With the new year comes new beginnings, and while your divorce may have you feeling like everything is spinning out of your control, let’s start 2016 with you IN control. Take some time to journal about what you want 2016 to look like for YOU. Even those ideas that may not seem realistic right now, write those down too. Goal setting is often a combination of what is realistic and attainable, and what will take you out of your comfort zone and at times may even seem nearly impossible.
Look at various aspects of your life and reflect on what you want each chapter to look like – dating, co-parenting, your career, mind & body, hobbies (both new and old), faith, travel, finances, etc. If you are more of a visual person and less of a journal writer, jot down key words and make a Pinterest board for each of these categories. Add photos, articles, and inspiring words to each board to help you to stay on track and motivated throughout the year. Write YOUR story. Paint YOUR picture. This is YOUR life to live how YOU choose, let 2016 be the year you take control. Don’t let your divorce or other aspects of your past define you, let YOU define YOU.
The new year brings a time of reflection. Often times people look back on the year and choose to either focus at how blessed they were, or will happily say “good riddance” to the year they are putting behind them. If you are feeling the later in regards to 2015, rather than sulking, let’s embrace the new year with positivity, and vow to make it positively fabulous! A fitting quote by Chris Butler, “Mirror, mirror on the wall, I’ll always get up when I fall, and whether I walk, run, or crawl, I’ll set my goals and achieve them all.” Here’s to YOU in 2016!
As 2016 begins, many of us come up with resolutions for the coming year. Some people hope to exercise more, spend more time as a family or plan a vacation. For families who have divorced, the new year often symbolizes a new beginning. It is a time to establish a new norm.
As a collaborative attorney, I often help guide families through divorce in respectful and supportive ways. I often hear from clients that they have goals and resolutions for a new year. Here are three common resolutions for families of divorce and ways all families can incorporate these values in their lives:
- Establish financial independence and security. Entering a new year is a time when finances are now truly separate – with no tax connections. Be mindful of what you spend. Track your expenses and see how they match up against your projected budgets and income. Get a financial planner or, on your own, map out your financial goals for the year, including personal savings, retirement, and investment management.
- Embrace co-parenting. Children thrive with routine and care. They love to be listened to and enjoy one-on-one time with both parents. They also sense stress and tension. As you establish routines and the children spend time with both parents, remember to treat the other parent with compassion as well. Avoid fighting in front of the children and support the time that they spend in both homes. Also learn to enjoy your off-duty time. When you don’t have parenting duties can be a great time to focus on yourself and prepare for your next parenting day.
- Take care of yourself. As parents, workers, and functioning members in society, we often spend our tie focused on others. We take care of the children and our work obligations, but we often forget our own self-care. Use the new year to establish work-out routines or start exploring a new hobby. It is never too late to start improving yourself and the new year is a perfect time to make that effort.
It will really help your efforts to organize your financial affairs if you know how long you need to keep statements or documents. A survey by Consumer Reports showed that only 40% of respondents thought that they could find a document at a moment’s notice. Only a slightly larger percentage (49%) thought they could find it after looking for a while. An organized and efficient filing system that only holds the necessary documents will go a long way toward removing the stress of keeping track of your financial assets.
There are certain essential documents that you should hold onto for the rest of your life – birth certificate, death certificates, marriage license, divorce decree, adoption agreement, military service records and social security card all fall into this category. You should keep the originals for these important documents in a safe place. A safety deposit box tops the list for safety, but is not always the most practical option. Documents that you may use often, such as your social security card, would best be kept elsewhere (in your wallet though is the least desirable location). The best option if you don’t have a safety deposit box, is to purchase a water-proof, fire-proof lockbox or small safe.
Other documents that deserve storing in a safety deposit box or lockbox include your most recent estate documents (wills, power of attorney and trust documents), titles to property, savings bonds, and an inventory (with photos) of your significant household assets. Make sure that you make a list of the documents in your safety deposit box or lock box, along with instructions on how to get access to those documents. Give the list and instructions to those who are responsible for taking care of your affairs if something happens to you.
Keep your tax returns for 7 years. Keep any documents that are connected to your tax return for the same period, such as the bill of sale for property listed on the return. Also keep your year-end investment statements for as long as you own the investments, and then for 3 additional years after the investments have been sold.
