.  They both would have the flexibility to pay their share of the tuition from income sources, from savings, or some combination of the two. Structuring this part of their plan allows them to accomplish several goals.  One is to keep their child in the private school for the two additional years until graduation.  Secondly, it allows one spouse to stay in the home until the child enters the public school system and graduates from high school.  At that time, the spouse retaining residency in the home could either buy out the other spouse’s interest in the home or the home could be sold with sale proceeds being shared between the two spouses. Not all cash flow challenges can be so easily resolved.  What makes this situation work is everyone knowing what the goals are and everyone working together to help the couple find solutions that are in the best interest of the family and their children. Collaborative divorce, with the use of selected experts in their fields, can help divorcing couples navigate difficult issues with money, children, relationships, and emotions.  To learn more about collaborative divorce visit www.collaborativelaw.org and be sure to check out our blog site on a variety of topics at www.collaborativedivorceoptions.com.
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172399714Did you know that there is a National Financial Literacy Month?? Well, there is! The powers that be have selected April to be the Financial Literacy Month. Why April rather than July probably goes to the fact that so many people are acutely aware of their financial situation as they write out a check to the IRS. So, what is financial literacy and how does one become more financially literate? Financial literacy is about taking control of your finances by fully understanding the impact of your spending, saving and debt obligations on your financial well-being.  It is about making well-informed purchasing decisions and understanding the difference between wants and needs.  A financial literate individual understands the importance of saving for the long-term. They are committed to the budget that they created, which includes saving for specific large purchases, as well as longer-term financial goals such as a comfortable retirement. Financial literacy involves understanding the pros and cons of debt and being proactive about managing one’s debt obligations.  A financial literate person knows the importance of maintaining a good credit score and gets a copy of their free credit report annually at www.annualcreditreport.com.  Financial literacy is about recognizing when you have a problem managing your debt and getting assistance to help you manage the situation. Financial literacy is also about communicating openly with your significant other about financial matters. It is about teaching your children good financial habits such as saving for big purchases, starting a retirement account early and not getting in over one’s head in debt. So, now that you know what financial literacy is, go to www.financialliteracymonth.com to see what tools and information they have to help you be more financially literate.
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88962094-household-bills-in-shape-of-question-mark-gettyimagesOnce you have completed your divorce, the list of things to figure out can be daunting. It can be easy to push off those things that don’t seem to affect your daily routine.  Some of those things that you have been putting off are likely financial – a lump sum distribution from the divorce just sitting in cash, a 401(k) in need of rollover or perhaps a credit card balance that never seems to get any smaller. It’s time to make understanding your financial situation part of the process of building a new life. The longer you wait, the greater likelihood that your inaction will impact your long-term financial success.  If you don’t know where to start, then it may be a good idea to seek out the assistance of a financial planner.  While financial planners may have specialties, the financial planning process is fairly standard for all planners.  At the core of the financial planning processes is evaluating your financial needs and goals, and helping you take steps toward meeting those needs and goals.  The general steps to the financial planning process are as follows: 1. Determining your financial goals What are you looking to achieve? Do you need to invest that cash in your savings account or rollover a 401(k)?  Do you need to figure out how you are going to pay for your child’s college education? Do you need to get a firm handle on your expenses and cash flow? (budgeting) 2. Gathering your information If you have recently completed your divorce, this step should be easy.  For your divorce, you needed to collect all of your financial information.  You can just pass this information on to a financial planner (bank, retirement, and investment statements, liabilities (credit cards, car loan, mortgage), and your income information, such as a pay stub and a tax return.  A copy of your divorce decree also provides pertinent information. 3. Analyzing your information The financial planner will stitch together all of the financial documents in your life to create a picture of your financial situation. 4. Creating your financial plan A financial plan lays out your financial goals and your financial situation.  From there, your financial planner will work with you to create a plan of action for meeting your financial goals, based on your financial situation. 5. Implementing your financial plan Your financial plan is going to be a little different from everyone else’s plan. Implementation of a financial plan can take many forms as well.  It may involve reallocating your portfolio, setting up a program to save for college, purchasing insurance, or creating a budget. 5. Monitoring the progress of your financial plan In the stock market and life, things happen, situations change. Financial plans are not engraved in stone, never to be changed.  They have to be flexible to adapt to the changes that happen in the financial markets and in life. While the financial planning process is fairly standard across the industry, the financial products and solutions recommended by financial planners are not.  Much like your physical health, if you are not sure if the recommended products or plan of action are best for your financial health, seek a second opinion.  You are more likely to be committed to following a financial plan if you understand the financial products in your portfolio and are certain that your financial planner has put your interests first.
