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112295220This article sprouted from a series of brainstorming meetings that I recently had with fellow Collaborative Attorney Bruce Peck. We decided to meet for coffee from time to time to discuss and share ideas for writing about any alternative topic that may come to mind that would be different from the usual topic of divorce. One reason people seek a divorce (in Minnesota, what we call Dissolution of Marriage) is because they start to think that they cannot trust their spouse financially. So they feel that unless they divorce their spouse, they will face a mountain of debt because of the careless way their spouse handles money. If you are feeling that way, you may be experiencing something like the following circumstances.  Do you view your spouse as untrustworthy with money? Is your spouse spending too much money?  Does your spouse gamble too much? Do you worry that your spouse will take on significant debt without your knowledge or consent? Does your spouse make terrible financial decisions? These financial concerns often lead to divorce because one spouse feels that the financial issues in their marriage are out of control and they cannot go on that way and have no other choice. One spouse feels that they can’t take on the financial risks involved in staying married and that divorce is the only option to save themselves from financial ruin. In these circumstances, divorce is not the only potential option you should consider. One alternative to divorce is a “legal separation”. In Minnesota, a legal separation may be granted by a court when the court determines that “one or both parties need a legal separation.” Arguably, avoiding financial ruin is a good reason to need a legal separation. This is because a “legal separation is a court determination of the rights and responsibilities of a husband and wife arising out of the marital relationship.” Further, a “decree of legal separation does not terminate the marital status of the parties.” In other words, a legal separation is everything a divorce is, without calling it a divorce and without actually divorcing the couple. People who have a legal separation in Minnesota are actually still married to each other. So, if you want to stay married, but determine all the rights and responsibilities of you and your spouse in a court order, just like in a divorce but without divorcing, then you might be interested in a legal separation instead of a divorce. In my experience, legal separations in Minnesota are quite rare. Usually, if a couple wants to separate their financial lives by determining their rights and responsibilities, they also want to be free to marry someone else if they decide to do that in the future. That rules out legal separation because if you are still married, you can’t get married to someone else. Even if a spouse has no intention of ever marrying again, they typically do not want to be married to their current spouse. With a legal separation, a person is still married and so they cannot marry someone else. I suspect that the only reason that there is such a thing as legal separation in Minnesota is that there have historically been people whose religious beliefs prevented them from even considering divorce. While many people still have an aversion to divorcing, I haven’t run across many people recently who still hold divorce as completely inconsistent with their religious views. The only two reasons that I can think of to get a legal separation are 1) you want to get a divorce, but your religious beliefs don’t allow you to divorce, or 2) you want to stay married as long as you can separate your financed from your spouse so that financial issues don’t come in between you and your spouse. There are some possible negative consequences and limitations of a legal separation. One is that your health insurance eligibility may be affected. Another may be the issue of how your change in marital status may affect your taxes. Another is that any joint accounts you have with your spouse are likely still at risk. There are additional issues to consider related to bankruptcy and debt collection. This is not meant to be an exhaustive treatment of all the positive and negative aspects of legal separation, but this gives you a sense for the potential issues to consider in making your decision. In order to choose legal separation over divorce, you should consult with a bankruptcy attorney, a family law attorney and a tax accountant and think through your options thoroughly before making a decision. The Collaborative process is ideal for helping couples talk through and make these decisions with the help of legal (and other professional) advice readily available to both spouses. An alternative to legal separation, without going through with a divorce, is to complete a postnuptial agreement.  This is like a prenuptial agreement (which is commonly referred to as a “prenup”), but a postnuptial agreement is signed after the couple is married (rather than before marriage). It is an agreement about the financial rights and responsibilities of the couple if they ever separate. This is a whole separate topic and is too large for this article. I’ll write more on the topic of postnuptial agreements in another blog post soon!
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During and after a divorce, tax matters take on new importance since your financial circumstances have probably changed, as has your filing status. If you were in charge of tax returns during your marriage — and especially if you were not — keep these tips in mind to support the best possible outcome when filing your annual returns. Some legal fees are deductible. While most court costs and legal fees for obtaining a divorce are not deductible, some are, including:
  • Fees paid for tax advice related to a divorce
  • Fees paid to determine or collect spousal maintenance
  • Fees paid to determine estate tax consequences of a property settlement
  • Fees paid to professionals if the services were completed to verify the accurate amount of tax or to assist in obtaining spousal maintenance (appraiser, actuary, etc.)