Keep the year-end reports from banks and credit card companies for 5 years, and then for 3 additional years after closing the account. The only reason to keep monthly bill statements or credit card bills after paying them is to help you keep track of your budget. Most of this information can be found online if needed also. Shredding is the best way to dispose of statements and make sure that your personal information does not fall into the hands of identity thieves.
Properly securing essential documents in a safe place, creating files for property and tax related documents and shredding nonessential documents will go a long way towards clearing the clutter that is blocking you from gaining control over your financial situation. 
The child tax credit may save you money if you have a qualified child. Here are the top five things to know about this credit as it relates to divorce:
- Depending upon your tax filing status and your income you may be eligible for a child tax credit of up to $1000 for each qualifying child you are eligible to claim on your tax return.
- An “Additional Child Tax Credit” is for individuals getting less than the full amount of the child tax credit. This “Additional Child Tax Credit”, may give you a refund even if you do not owe any tax.
- Qualifications by the IRS the child must pass relating to divorce include:
- Child must have been under age 17 at the end of the tax filing year
- The child must be your son, daughter, stepchild, foster child, or your adopted child
- The child must not have provided more than half of their own support for the year
- The child must be a dependent that you claim on your federal tax return
- The child must be a U.S. citizen, a U.S. national or a U.S. resident alien
- In most cases the child must have lived with you for more than half of the tax filing year
- There are income limitations that may reduce or eliminate your ability to qualify for a Child Tax Credit
- See IRS publication 972 for more information on the Child Tax Credit
As part of organizing your financial affairs following a divorce, you should also make preparations for your financial affairs after your death. Planning your estate is an essential part of getting one’s financial matters in order at any point in life, but divorce opens up some interesting issues with estate planning.
Minnesota state law has dealt with divorce and the validity of estate documents made while married in an interesting manner. Minnesota statutes Section 524.2-804 states that if a divorced person’s most current will was completed while still married it will be applied as if the ex-spouse died immediately prior to the divorce. The ramifications are that a will remaining from a failed marriage will be applied as if both ex-spouses have died. The property then passes on to the contingent beneficiaries, such as children and siblings. Furthermore, the Minnesota statutes state that the dissolution of marriage also revokes any assignment of fiduciary or representative capacity on the ex-spouse, such as serving as executor, trustee, conservator or guardian.
Minnesota lawmakers appreciated the importance of estate planning. The approach these statutes take is to recognize the divorce, but keep the estate documents partially in-force. Nonetheless, while Minnesota law has stepped in to ensure that your ex-spouse does not inherit your property, it has left your estate plan with a lot of question marks. If your ex-spouse is not your executor who is?
That is why it is imperative to create a new set of estate documents soon after your divorce, which revokes the estate documents made while you were married. There is a good chance that there are other people besides your ex-spouse named in the estate documents from your marriage, that you would prefer to change. Do you really want your ex-spouse’s brother handling your financial affairs?
So many people delay estate planning because they don’t want to think about their death. The fact is, estate planning is more about your assets, your family and your friends. It is an opportunity to think about how you would like your assets distributed to reflect the new you and your wishes. There is also peace-of-mind that comes from knowing you have made arrangements so that your death doesn’t cause your family any more stress than it has to. In coming blogs, we will discuss the important aspects of estate planning in more depth, so that you can tackle the process with an appreciation of the gift this can be for your loved ones. 
As another tax season comes to a close, there are people all over the country digging through shoe boxes and file cabinets trying to meet their tax accountants’ request for cost basis information on an investment they sold last year. Hundreds of thousands of tax returns are moments away from being filed if only the taxpayer could find that elusive cost basis information. So what is cost basis, why is it so important, and why can’t anyone ever find it?
At its simplest, cost basis is the purchase price you paid for an investment or piece of property. More than that, it also includes the expenses that went directly into the purchase including commissions, trade fees, appraisal and legal expenses. Cost basis can also grow over time due to reinvested dividends on mutual funds or if you made significant improvements to your property.
When you sell an investment or property, cost basis is vital for figuring out if you made or lost money on the sale. The IRS wants to know your gain on the sale and expects you to pay taxes on it. If you lost money on an investment, it is important to report that as well. The loss will almost always be subtracted from your gains on other investment sales thereby lowering your tax bill.
The IRS puts the responsibility for keeping track of cost basis on the owner of the investment or property. Maintaining good records on investments in particular seems to be impossible for all but the most organized. With the blizzard of paperwork that the investment company sends aren’t they keeping track of this? Yes and no. Prior to 2011, the investment companies kept track of your cost basis but they were under no obligation to transfer that information if you transferred your assets to a new investment company.
