77380996-man-and-woman-building-a-stack-of-bills-gettyimagesYour divorce, regardless of process will not be free. While a free divorce is impossible you can self manage many of the costs of your divorce. In my work as a financial neutral working with couples and individuals going through divorce there are five key tips I have observed that can help clients reduce the financial and emotional costs of divorce. Do everything possible to minimize conflict with your spouse Divorce is not without conflict. Conflict is expensive. The greater the conflict between you and your spouse the more your divorce will cost in terms of money and in terms of emotional wear and tear. If you and your spouse can openly and respectfully discuss what you can agree to and seek help to work through the issues where you have differing opinions the financial and emotional costs can be reduced. You will save money and time when you put your heads together to resolve your differences instead of butting them against each other. Get organized and be prepared If possible, work together with your spouse to gather all financial records necessary for any divorce process. This includes but is not limited to statement copies for everything you own and everything you owe to someone, tax returns including W-2’s, paycheck stubs, bank accounts, credit card accounts, retirement accounts, other investment accounts, insurance information, mortgage and other loans, and information concerning employer provided benefits. Consider putting together a 3-ring binder or electronic file folders containing each of these items. Your divorce decree requires the itemization of every asset and liability. It is foolish, costly, and to your detriment to not be fully open and transparent with your spouse. Being organized, open and completely transparent will help reduce costs. Establish and communicate expectations Communicate clearly with the professionals you are working with while at the same time listening carefully to the professionals you do engage. Consider this a two-way dialogue and recognize that you probably do not know what you do not know. Your divorce professionals have the expertise and wisdom to guide you through this difficult time. The wise professionals want to do this in a timely and cost effective manner. Beware of the so-called professionals who promise to get you the best deal. Best deals come at a price both financially and emotionally. Identify your needs and interests, and those of your spouse Whenever possible discuss these with your spouse in an open and respectful manner recognizing each of you will have unique needs and interests. You and your spouse will also have shared needs and interests. Needs and interests are not positions. Needs and interests are the underlying reasons and factors why something may be so important to you or your spouse. A position is more like a demand or a must have without stating any particular reasons. If your spouse seems locked into a position, ask them why this particular issue is so important to them and listen carefully for the underlying reasons. If you can find a way to satisfy those reasons, you are on the road to resolution. Collaborate, compromise, and cooperate Ask yourself, if you make every decision a battlefield how do you think your spouse will respond. Drawing lines in the sand will only isolate you and make it harder to reach agreements not to mention cost a lot more money and take more time. Remember you got married together and you and your spouse will get divorced together one way or the other. You and your spouse get to choose how. Every divorce and family is unique and comes with its own set of circumstances. The complexity of the relational, financial, and legal issues of your divorce along with the ability of you and your spouse to follow these five tips will ultimately determine how long your divorce will take and how much it will cost. Choose your process and your professionals wisely. Check out this link to learn more and find out if a collaborative divorce is right for you. For more information and resources check out my website under the about us section at www.integrashieldfinancial.com.   There you will find a video featuring actual collaborative divorce process clients, a divorce knowledge kit, resources for those with children, and a link labeled Collaborative Divorce with Dignity and Respect.
clockGetting unmarried and taxes can become a consideration in terms of whether to have a divorce final by year-end or final after January 1. I have worked on a number of divorce cases where this very topic deserved a thorough analysis to determine which tax filing year to have the divorce final. Here are a couple of important points to remember. If you are married for the entire year, the choices you have for tax filing are joint or married filing separately. If the courts deem the divorce final no later than December 31, you are considered divorced for the entire year and are not able to file jointly or married filing separately. An entry of divorce on December 31 requires filing as single or if qualified as head of household for the year ended December 31. How do you determine which year is best? Usually this requires completion of the various tax return scenarios by a qualified tax advisor normally a CPA or Enrolled Agent. They will run the numbers for a joint return as if the couple was married the entire year. Next, they will run the numbers as if they were divorced for the year with either a single or Head of Household filing status if qualified. Whatever method results in the lowest combined tax for the couple preserves more of the family assets and resources. Sometimes this can amount to thousands of dollars. I recently concluded a collaborative divorce case as a financial neutral for a couple where this very issue came up. My initial analysis revealed the couple could in-fact save thousands of dollars by having the divorce final by year-end vs. filing a joint return for 2014 and the divorce final in 2015. A thorough and complete analysis by a CPA confirmed the couple would save approximately $20,000 in income taxes by having the divorce final no later than December 31. Needless to say, this couple would much rather have the $20,000 in their pockets vs. having to forfeit that amount to the I.R.S. Although divorce documents are e-filed with the courts, there is no guarantee the divorce will be final by December 31. Once the documents are received by the courts, the file is assigned to a judicial officer for review. Files submitted in late November and December are not automatically reviewed and approved by year-end. Attorneys working on the case will often make requests to have the review and entry of divorce completed by December 31. I hope that in this most recent case it will be. It is always worth a try especially when you have $20,000 on the table. Do not overlook the tax strategies and any potential savings when divorcing near year-end. It could potentially save you and your family a bundle.