These deductible costs are usually claimed as a miscellaneous itemized deduction on Schedule A of your income tax forms, but are subject to the 2 percent of adjusted gross income floor.  Talk to your tax advisor to see if you qualify. You may be held liable for past unfiled joint tax returns or audited returns. Even if you were not involved in the preparation of your taxes during your marriage, you may still be held liable for unfiled returns or inaccurate returns. You can request copies of past federal and Minnesota state tax returns from your tax advisor or from the IRS and Minnesota Department of Revenue (Federal Form 4506-T and Minnesota Form M100). Plan ahead for filing of future tax returns. Your marital status on December 31 of a calendar year determines your filing status for that year. If you were married most of the year, but your divorce is finalized on December 31, you cannot file as married joint, but would instead file as either head of household or single. If you are in the process of getting divorced, consider working with your spouse, your attorney and a tax professional to determine which filing status would best suit your financial situation. Also, keep in mind during the divorce process that it helps to spell out the following in the divorce decree:
  • Who will itemize mortgage interest, real estate tax, charitable contributions and other itemized deductions?
  • Who will claim any dependent children’s exemption and tax credit?
  • Who will take any long-term capital loss carryover?
  • Who will claim any quarterly estimated tax payments made during the year?
  • Who will report investment income from joint accounts?
 If this is not clearly spelled out in your divorce decree, consult with your tax professional or attorney for guidance. Review your tax situation to determine withholding, estimated tax payments, cost basis of assets and taxable retirement benefit distributions. Your W-4 withholding may need adjustment after your divorce to ensure that enough tax is deducted from your wages — or less tax, depending on your situation. You should also determine if you need to make additional estimated quarterly tax payments to cover spousal maintenance or personal investment income (which does not have taxes withheld like wages). You’ll need to know the cost basis of your personal investments, real estate and any life insurance with a cash value. If you sell these assets in the future, the cost basis will determine if you have taxable income from the sale. Finally, if you take a distribution from a retirement account during the divorce process, you may have to pay taxes on that income. Plan ahead for your taxes during the divorce process and prior to filing that first post-divorce return. You’ll reduce the time, cost and potential frustration of this necessary part of your new life.
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10162055 For Minnesota families, summer feels different than other times of the year in more ways than just the warmer weather.   Because most kids don’t attend school year round, the summer months can present unique scheduling challenges.  This is  especially true for families headed by two wage earners, and even more so when parents have gotten unmarried.  For a school-age child, the summer routine often includes a mix of camps, classes and lessons, latchkey programs, vacations and sporting activities, with many logistical issues to be resolved.  This is “times 3” if there are three kids in the family!  The start and end times of kids’ activities vary week to week, and tend to not conveniently coincide with the work hours of the parent on duty. That’s a lot of moving parts for families in which parents are getting unmarried.   Managing complicated logistics is especially stressful if kids move from Mom Island to Dad Island without a safe and reliable bridge between the two. This is one reason why Collaborative Team Practice is designed to help parents establish the best possible co-parenting relationship after a divorce or break up.  This always makes it easier on kids, but it can also be a huge benefit for time-challenged parents, and for the support network of extended family, baby sitters and carpool parents who can be resources for kids without having to be in the middle. Here’s the rub: establishing an effective co-parenting relationship isn’t easy.  An effective co-parenting relationship relies on clear communication, cooperation, reasonable flexibility and courtesy, and these elements can be in short supply during the painful end of a marriage or partnership.  The Collaborative guidance and support of a neutral child specialist to create a Parenting Plan and a neutral coach to create a Relationship Plan are important resources toward the goal of effective co-parenting.  We know this hard work can be invaluable for your family in the future.  You and your kids deserve to enjoy all the summers to come.
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Minneapolis, MN
Minneapolis, MN
I just read a Forbes magazine article about the four methods of divorce: Do it yourself Divorce; Mediation; Collaborative Divorce and Litigated Divorce and it reminded of how lucky we are to live in Minnesota. Collaborative Divorce started in Minnesota in 1990 and is now recognized throughout the world as one of the four options. Collaborative Divorce is now being practiced in 24 different countries, on four continents and may be the world’s fastest growing alternative. Last week, I spoke to two divorce attorneys from Capetown, South Africa who will be coming to Minnesota for the entire month of May to study this new, groundbreaking method. Collaborative divorce is growing so rapidly for a reason; it works.  During my 30 years of practicing family law, I have handled thousands of divorces using every method available.  Today, I spend most of my time doing Collaborative cases because it gives my clients better results for less money; particularly when there are children involved. While I applaud the Forbes article for helping raise awareness about Collaborative Divorce, I do need to suggest one correction. The author suggests that Collaborative may not work as well when there are complicated financial situations or significant assets.  In fact, that is actually where Collaborative Divorce works best. I have handled many multi-million dollar Collaborative cases and those clients have generally obtained the best outcomes. Because Collaborative Divorce has a rule of full transparency and invites creative structuring of settlement, people with large amount of assets generally get even better outcomes. The rules of disclosure in a Collaborative case are more thorough than in other types of cases. The author of the article is correct in saying that Collaborative Divorce is not right for every case and that each person facing divorce should investigate each option before they choose. I completely agree with that advice and I would add one other critical element. In weighing each option, make sure that you speak with professionals who have substantial experience in each area. Getting information about Collaborative Divorce, or any divorce, from someone without training and experience in this area, can be reckless. To find an experience Collaborative attorney in your community who will fully explain Collaborative Divorce to you; go to www.collaborativelaw.org.