Statements at your new investment company would only reflect the cost basis of investments purchased through them. As of 2011, all investment companies are required to transfer the cost basis information when transferring assets. Unfortunately, if an account has been moved a couple times prior to 2011, the cost basis of some assets is only known if the owner still has the records of the original purchase.
Anyone one with a brokerage account (not an IRA which gets taxed differently) or investment properties needs to keep good records of their purchases and related expenses. While investment companies are finally doing their part, it will be years before all the investments purchased before 2011 with missing cost basis information are sold and people can throw out those shoeboxes of old statements.
For anyone splitting up assets in a divorce, it is important to get the cost basis information during the divorce process. Make sure to get a statement of any investment account being split. Also make sure to get all the expense receipts for any investment properties that are being transferred. If you get this information during the divorce, you don’t have to go asking for it later only to find that the statements got thrown out during moving or mysteriously “disappeared”. 
For many, a significant portion of their post-divorce assets consist of a part of their former spouse’s company-sponsored retirement account. In order to split a company retirement account, the plan administrator of the pension, 401(k), 403(b) or other company retirement account requires a Qualified Domestic Relations Order (QDRO) or Domestic Relations Order (DRO).
A QDRO or DRO is typically drafted by an attorney and signed by a judge. It directs the retirement plan administrator to divide the retirement account between you and your former spouse, in the manner specified by your divorce decree. Once the QDRO has been approved by the plan administrator, they will transfer your portion of the retirement account into a new account in your name, within the same plan. You will also receive information on how to cash out the account and have a check sent to you (a taxable event) or rollover the account into an Individual Retirement Plan (IRA) or another retirement plan in your name (a non-taxable event).
A QDRO differs from a DRO in that it contains specific wording that is required under Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) to divide a retirement account such as a 401(k) and 403(b). It is advisable to contact the plan administrator to obtain their QDRO model language before your attorney drafts the QDRO. Most company retirement plans have a template containing the language required to be included in a QDRO. DROs are more generic and do not contain the specific wording of a QDRO. Certain retirement plans (referred to as non-qualified plans), that do not fall under the ERISA jurisdiction, can be divided with a DRO. Note that a non-company IRA (e.g. Traditional IRA, Roth IRA, SEP IRA) does not require a DRO or a QDRO to be divided, but will require a letter of instruction detailing how the account is to be divided, along with a certified copy of the divorce decree.
Typically, if you draw money out of a retirement account covered by ERISA early (prior to age 55 for a 401(k) or 59.5 for a 403(b)), you will be required to pay taxes AND a 10% penalty. However, in a divorce situation, if you were awarded money via a QDRO, you have the opportunity to take money out of a company retirement plan covered by ERISA, without the 10% penalty. Note that this withdrawal is considered taxable income and thus is subject to a mandatory 20% withholding for federal taxes and possibly state taxes too. It is very important to follow the process carefully when doing this; I highly suggest working closely with your financial planner or tax advisor.
Lastly, keep in mind that dividing a company retirement account takes time. The QDRO model language needs to be obtained from the retirement plan administrator, forwarded to an attorney to draft the QDRO, which is then submitted to the retirement plan administrator for approval and division. 
5 quick Divorce financial tips: These five are only a starting point.
- Plan your cash flow and spending carefully. Do not over exaggerate. You and your spouse only have so much income between the two of you. Unless you can increase income you both will need to decrease some areas of spending simply because you are going from one household to two on the same income. Something has to give.
- Have a financial specialist experienced in divorce matters suggest ways for you and your spouse to save on taxes by utilizing head of household filing status when possible and the best use of dependency exemptions when children are involved. A financial specialist can also recommend tax saving strategies for spousal maintenance and/or child support.
- If existing debt is a problem consider using an accredited consumer credit counseling agency to help you set up a debt management plan. This does not affect your credit rating since you will still be repaying all of the debt. The agency will work to negotiate a lower interest rate with each of your creditors. You will make one payment to the consumer credit counseling agency. The monthly payment you make to the agency is often much less than the combination of the payments you were making before. The agency makes payments to each of the creditors for you. There is the potential to save a bundle in lower interest rates and in some cases no interest giving you the ability to pay off your debt earlier than you ever thought. Two such agencies in the Minneapolis Saint Paul area are Family Means and Lutheran Social Services and no you do not have to be Lutheran to utilize their services. In worst-case scenarios, bankruptcy may be a consideration. Both of these agencies provide bankruptcy counseling and are able to refer you to bankruptcy specialists if and as needed.