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185071534-checklist-gettyimagesAs an attorney with two small children, I am very aware of how crazy family life can be, even on the good days. I am always looking for ways to create more peace in my day-to-day life, and in the lives of my clients. Many people experience the stress of fearing the unknown in the beginning of a divorce, which is normal. Although it seems counterintuitive, getting organized on paper can help lower your stress levels during a divorce. Many couples struggle, in the midst of hectic family life, to get their financial paperwork together for review. To help with this, I provide my clients with a checklist at the initial consultation outlining everything we need. This reduces a daunting task to a series of concrete steps that will just take time to complete, while the stress of not quite knowing what needs to be done is (somewhat) relieved. If you keep your tasks organized on paper, they can’t worry you as much, and the same goes for your thoughts. Just like piles of forgotten paperwork, racing, unorganized thoughts can contribute to stress. I recommend getting a personal notebook to jot down meeting notes, as well as your ongoing thoughts, to-do lists, and concerns throughout the divorce process. It is a good way to keep everything recorded in tangible form, which makes it easier to maintain your peace of mind. Writing your thoughts down helps you keep track of the big picture as well as little things to remember, and you can rest better at night knowing you won’t forget anything important. Recording accomplishments, thoughts, and tasks will not only help the divorce process go more efficiently, but it can really bring you a sense of peace, control, and empowerment as well. At the end of the day, this is what we are all looking for.
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185064996-credit-score-gettyimagesDivorce is not fun for anyone nor is it a financially savvy thing to go through. You are splitting up what you own and what you owe to others. This often includes unpaid credit card balances and loans. What can you do to protect yourself? I always recommend to individuals and couples going through divorce or even contemplating divorce to immediately check your credit report. You can do this by going to www.annualcreditreport.com. This is the official consumer site provided in cooperation with the three major credit bureaus (Equifax, Experian, and Transunion) and the Federal Trade Commission. You will be able to obtain your credit report free from each of the three credit bureaus. Other websites may offer free credit reports but often want you to sign up for something. Watch out for these gimmicks or better yet just use the site mentioned here. After obtaining your credit report, get three different highlighted markers. Read through the report and highlight all open accounts listed as joint, use a different color highlighter to mark all accounts listed as authorized user, and yet a different highlighter to mark all accounts listed as individual in your name only. You will want to make sure that all joint credit cards, loans, and indebtedness accounts are closed post-divorce and are so noted in the divorce Judgement and Decree. Closing the accounts does not release you as a joint owner from the liability to pay remaining outstanding balances. It is critical to remember that even though the divorce decree may place responsibility for debt repayment on certain accounts to your spouse, you will remain liable to the creditor/lender should your spouse default on the payments. Even late payments could show up on future credit reports affecting your own credit score. Ideally on any joint debt accounts you will want your spouse to either pay these debts off in full or refinance the outstanding debt in their own name with their own new accounts. You will also want to address any accounts where you are listed as an authorized user. An authorized user has the same liability as a joint owner for any indebtedness on the account. The sort of gotcha on these types of accounts is that an authorized user is not always able to close the account. Any individual accounts held by you will be your responsibility to repay. I always recommend that to the extent possible attempt to emerge from the divorce with as little consumer debt as you can. Doing so will allow you to maximize your cash flow to meet your current living expenses and hopefully save for future goals. Keeping an eye on your credit and following these few simple steps can go a long way to helping you protect your credit, your credit score, and give you confidence to maximize your cash flow. Divorce as painful as it can be also creates opportunities to start anew.