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LuMaxArt GREYGUY014In a recent collaborative divorce case, we learned from the clients that a tax liability of about $60,000 would be owed if they did not get their divorce by the end of the year. It was only a few days before Christmas and past the informal deadline set by the court for submitting final documents for a 2013 divorce. Adding to the challenge, my client had just changed her mind about a key provision in the financial settlement. I had already prepared and circulated a draft of the agreement which had been reviewed by our clients and an expert who had helped them with planning and financial issues concerning their special needs child. Now it all seemed to be unraveling and I fought against the urge to find someone to blame and prove it wasn’t me (I bet these thoughts crossed the minds of the clients and others on the team). Instead, we got to work on the problems as a team. The attorneys met with the expert concerning the special needs child and reviewed her suggested changes, made phone calls to our clients for approval, and drafted the new changes into the agreement. The child specialist who had worked with the clients during the collaborative process reviewed the suggested changes and made adjustments in the parenting plan which would be part of the final legal document. We also had some preliminary conversations with our clients about the proposed change my client wanted in the financial settlement and shared our clients’ views. The proposed change concerned the timing of the sale of real estate and the neutral financial expert who had worked with us during the collaborative process had been contacted about this issue. We checked calendars with the clients and the financial neutral and scheduled a meeting–unfortunately, the husband’s attorney was not available at the only time which worked for the rest of the team and the clients. We agreed to meet and the attorney for the husband would be available during the meeting by phone and email. We also needed to get a judge assigned to our case. The Joint Petition, which had been prepared in the beginning of the collaborative process, was filed with the court, which got us an assigned judge. The attorneys discussed strategy and we agreed that the husband’s attorney would take the lead in the calls requesting an expedited court process. There were a number of complications, including the fact that the judge was leaving on vacation that day. I listened in on the calls and was happy to hear that the judge’s clerk, after consulting with the judge, agreed to email the agreement to the judge once it was filed and the judge agreed to review it while on vacation. We still needed a final agreement on the financial settlement. At the meeting the next day, the financial neutral took the lead and discussed the consequences of the proposed change, which would also affect the funding for education for their children. Options were considered and discussed. I was present at the meeting but had agreed on a ground rule with the other attorney that I would refer to her all questions of substance from her client. As we developed the terms of the final agreement, the substance was shared with that attorney in phone calls and emails. I prepared the final draft of the agreement with the new terms, the clients and attorneys (one by email) signed, and it was filed with the court that day after an all morning meeting. The judge signed the final document and the clients were divorced in 2013. The key reasons for our success in working through the challenges: 1) The clients and professionals focused on solving the problems rather than assigning blame for the problems. 2) Clients and professionals relied on the strengths and expertise of different members of the team. 3) Trust among professionals allowed for flexibility and candor in the process. 4) Clients kept uppermost in mind the big picture goals for the family as a whole.
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A divorce is not only an emotional event, it is a financial event. As the year ends, people often focus on tax implications of divorce. Being planful and mindful of taxes may benefit both spouses moving forward. Having a good collaborative team can help you work through tax issues and make the best financial decisions possible. Here are some things to think about regarding taxes and divorce: If you are still married on December 31, you can file your taxes jointly as married–even if you are divorced by the time your taxes are due. You may want to work together to determine the best overall tax scenario and work together to save the family the most money possible in a given tax year.
  • You may want to include language about the tax consequences for your last year of marriage in the decree. Clarifying that any liability or refund for that year is shared, could save you effort later in the year when one or both of you have a claim to the other’s refund/liability.
  • The IRS does not care about the specifics of your property division. Unless it is explicitly in the decree, the IRS will not consider whether one of you received more property in exchange for less tax liability. The IRS operates on its own and you should obtain attorney advice on tax liability before finalizing the divorce.
  • You may want to look at the tax implications of filing as Head of Household v. Single post-divorce. Who will claim the dependent exemptions? Do the exemptions need to accompany other benefits claimed such as healthcare reimbursement or child care benefits? Taking the time to think through these issues before finalizing the divorce could save you time and money later.
Because the ramifications of financial decisions can linger long after a divorce is finalized, it is important that you work with an attorney who is experienced in divorce and financial issues so that there is less likelihood that you will have later financial questions. The collaborative process allows for open and thorough examination of tax issues and financial impacts down the line.