- If existing debt is a problem do not make it worse by adding to that debt. Find other ways such as sacrificing today for a better tomorrow, increasing income, lowering expenses or some combination of all these.
- With retirement assets, it is common for a financial specialist trained in divorce matters to help one spouse or in some cases both spouses recommend strategies to come up with down payments for new housing purchases. This usually involves the use of a Qualified Domestic Relations Order (QDRO). A portion of an employer retirement plan is awarded to the lower income spouse, income taxes on the distribution are planned for, and if the distribution is incident to a divorce the spouse awarded a portion of the employer retirement plan will avoid the pre 59 ½ early distribution penalty.
The holiday season is when many people do a significant portion of their charitable giving for the year. Once you have decided which charitable organization to support and how much, you should also consider how to give that support. What I am getting at is that you can be charitable and tax-savvy by donating highly appreciated stock.
Donating a highly appreciated stock or mutual fund is a great strategy for getting rid of an investment that you have been holding because you do not want to pay the capital gains tax. The beauty of donating “in-kind” some or all of a security holding is that you get the full charitable deduction without paying the capital gains tax. “In-kind” means that the investment is not sold, but is transferred as-is to the charity instead. This way you do not have to pay the capital gains tax, because you did not sell the investment. The charity will likely sell the investment to meet their funding needs, but as a non-profit organization, they pay no tax on the sale.
The catch is that you have to have owned highly appreciated investment for more than one year. If you transfer an investment that you have owned for less than one year, you can only deduct your original cost in the investment and not the appreciation!
Of course this strategy is a bit more complicated than writing a check. You will need to obtain account information from the charity as to where to transfer the highly appreciated investment. You will then need to contact you investment broker and direct them to transfer the investment to the charity’s account. It is not difficult though; most charities are more than happy to help and it is something that investment brokers handle for their client on a regular basis.
The transfer has to occur by December 31st to qualify as a current year contribution. You cannot donate investments that have lost value and deduct their higher original cost. If your donation totals more than $250, the donation must be recorded – meaning that the charity must send you a written statement describing the donation and its value. You or your tax preparer will also need to fill out and include Form 8283 Noncash Charitable Contributions in your tax return, listing information about the charity and investment contributed.
Despite the extra work, donating highly appreciated stocks or mutual funds can be a win-win for you and the charity. This holiday season think about sharing some of your investment success with your favorite charity instead of with the IRS in April.
Looking for some Twin Cities fun on a budget? Going from a duel income to a single income is not only difficult, but can bring on many emotions, especially if it leaves you feeling inadequate with providing for your children. There are so many low and no cost options out there that you don’t have to feel your children are missing out if you are on a single parent budget. Here are some of our favorites:
- Como Zoo (free)
- Minneapolis Sculpture Garden (free)
- Walker Art Center (free admission Thursdays from 5-9pm)
- Minnesota History Center (free admission Tuesdays from 5-8pm)
- Fishing at many local community piers and parks (free)
- Minnehaha Falls (free)
- Three Rivers Parks District: Elm Creek Park Reserve, Lowery nature Center, Minnetonka Regional Park, etc. (free admission and many free activities and play equipment). Tip: make a list for a scavenger hunt before you go, kids LOVE scavenger hunts!
- Minnesota Children’s Museum (free admission the 3rd Sunday of each month)
- Outdoor concerts in the summer: Minneapolis Music in the Parks and St. Paul Music in the Parks, as well as many suburban concert series (free)
- Movies in the Park in Summer: many area options (free)
- Minnesota Landscape Arboretum (free admission every third Thursday of the month after 4:30 pm April through October)
- Farmer’s Markets: many area options, check your city and surrounding areas for dates and times. Tip: If you go close to the end of the day many vendors may have reduced their prices or are willing to negotiate on fresh produce. (free admission)
- Bike or walk the area trails. We are very blessed with many quality area trails like the Luce Line, Dakota Rail Regional Trail, etc. Tip: Another great place for a scavenger hunt!
- Local beaches in the summer – We are in the land of 10,000 lakes, there are so many options for free swimming and sand castle fun!
- Local art fairs, craft fairs, car shows, etc. Admission is typically free and it is so fun to walk around and look at everything.