It’s important for divorcees to review and adjust their W-4 payroll withholding or start to make quarterly tax estimates following their divorce. Often, they are so relieved to have reached settlement, they fail to think about these housekeeping items. If divorced in 2018, this is especially important if transferring taxable spousal maintenance. The payor spouse can likely change their payroll withholding to increase their net income. The payee spouse will need to withhold additional tax dollars on their salary or make quarterly estimated tax payments, to account for taxes on the spousal maintenance payments received. If the payor spouse doesn’t adjust their W-4, they may not be able to meet their budget during the year and would probably receive a large tax refund when taxes are filed. If the payee spouse doesn’t adjust their W-4 or start quarterly estimated taxes, they could have a large tax liability when they file their return. Even if there isn’t taxable spousal maintenance, individuals still may need to adjust their withholding. Things that can impact taxes and often require an adjustment are a change in their filing status, pre- tax payroll deductions (retirement contributions, health savings account, health insurance premiums), and itemized deductions such as real estate taxes and mortgage interest. Making these adjustments now will help cash flow match what was projected during the divorce process and save the headache later of a tax surprise.
Wouldn’t it be great if families could complete their divorce in a conference room rather than a courtroom? That’s the thinking behind the Collaborative Process and what makes the Collaborative Law Institute of Minnesota so helpful to divorce professionals and divorcing families. Because of TV shows and just our general culture of “fighting” for our rights, we often think that we have to spend endless amounts of money and fight in court to get a divorce, but that simply isn’t true. In the Collaborative Process, we help families reach agreements without ever setting foot in a courtroom. The Collaborative Law Institute of Minnesota (CLI) trains professionals in areas of law, finances, relationships and mental health to work with families outside of court to reach durable and understandable divorce agreements that work for their families. Law school is focused on training attorneys for inside the courtroom. That’s why we need CLI to train attorneys and other divorce professionals to help clients outside the courtroom. This is a major paradigm shift for the legal profession, but it shouldn’t be so surprising that this is the help and advice that families need and want. Because, let’s be honest, who really wants to go to court?
It is important to review and discuss tax planning for the year in which a divorce was completed, especially for high earning individuals who receive incentive compensation and plan to be divorced by December 31, 2018. As part of the 2017 Tax Cuts and Jobs Act, many tax law changes became effective in 2018. One change was to the flat tax rate that is withheld by companies on incentive income such as bonus income, commission income, exercised stock options, and vested restricted stock. As of January 2018, the federal rate changed from 25% to 22%. The Minnesota state rate remains the same at 6.25%. Most highly compensated individuals have marginal tax rates above 22%, so tax on the above income types is under-withheld. To avoid an unpleasant tax surprise come April 15th, be sure to address this potential additional tax liability and come up with a plan to handle it. Some options to consider are:
- Estimate the tax liability now and include and allocate it as part of the property division.
- Include language to share in the tax liability when return(s) are filed next year.
- Consider whether it makes sense to load-up itemized deductions from the year to the higher earning spouse to help offset liability (i.e. real estate taxes, mortgage interest, charitable contributions).
One of the reasons that divorce is such a challenging life transition is its public nature. A couple might keep their problems private as they try to work through them. But if a rift opens that can’t be mended, the couple will have to share some very difficult news with friends and family as they separate from one another. Few of us will have to reveal emotional personal issues to as wide an audience as Jeff and MacKenzie Bezos recently did. The statement that Jeff released on Twitter suggests that he and MacKenzie are trying to make their split as amicable as possible by usin three insightful ideas that could help anyone struggling through a divorce.
- Be open and honest with those closest to you.
- Be grateful.
- Focus on the positives ahead.
When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1st– October 31st and a second 1099 for the individual account earnings earned on his individual account from November 1st – December 31st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1st – December 31st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.
- The tax liability is projected during the divorce process and an adjustment is worked into the property division.
- The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
- The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.