184951937There are few things that distinguish a new phase in life more than changing one’s name. However, one has to do a thorough job of informing the “world” of this change – such as identity providers, business relationships, friends and family. Identity providers – they make it official. An obvious place to start, they include the following:
  • Driver’s license: go to your local Department of Motor Vehicles office, fill out the appropriate form and submit it with the required documents
  • Passport: go to travel.state.gov, fill out Form DS-5504 if your passport is less than one year old or DS-82 if older than one year, and submit it with the required documents
  • Social Security Card: go to socialsecurity.gov, fill out form SS-5 and submit it with the required documents
  • Voters Registration: re-register at www.sos.state.mn.us
  • Veteran’s Affairs: call the DMDC Support Office at 800-538-9552 to update your DEERS information
Certified Divorce Decree Essential to changing your name on the identity documents listed above, is providing a “certified” divorce decree or other legal name change document.  To obtain a certified divorce decree, request one by letter or in person, from the records center at the court where your divorce was filed.  You will need:
  • Names listed in the decree
  • File number
  • Courthouse location
  • County of the court
  • Fee per Copy (typically about $16)
If your divorce was filed in Minnesota, you can find information on where to request a certified divorce decree at www.mncourts.gov. It is recommended that you order several.  Most identity providers will require a certified copy, and often don’t return them. Keep in mind that removing the staple voids your certified copy! Business Relationships Business relationships are also essential. Think about every business, medical or financial professional and financial institution with whom you interact and start making a list. Then, add on utilities, shopping websites, magazines and other publications, as well as charitable organizations.  The sooner you start, the more likely your lights will stay on, your checks will be honored and your will get the packages you ordered. IRS The IRS verifies the names and social security numbers on every tax return with the Social Security database. If you file your tax return before changing your name with the Social Security Administration, use your former name. Any mismatch will result in your return either being rejected immediately or the IRS sending a letter requesting clarification, which will delay any refund you may be due until you reply. Friends and Family Your friends and family are the easiest to inform in the internet age; just send out a mass email. Remember to change your social media profiles too.  Better yet find a way to celebrate this change! Make an event of it and all your friends and acquaintances are more likely to remember that you have moved on to a new phase in your life.
155350102This time of year, it is often important to consider the tax implications of filing for divorce. In both federal and state taxes in Minnesota, you cannot file jointly if you are divorced before the end of the year. If your divorce is finalized in 2014 (signed off by the Judge, not just filed), you are deemed divorced and can only file separate, individual returns. If you hold off and divorce in the beginning of 2015, you can still file jointly for 2014. Everyone’s financial situation is different. Whether or not it is financially beneficial to file jointly or separately in any given year varies with each couple. However, some things to consider regarding taxes include:
  • Spousal maintenance payments (deductible to the payer and income to the recipient)
  • Distribution of any investments or retirement distributions are often taxable
  • Property taxes and interest on mortgages may be shared or their benefit maximized with one or the other claiming the deductions
  • If filing separately, status of Head of Household or Single may impact the tax burden
  • How to utilize dependency exemptions
You should consult with your tax planner on the financial implications of divorce date. If you decide it is better to wait to divorce until 2015, you can still sign and finalize your decree this year – you should just hold off on filing it. The agreements are binding but you may be able to maximize your tax benefit. A good collaborative divorce attorney and financial neutral can assist in reviewing these implications as well.