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Stocks, bonds, mutual funds, annuities, chances are you own a couple of these financial instruments and possibly all of them in your portfolio. Wouldn’t it be nice if someone clearly explained what they are and why you should invest in them? Let’s see if we can get the basics of stocks straight in less than 5 minutes. Stocks When you own stock in a company you are a part owner of that company. Stock (also called equities) are sold in units called shares. Each share of stock in a company represents a fractional ownership in that company. Since most well-known companies have issued millions of shares their stock, each share represents a very small fraction of the overall ownership in that company. An owner of stock (called a stockholder or shareholder) is entitled to a portion of the company’s profits if the company’s board of directors decides to distribute them. Profits that are distributed are called dividends. Dividends tend to be distributed on a quarterly basis. Not all companies distribute their profits to the stockholders. Young fast growing companies, in particular, usually choose to reinvest their profits in expanding business operations. Older established companies with few opportunities to grow their business, utility companies for example, tend to distribute a large portion of their profits in the form of dividends. In situations where the company is sold or liquidated, shareholders will receive a cut of the net sale proceeds. All the company’s creditors get paid before this happens including employees, suppliers, creditors and even Uncle Sam when taxes are owed. The chance that there will be nothing left after everyone else gets paid is one of the intrinsic risks to stock ownership. There are two ways to make money from owning stock – the cash flow from dividends and capital gains. If a stockholder sells their shares for more than the purchase price they make a profit called a capital gain.   The value of a company’s stock rises and falls based on the performance of the company and the outlook for the economy as a whole. If a company is successful, such that its business is expanding then people will want to buy its stock to get in on the growth potential. If the overall economy is expected to grow, this is expected to benefit many companies as well.   Companies tend to report on the performance of their business on a quarterly basis which can greatly impact the stock value. In between those quarterly reports the stock value is more influenced by the constant stream of reports about the state of the economy. Companies are limited by the government as to how much and how often they can issue stock. Once they issue a share of stock, that stock is bought and sold on a stock exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Actual physical stock is rarely exchanged anymore; brokerage accounts are electronically credited or debited for the purchase or sale of stock. Companies contract with a transfer agent to keep track of the constant changes in the ownership of their stock. Five minutes are almost up so let me just say that stock ownership is a good way to grow wealth but it must be done with a view to the long term. Stocks prices can fluctuate greatly in times of economic upheaval so it is not a place for putting saving for a near-term purchase. Over the long term though, stocks have always rebounded and rewarded the patient investor.
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137547335-man-planting-euro-coins-in-soil-gettyimagesStocks seem to get all the attention with daily reports of what happened in the stock market. Bonds by comparison are the quiet, introverted sidekick to stocks. Nobody ever brags about their latest bond investment at a cocktail party. Nonetheless, bonds are an essential part of most portfolios and tend to become more so as we get older. Let’s take 5 minutes to understand bonds. Bond are loans that have been “securitized”, meaning that the face amount of the loan has been divided into equal-sized parts, typically worth $1,000 or $5,000. The equal sized parts are called bond certificates, which can then be bought and sold easily in the bond markets. Big issuers of bonds are corporations and governments. Borrowing money by selling bonds can be cheaper than going to a bank, particularly if the issuer wants to borrow a large sum and then pay it back over a long period of time, such as 20-30 years. Bonds issued by the U.S. Government are called Treasury bonds, bills or notes. Bonds issued by state and local governments are called municipal bonds, while bonds issued by companies are called corporate bonds. Bond Investors make money from the cash flow created by the bond issuer repaying the loan. Bonds are usually structured so that the owner of a bond (the Bondholder) receives interest payments at regular intervals. The bondholder is repaid their initial investment in the bond, along with the final interest payment, at the loan maturity date. Bonds are attractive to many investors because they provide a regular stream of income. The amount of income a bond holder will receive over the life of the bond is known the day it’s purchased. That knowledge means that bond values do not fluctuate nearly as much as stock prices. Bond values do fluctuate some, which is primarily caused by changes in the prevailing interest rates in the economy and the ability of the bond issuer to make bond payments. Bonds are an important part of investment portfolios because they typically act the opposite of stocks. Treasury bonds in particular will rise in value during times of economic stress, as people flee a falling stock market for the safe predictable return bonds offer. Bonds are also important because they provide cash flow to people taking regular draws from their portfolios to pay living expenses. If bonds are so much safer than stocks, why not invest 100% in bonds? Investing entirely in bonds is risky for the long-term because of the threat of inflation. Inflation causes the cash flow from a bond to become less valuable over time. And, although bondholders still get the principal they invested when the bond matures, that initial investment just doesn’t buy as much as it did 20 years ago.   Stocks on the other hand have a history of outpacing inflation over the long-term. This is why even the most conservative portfolio is better-off containing at least some allocation to stocks, as a hedge against inflation.