If you want a respectful, affordable and uncontested divorce without breaking the bank, you’ll want to consider a Collaborative Divorce. Do you have a reasonable level of trust and ability to work together with your spous if you have the help of professionals? Does your family makes $60,000 or less per year? If so, then you should apply for the Sliding Scale Fee Program of the Collaborative Law Institute of Minnesota. One of the most frustrating topics when thinking about divorce is “How much will this cost?” Thankfully, when you come to agreements in our Sliding Scale Fee Collaborative Divorce program you will almost certainly pay a fraction of what you would pay with any other professionals charging full price for their divorce services. Collaborative Divorce saves you money. How is that? First, we apply best practices to help you make the most of the time each professional spends working on your case. We think of this as using the right tool for each step of your divorce. Each of you will have your own attorney for legal adivce and advocacy, but you will do most of your work with specialized mediators to make efficient progress. This makes the process less polarizing and more focused on finding win-win solutions that meet both spouse’s needs as best as possible under the circumstances. Since our professionals don’t have to worry about fighting in court on your case, they can focus on helping you find the best solutions. They don’t waste time drafting time-consuming, hurtful and wasteful affidavits and other documents for contested court hearings for clients who are fighting. Second, in the Collaborative Divorce Sliding Scale Fee Program each professional works at a significantly reduced hourly rate. If your family makes $60,000 or less per year, then our Sliding Fee Scale provides that each professional will help you at a significantly reduced hourly rate (often a fraction of their normal hourly rates). For example, outside of the Sliding Scale Fee program, an attorney in the Minneapolis area will typically charge around $250-$350 per hour. In our program, the highest hourly rate is only $60 per hour. Our attorneys and mediators do not go to court in this program. They are here to help you get everything done in your divorce without setting foot in a courtroom. That frees them up to provide an exceptional Collaborative Divorce process to clients. There isn’t any other program like this in Minnesota. What makes this program different? There are only a few sliding scale fee attorney programs and they only provide one attorney on a sliding scale fee. There are no other programs that provide each spouse with a sliding scale fee attorney and specialized mediators to work with the couple on financial and parenting schedule issues, all in one package. In summary, this Sliding Scale Fee program provides a team of professionals so that we can apply the right professional for each step in the uncontested divorce process. Who is this program designed for? We can help couples who have income within our sliding fee scale and who are willing to pay a reduced hourly rate. This is not a pro bono program with free attorneys. It is significantly less expensive but it is not free. Also, you will need to be willing and able to communicate with your spouse and work together with mediators to resolve your financial and parenting time issues in your divorce, with the help of your own attorneys who will be assigned as part of this program. Who will you be working with? You will be working with attorneys, mediators and other professionals who are members of the Collaborative Law Institute of Minnesota who volunteer to take part in this program and accept a lower hourly rate for these cases. What’s the first step? What should I do next? The first step is for one spouse to submit a Sliding Scale Fees Intake Form (found on the Sliding Scale Fee page of our website). Then the Sliding Scale Fee Committee will reach out to you within a few days to help decide if your case is a good fit for the program and what you can do next to move the process forward.
Understanding the difference between interests and positions could make all of the difference in helping you negotiate a better outcome in your divorce. Position-Based Bargaining: Most people have a tendency to negotiate by arguing in favor of their positions. In divorce, this type of “position-based” bargaining can actually make it more difficult to get what you want. Once you and your spouse become locked into positions, the need to defend those positions can lead to a lengthy and expensive divorce. Often position based negotiations come to an end only after both parties have reached a point of physical and emotional exhaustion only to reach a “meet in the middle” agreement. One of the many problems with meeting in “the middle” is that the best solutions may have existed outside of either position. Creative negotiation that avoid positions and focus on interests can lead to outcomes that are better for both parties. Interest-Based Bargaining: In divorce, couples start by determining their interests and look for true “win/win” scenarios. In order to appreciate how interest-based bargaining works, it is important to understand the difference between positions and interests. Positions are narrow; “win/lose” proposals can only be satisfied in one way. For example, statements such as “I want Sole custody” or “I need $5,000 per month in support” or “I must have the house” represent positions that require the other person to “lose” in order for you to win. On the other hand, “interests” (sometimes called goals) focus on big picture desires that can be satisfied in many ways. Statements such as “I want our children to be kept out of the conflict” or “I want financial stability for both homes” or “I want us to be able to communicate better in our co-parenting” are requests to have an important interest met. One of the advantages of focusing on big-picture interests is that you and your spouse are likely to have many of these interests in common. Therefore, although working on the details of how these interests can be met will still require some problem solving skills (and some bargaining) the negotiation becomes easier because you are both working toward these important common goals. Interest-based bargaining is a skill that needs to be developed over time. Divorce negotiations are usually improved when the professionals involved have significant training and experience in this method so that they can teach these skills to their clients. Most mediators and Collaborative professionals have training and experience in interest based bargaining. To locate a professional who understands this method to interview and to learn more about interest based divorce negotiation go to www.collaborativelaw.org or www.divorcechoice.com.