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Raggedy Andy for Halloween
Tonda as “Raggedy Andy” for Halloween
Halloween is my favorite holiday. I always dress in costume even if I am not going to a Halloween party. In the past, I have dressed as Ms. Piggy, Jacqueline Onassis Kennedy, the Medusa, a Cone Head, the Pinball Wizard, and stuck my head inside a carved pumpkin, just to name a few. It’s the time of year for tricks or treats. While treats are the standard fare, I sometimes think it would be fun to give out tricks instead. Tricks are not appropriate, however, in your divorce process. But many people feel they have been tricked when they find out later they agreed to an ill-conceived settlement. Even if technically there had been no trickery in the settlement process, what was probably missing from it was the transparency and education needed to make informed decisions. By using the collaborative divorce process, you and your spouse are assured of complete transparency of all facts relevant to making an informed decision about your settlement. Furthermore, you both receive the added value of consulting with the appropriate expert to thoroughly understand what the facts mean, be they financial facts, child development facts, legal facts, or communication and relational facts. Making informed decisions is critical to achieving a successful and durable settlement customized to the future needs of your family. No tricks. And yes, treats are still possible despite a divorce.
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A recent article in the New York Times suggests that big-money divorces provide lessons for less-wealthy couples. Regardless of a couple’s income or net worth, several questions are common to most marriage dissolutions, including:
  • How can we create a parenting plan that will benefit our children?
  • How can we divide our assets fairly?
  • How can we maintain control of divorce costs?
The Collaborative divorce process uses a team model to provide the information and support necessary to allow couples to reach mutually satisfactory answers to these questions. As the New York Times article points out, Collaborative divorce “focuses on getting to a quick, fair resolution.” A thoughtful parenting plan consists of more than a schedule of overnights. A Collaborative child specialist can help parents craft a plan that addresses the individual and developmental needs of their children. Discussions often include such issues as the schools the children will attend, future relationships with extended family, introduction of significant others, and future moves by either parent. Sometimes parents can reach agreements regarding possible future events, but often it is sufficient to agree on a process for resolving future differences of opinion. Either way, including such agreements in the parenting plan can provide a framework for the years ahead. Similarly, achieving a fair division of assets can be challenging. A Collaborative financial professional can assist with collection of documentation, valuation of assets, and tax considerations. Once both parties understand the relevant information, they generate and evaluate various settlement options to determine the best arrangement for their family. While keeping the costs of divorce as reasonable as possible is a worthy goal, conflict is expensive. In litigation, each spouse hires their own experts, often resulting in extreme positions, elevated emotions, and a sluggish process. Collaboratively trained neutral professionals, whose fees are shared by the parties, provide more expertise at a lower cost. Their neutrality also reduces the likelihood of impasse due to either spouse’s unrealistic expectations. If you are interested in learning more about the Collaborative process, please visit the Collaborative Law Institute of Minnesota website for more information.
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3 Myths

Having consulted with hundreds of clients over the years, I have learned that there are many popular misconceptions about divorce. Acting on misinformation can result in long-term, unintended consequences for your family. I’ll address three such myths here:

Myth #1: “Serving papers on my spouse will give me a strategic advantage.” Contrary to popular belief, the serving of divorce papers has a very limited effect upon the legal proceeding itself. Doing so can, however, have a profound impact upon the tone of the negotiations to follow. In the Collaborative divorce process, we always use a joint petition, which is signed by both parties and their attorneys at the first joint meeting. Starting the process in this way reflects the parties’ mutual respect for one another and allows them to maintain control over the pace and content of settlement discussions. Myth #2: “Our kids have no idea we’re going to divorce.” As adults we often underestimate the wisdom of children. Even very young children pick up on body language, facial expressions, and tone of voice. They notice how mom and dad talk (or don’t talk) to each other. They have friends at school whose parents are divorced. Working with a child specialist to create a “we statement” is a thoughtful way to jointly inform your kids that you have decided to become unmarried. But don’t be surprised if they already have suspicions. Myth #3: “The sooner the divorce can be final, the better.” While no one wants to linger in the throes of divorce longer than necessary, moving too quickly can be dangerous. It may take some time for one spouse to “catch up” emotionally in order to meaningfully participate in settlement discussions. Creating a parenting plan focused on the children’s needs often requires some trial and error. It’s impossible to know whether a particular schedule will work until you’ve lived it, at least for a while. Financial decisions made in divorce have long-term consequences for the entire family and should not be finalized until thoughtful evaluation of all options has taken place. The best way to get accurate information about divorce process options is to consult with an experienced family law attorney. Feel free to contact me if you’d like to know more.