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Stocks, bonds, mutual funds, annuities, chances are you own a couple of these financial instruments and possibly all of them in your portfolio. Wouldn’t it be nice if someone clearly explained what they are and why you should invest in them? Let’s see if we can get the basics of stocks straight in less than 5 minutes. Stocks When you own stock in a company you are a part owner of that company. Stock (also called equities) are sold in units called shares. Each share of stock in a company represents a fractional ownership in that company. Since most well-known companies have issued millions of shares their stock, each share represents a very small fraction of the overall ownership in that company. An owner of stock (called a stockholder or shareholder) is entitled to a portion of the company’s profits if the company’s board of directors decides to distribute them. Profits that are distributed are called dividends. Dividends tend to be distributed on a quarterly basis. Not all companies distribute their profits to the stockholders. Young fast growing companies, in particular, usually choose to reinvest their profits in expanding business operations. Older established companies with few opportunities to grow their business, utility companies for example, tend to distribute a large portion of their profits in the form of dividends. In situations where the company is sold or liquidated, shareholders will receive a cut of the net sale proceeds. All the company’s creditors get paid before this happens including employees, suppliers, creditors and even Uncle Sam when taxes are owed. The chance that there will be nothing left after everyone else gets paid is one of the intrinsic risks to stock ownership. There are two ways to make money from owning stock – the cash flow from dividends and capital gains. If a stockholder sells their shares for more than the purchase price they make a profit called a capital gain.   The value of a company’s stock rises and falls based on the performance of the company and the outlook for the economy as a whole. If a company is successful, such that its business is expanding then people will want to buy its stock to get in on the growth potential. If the overall economy is expected to grow, this is expected to benefit many companies as well.   Companies tend to report on the performance of their business on a quarterly basis which can greatly impact the stock value. In between those quarterly reports the stock value is more influenced by the constant stream of reports about the state of the economy. Companies are limited by the government as to how much and how often they can issue stock. Once they issue a share of stock, that stock is bought and sold on a stock exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Actual physical stock is rarely exchanged anymore; brokerage accounts are electronically credited or debited for the purchase or sale of stock. Companies contract with a transfer agent to keep track of the constant changes in the ownership of their stock. Five minutes are almost up so let me just say that stock ownership is a good way to grow wealth but it must be done with a view to the long term. Stocks prices can fluctuate greatly in times of economic upheaval so it is not a place for putting saving for a near-term purchase. Over the long term though, stocks have always rebounded and rewarded the patient investor.
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173298780-mid-adult-woman-toying-with-gold-wedding-gettyimagesHaving friends scattered throughout the country has shown me just how drastic divorce proceedings and turnarounds can be. My friend in Baltimore, Maryland, who was married for 5 years with no kids, had no battles over property division, and her divorce still took just over 2.5 years to complete, including a mandatory year of separation before filing (this law has since changed recently for those without children). A friend in Milwaukee, Wisconsin, her divorce with one child and a business involved, took just 6 months to the date. And my good friends (haha), Miranda Lambert and Blake Shelton’s Oklahoma divorce after four years of marriage complete with pre-nup and no kids, took just days from when they filed. Here in Minnesota the length of time to complete a divorce depends upon several things, including custody, parenting time, child support, and division of debts and property. It can take anywhere from about 6 weeks to a year and a half or more, depending upon whether the parties are cooperating, and depending upon the issues involved. The length of a divorce also largely depends on how the case is resolved. For example, divorcing collaboratively, where both party’s attorneys agree to settle without going to trial and the underlying threat of litigation, can significantly reduce the time it take to complete the divorce for several reasons, the biggest factor being avoiding months awaiting a divorce trial. Divorce is the time to practice patience, and to always prepare yourself for the divorce process to take longer than anticipated. Even in our instant gratification society where you can have Amazon deliver within the hour, your divorce could take months to years. No matter how long your divorce proceedings may take it is important to remember that divorce never really ends with a “victory” by either party. Both parties typically leave the marriage with substantially less material wealth than they started with prior to the divorce. Occasionally, you may hear about a spouse receiving a very large settlement or substantial alimony compensation. But more commonly, both spouses must compromise in order to reach an agreement. If there are any real “winners” in the process, it’s those who maintain positive relationships with an ex-spouse so that they are able to successfully co-parent their children.