1. Forcing Your Kids to Take Sides The last thing a parent wants to do during a divorce is to cause more pain for the children. Divorce is a painful time during which many negative emotions can arise, including anger, fear, regret and grief. Often there is a perceived need to blame the other party for one’s unhappiness, together with a desire to hold your children close. However, keep in mind that putting your kids in the middle is harmful to them. Resist the urge to blame and criticize your spouse in your kids’ presence. Don’t force your kids to take sides or to report on the other parent’s activities. No matter how difficult it may seem, the best thing you can do for your kids during a divorce is to remind them that both of their parents love them and will always be there for them. 2. Engaging in an Adversarial Divorce Divorce is a major life event. It is the legal recognition that your marriage is over. Unless your situation is unusually simple (short marriage with no children and few assets and liabilities), each party should have an attorney to provide advice and to make sure that the required documentation is accurate and complete. For most couples, the divorce process can be completed without setting foot in a courthouse. Using skilled neutrals in the Collaborative Process or mediation helps to avoid the polarization that often takes place in more adversarial processes. Better post-divorce communication, lower divorce costs and less resentment are other benefits of no-court divorce processes. 3. Having Unrealistic Financial Expectations Divorce means creating two households in place of one. Most couples are struggling to make ends meet before separation. Creating a plan to support both households can be challenging. Unless income can be increased, down-sizing and belt-tightening are often required. There must also be a plan to pay divorce costs. Understanding these challenges going into divorce can provide both parties with a reality check and allow the divorce process to go more quickly and smoothly. 4. Forgetting to Consider Tax Implications Many of the financial decisions made in divorce have tax consequences, some more obvious than others. When dividing marital assets, it is important to recognize that some assets may actually be worth less than face value due to future income tax liabilities. Most retirement accounts, for example, have been funded with pre-tax earnings, meaning that withdrawals will be taxed and, depending upon the timing, may have early-withdrawal penalties as well. Stock portfolios will likely be subject to capital gains taxes upon liquidation. On the cash flow side, dependency exemptions and characterization of support payments (child support or spousal maintenance) impact the amount of after-tax cash each party has available to meet living expenses. It is essential to get competent advice during the divorce process in order to avoid unexpected surprises down the road.
467982755Potential divorce clients often ask, how much does a collaborative divorce cost? Great question, it differs with each case and is dependent on clients and their level of conflict regardless of process. The more conflict a couple brings to any divorce process the more expensive it will be. Bottom line, conflict is expensive. Butting heads together to argue positions vs. putting heads together to solve problems will always increase costs.  In a collaborative divorce, we focus on putting heads together which should decrease costs. As a financial neutral in the collaborative process, I have given this cost question serious thought.  I wrestle with how you define cost.  Do we measure cost only in terms of dollars and cents or is there something beyond the almighty dollar?  I think the latter. I remember a couple who owned a business that I worked with in a collaborative divorce.  By simply suggesting an alternative to using retirement fund money (client plan) to pay off a rather large debt, I was able to save them about $9,000 in income taxes.  I seriously doubt anyone other than a well-trained financial professional would have noticed this. What about the cost savings of better-adjusted children of divorce because of their parents taking a higher road with less tension and conflict allowing both parents to effectively co-parent to create and environment where children are not placed in the middle of parental conflict?  What about the cost of the stress and delays that typically occur with a traditional court based divorce?  How do you place a number on the cost of destroyed relationships with spouses, children, extended family members such as in-laws and friends?  How can one put a dollar value on these? Theoretically, a collaborative divorce should cost less.  Attorney involvement in a collaborative divorce is typically less than in a traditional court based model.  This occurs since other professionals, usually at lower hourly rates, provide many services historically provided by attorneys. Some attorneys choose not to become collaborative divorce practitioners because of this.  Some traditional court based attorneys will say they do not believe that it is in the best interest of their client to have to withdraw from representing their client if the case does not settle in the collaborative process.  The withdrawal provision if a case should go to court, is a key feature of collaborative divorce because it places everyone’s focus and interests, attorneys and clients, on finding solutions that take into account the highest priorities of both spouses and their children instead of arguing positions ad infinitum.  This committed agreement for attorneys and clients to settle is, in my opinion, a good thing for divorcing spouses.  It helps provide the framework for a less costly divorce and as I said earlier, I am not talking only about money. One of my goals working with couples or individuals is to reduce their divorce costs whenever and wherever we can so the family can keep more of its hard-earned money.  One very simple illustration of how a financial neutral helps lower costs is in gathering financial information necessary for any divorce.  It works like this.  