Have you ever wondered about how to do something that felt daunting but maybe not super complicated (baking a perfect soufflé, building a patio, learning to golf) and decided to follow the advice to “Just look on YouTube!” So you find several videos on YouTube, select the one in your language, and set off to do this thing on your own. How difficult could it be? The Catch: It’s generally harder than it looks on YouTube Those demonstrations are done by people with lots of experience and expertise, who make it seem effortless. And this will be the first time you’re doing this. Perhaps all will go well, but if it does not, your understandable reactions could include: “Why didn’t anybody tell me soufflés need different baking times and temperatures at different altitudes! How many times will I have to experiment to get this right?” “What am I supposed to do now? I hit a big tree root while digging the patio foundation?” “Golf has a lot of moving parts! I really do need lessons.” Because we don’t know what we don’t know, getting the right kind of specialized or expert help at the beginning of a project can be very valuable, can save time and expense and will help prevent frustration and anxiety. What Does this Have to do with Divorce? When ending a marriage, many couples hope to minimize conflict, expense and time by choosing an uncontested divorce process. These range from DIY divorces using down-loadable forms to hiring professionals who do alternative or out-of-court dispute resolution. I am one of those professionals, a neutral child specialist who assists parents and children in a variety of ways during the transition from marriage to getting unmarried. Though I can work with any process, I often work on Collaborative Practice teams offering respectful, out of court, problem solving support for the legal, financial, relationship and parenting issues that are part of a divorce. Those of us doing this work know that there can be complications, unexpected issues, lots of moving parts, and pieces of information not necessarily available to the general public about how laws work. We especially like to help families at the beginning, to set people up for success. I know there are many couples who do not need or want professional services to have a respectful and equitable divorce, and I wish them all the best! But if it becomes more complicated than it appeared on YouTube, please do not hesitate to call.
Your divorce is over. It’s time to start sorting through all the things you need to do, to get your financial life in order. Here are just a few tips to help you thrive financially, as you move into this phase of your life. Pay Off Credit Card Debt One of the most important steps to achieve your financial goals is eliminating credit card debt. Start by paying off the balance of one credit card at a time, by either:
- Paying off the highest interest rate credit card first, or
- Paying off the smallest balance first, then applying that payment amount to the next smallest balance
April is Autism Awareness Month, the two month anniversary of the Marjory Stoneman Douglas High School shooting, and the 19th anniversary of Columbine. Why talk about ASD and school shootings in the same sentence? And why a divorce blog? I will get to that. But as a lawyer-mom, these two issues are at the forefront of my mind, and probably the minds of many parents and educators these days. We should rest assured that our kids would know what to do during a lock-down because they have spontaneous drills throughout the year, right? Ugh…what am I saying? The fact that kids NEED lockdown drills is downright outrageous! Nonetheless, I wondered what the younger kids are told and what happens during these drills. Well, lucky me, when I recently volunteered in my son’s elementary school classroom, the school had a lock down drill. And one word sums up the experience: chilling. Lockdown drills are very different from the fire and tornado drills we had as kids. I’m sure everyone remembers the fire drills – exit the classroom quickly and get away from the building. Or the tornado drills – go out to the hallways, away from the doors and windows, and cover your head with your hands. Up until about 1999, THOSE were the drills Minnesotan kids experienced. In fact, most the time, much to our teacher’s chagrin, we were laughing and joking around. A lock down drill, however, has a very different vibe. The kids must be EXTREMELY quiet. They huddle into a specific area and are instructed to remain eerily still. This had been a bustling class (and school) just moments before, but now it was so quiet, you could hear a pin drop. This was a class of 30 second graders, so I was stunned at the deafening silence. Just when I thought it was over (it seemed like forever, but was probably two minutes) someone rattled the door handle. Forcefully. Not a peep from the kids, but I jumped. Luckily, they didn’t see me or they might have erupted into giggles. We had to continue to remain quiet and motionless. Interestingly, I don’t remember what happened next; that is, I don’t recall if there was a bell or another signal indicating the drill was over (I think I was sort of in shock). The kids went about their business, working on their projects, like it was no big deal. Only it was a big deal. At least it was to me and the other adults in the room. I just looked at the staff, wide-eyed, and shook my head. School lock downs are now a reality for school-aged children. It makes my heart ache. I asked my son that evening why they have lockdowns and he nonchalantly said it was in case anyone wants to break into the school. That was it. Simple enough. But as we grown-ups know, there is nothing simple about this. My son is a “mover and a crasher,” so I was relieved he made it through the drill. But I thought about the other high-needs/special-needs kids in his school. For any child who has physical needs or doesn’t cognitively understand the drill, simply can’t be quiet and remain calm, needs to move, or overreacts when accidentally bumped or touched by a classmate, what would that child do in this drill? Or, God forbid, in a REAL situation? With more and more kids being diagnosed with ASD, what protocols are in place for them? Is there a special section in their IEP about drills? There ought to be. This made me think about special-needs kids whose parents are going through a divorce. The teachers are aware of kids’ needs (or should be). So, too, should the divorce team. A child’s symptoms often reemerge or worsen when they are stressed, which could happen during parental conflict and/or separation. Child specialists can work with the parents and the child’s pediatrician and/or therapist to help create a parenting plan that is in the child’s best interests. Like it or not, otherwise fit and loving parents need to work together for there children’s sake. Fortunately, the Collaborative process can help parents really focus on their kids, by putting them in the center, rather than the middle, of the divorce process. Every family situation is unique. Every family and every child deserve a creative plan to help move them forward, restructure, and get to a new “normal.” Drill and lockdown protocols included.