The financial neutral gathers All the financial documents from the clients that attorneys will ultimately need such as ALL assets and liability account statements including bank and credit card statements, non-retirement investments and savings, pension and retirement accounts, real estate documents, business documents if any, tax returns, pay check stubs etc. The financial neutral then, organizes and presents all of this information to both attorneys.  Contrast this with each client having to provide all of this information to each of their attorneys.  Attorneys usually have the highest hourly rates.  Rather than paying two attorneys the couple pays, one financial professional, to perform this function.  This one-step in the process can easily save a couple up to two thousand dollars. When minor children are involved, a neutral child specialist will meet with the parents to help them create parenting plans that are in the best interest of the child.  The child specialist usually conducts these meetings without an attorney present. A neutral coach, when engaged by a couple, meets with the clients without attorneys to facilitate communication plans throughout the divorce process and looking ahead in the couple’s relationship post divorce. The child specialist and neutral coaches typically have the lowest hourly rates in the process of all professionals.  Sometimes clients choose not to hire a neutral coach.  In my experience, having a coach on board can help decrease tension and improve communication between spouses during the process.  Less tension and conflict should lead to lower cost and more importantly stronger relationships post divorce. Well, I really have not given you a definitive answer on how much a collaborative divorce costs, because I cannot.  Every couple and family is unique.  Couples themselves determine, often unconsciously, how much their divorce will cost.  Cost is directly a function of the level of conflict they bring into and maintain throughout the process. Ultimately, I think it boils down to what the couple wants.  If they want a largely attorney driven process and someone else to make decisions for them about their children and their future then perhaps the more traditional court based process is for them.  If on the other hand the couple wants to have less attorney involvement, make decisions for themselves and their children instead of someone else deciding then a collaborative divorce may be a better choice. If I could leave you with anything from this post, it would be to remember theoretically a collaborative divorce should cost less and that cost is more than just money.  You control your journey and your destination.  Choose wisely.
175440139In Part I of Getting Unmarried, Money and Divorce, I talked about the two financial pillars of any divorce. The first being the balance sheet that lists every single asset and liability. The second being forward looking cash flow and support needs for children, if any, and both spouses. In this post, I will briefly cover some other financial issues common in many divorces.  These include some discussion of marital and non-marital property, analyzing tax implications of various scenarios for child support and/or spousal maintenance; analyzing property and business interests, debt pay off scenarios, and comparing pros and cons of using one asset over another. A financial neutral assists with identifying what is marital and what is non-marital property. Marital property of course is that property acquired during the marriage.  Generally, non-marital property is property owned prior to the marriage and brought into the marriage, inherited property, and or property received as a gift. Sometimes this can include a home where the down payment made with non-marital money, a retirement plan when the participant contributed to the plan prior to and during the marriage, or more simply a family heirloom passed down through the generations. Non- marital property generally remains with the receiver of the property and not considered in the allocation of marital property. When there is both marital and non-marital interest in an asset, a financial neutral can help determine the values of both the marital and non-marital interests. The tax implications for child support and spousal maintenance are different. Child support is not taxable income to the payee and is not deductible by the payer. Spousal maintenance on the other hand is taxable income to the payee and is deductible by the payer in most situations. A qualified financial neutral is able to help a couple determine an optimal combination of child support and spousal maintenance in order to provide the greatest amount of after tax income to the family. When a couple or one of the spouses owns a business, it is often helpful to determine the business value. If needed a specially trained neutral business valuation expert is engaged to provide this service. These trained experts employ a variety of valuation methodologies to provide an opinion as to the value of a particular business. Depending upon the complexities of the business the time and cost to complete a business valuation can vary. Debts are another financial area where clients can benefit from the insight of a qualified financial neutral. Facilitating how to allocate debt between two spouses is an important function of the financial neutral. The neutral may suggest the clients consider a number of options available including the potential of reducing or paying off debt with other assets. This can help a couple breathe a little easier when freeing up needed cash flow for living expenses by not continuing to carry current levels of debt. A well-trained neutral financial specialist helps divorcing clients see the big picture pros and cons of making a number of financial moves during settlement discussions. Clients are then able to make informed educated decisions concerning their financial future. The financial neutral is family centered in the collaborative process and makes every effort to assist divorcing clients reach agreements they both can live with. Only in the collaborative divorce process are clients able to achieve this level of client introspection and decision-making. Collaborative divorce is not for everyone. Is a collaborative divorce process right for you or someone you know? Click on this link to learn more and decide for yourself.  www.collaborativelaw.org
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.
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.
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.