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183888526-self-introduction-gettyimagesBeing in the tax season moment, my next few blogs will address some common tax issues and implications resulting from divorce. The first issue/implication I will write about are name changes. It is quite common for a spouse going through divorce to request a name change as part of the divorce process. Requesting a name change can occur for a variety of reasons, divorce being only one. This blog will not attempt to address the reasons but rather focus on actions to take when changing your name. You may be asking yourself what in the world does a name change have to do with my taxes? The answer is plenty. Here are five action steps to take:
  1. Make sure you let your attorney know you want to change your name. It is quite easy for your attorney to order this when filing the divorce decree with the court. There are additional steps you must take to ensure a smooth transition by reporting the change to the appropriate agencies.
  2. The best place is to start with the Social Security Administration. All the paperwork you need occurs when the court enters your divorce decree into the record. This includes the order for the name change. Changing your name with the Social Security Administration is necessary so your new name on IRS records will match up with your Social Security Administration record. Problems arise when processing tax returns and names do not match up. Save yourself some time and headache by reporting the name change to the Social Security Administration immediately upon order of the court.
  3. Be sure to request a new Social Security card by filing Form SS-5, Application for a Social Security Card. Obtain Form SS-5 from www.ssa.gov or call 1-800-772-1213 to order it. You can also accomplish this by going to your nearest Social Security office. The new card will show your same social security number and your new name.
  4. The next step is to notify your employer. If you have not already done so, complete a new W-4 for claiming withholding exemptions factoring your new tax filing status. Remember you will no longer be filing a joint tax return but rather you will be filing as a single individual or as head of household.
  5. Here is a list of other entities to report your name change
    1. Department of Motor Vehicles for your driver’s license and update voter registration
    2. Passport amendment
    3. Health care exchanges If you purchased health insurance  through one of these, especially if you are receiving any type of subsidy
    4. Financial Institutions where you do business including banks, credit unions, investment companies, insurance companies, loan companies, credit card companies etc.
    5. Other businesses such as utility companies
    6. Notify the Post Office
Requesting a name change due to divorce is easy. It will save you time and money when completed as a part of the divorce process, rather than waiting until time has lapsed after the divorce.
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Late night browsing on HBO recently brought me to a refreshing and wonderfully honest documentary on kids of divorce. The 30-minute film focuses on children who have recently gone through divorce – it asks them questions and captures their honest and candid responses.  So much wonderful information can be gleaned form children. They offer unique perspectives on the realities they face. Even more refreshingly, they offer unique insights and rules for their parents. As always, children can guide parents through these tough transitions and help them move forward in ways that really matter to kids. Indeed, these little minds are often more grounded and reflective in their views than their parents. Some of the many words of wisdom from this documentary, are:
  • Keep reminding me this isn’t my fault – I need to hear it over and over again.
  • Be honest with me – talk to me honestly. I can handle it or I will le tyou know if I can’t.
  • Don’t put me in the middle, but remember I am important.
  • Don’t have me spy – get your own information.
  • There is not a big bright side of things – but try to look on the bright side. Point out to me the things that are good out of this and why I will be okay.
  • I miss my other parent in my heart. Know this and keep it in mind.
  • Give us more love than we need.
Don’t Divorce Me! Trailer
If you have children and are contemplating divorce, check out Don’t Divorce Me! Kids’ Rules for their Parent’s Divorce on HBO ON DEMAND or www.hbogo.com
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104626001-hand-operating-paper-shredder-gettyimagesIt 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.
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185311153-tax-refund-gettyimagesThe 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:
  1. 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.
  2. 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.
  3. Qualifications by the IRS the child must pass relating to divorce include:
    1. Child must have been under age 17 at the end of the tax filing year
    2. The child must be your son, daughter, stepchild, foster child, or your adopted child
    3. The child must not have provided more than half of their own support for the year
    4. The child must be a dependent that you claim on your federal tax return
    5. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien
    6. In most cases the child must have lived with you for more than half of the tax filing year
  4. There are income limitations that may reduce or eliminate your ability to qualify for a Child Tax Credit
  5. See IRS publication 972 for more information on the Child Tax Credit
The child tax credit is one way you may be able to lower your out of pocket tax obligation and in some cases even receive a refund if you do not owe any tax. Be sure to consult with a qualified tax preparer to determine your eligibility to qualify for the child tax credit.
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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.
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The viral video of a father reaching out to his ex-Wife’s new husband, his daughter’s stepdad, and asking him to join him and walk their daughter down the aisle has had a huge impact. It has been shared millions of times. I have noticed a number of my social media friends and colleagues sharing this video. The comments seem to fall into two categories.  First, for divorced parents or children of divorce, many look at this video as a painful reminder of how horrible divorce can be. Many have memories of the strain and tension between their parents after divorce or cannot imagine ever having a connection with an exes new partner. Others see this video as recognition of the new face of divorce.  Divorce can be healthy and can lead to new families that are, in many ways, stronger and healthier than they were before.  Bonus parents or step parents can be wonderful additions to a child’s life. I see these stories all the time.  I am a collaborative attorney dedicated to helping families divorce in better ways.  I hear stories of clients all the time having better relationships with their co-parent after a divorce. Like this mother who wrote a letter to her daughter’s future step-mother or this lovely New York Times article about two divorced parents vacationing together — this can be the new face of divorce. The collaborative law process allows for creative and respectful outcomes – it keeps the children at the very center of everything and helps families thrive. Social media is drawn to thee stories because people crave these types of outcomes and want a better future after divorce.  Collaborative law provides these types of resolutions and more and more peaceful extended families.
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185241979-african-american-businesswoman-on-white-gettyimages After choosing your process wisely, discussed in my two previous blogs part 1 and part II, the next step is to choose your attorney wisely. I believe this is something to approach with significant thought about your goals, careful consideration about the process you want to follow and your own beliefs and values. How do your goals and process choices affect the choice of an attorney? When I mention goals, I am not just talking about your goals. The goals of your spouse are just as important. It is important to remember you are not in this divorce alone, your spouse is also present. You both have anxiety, fears, and unanswered questions about how is this all going to turn out. Please do not forget that attorneys selected by each of you will have their own goals. Their goals may not necessarily be in alignment with your own. Ideally, you and your spouse are able to discuss your goals together. You both may have some shared goals although in the throes of divorce this may be the furthest thing from both of your minds. Each of you will have some different individual goals. I would suggest to the extent possible working together with your spouse to identify these goals as they relate to children if any, relationship and communication with each other and extended family during and post divorce, financial security goals, and divorce process goals. Your ability to articulate and document these goals will in the end minimize conflict, and give you a roadmap if you will toward selecting attorneys. You will want to choose attorneys who are able to help you and your spouse achieve your goals. A collaborative divorce attorney once wrote about asking some straight to the heart kinds of questions when interviewing any divorce attorney. A question like, How concerned are you about what my spouse wants out of this divorce? This is a great question to ask any potential attorney you may be considering. How the attorney answers this question will give you loads of information about how this attorney will go about representing you.   If they say I think you should go after all you can get and then promise or insist they can get it for you, they are playing on your emotions and telling you what you want to hear. This attorney is probably more interested in putting on a show that will take money from your family resources instead of allowing you and your spouse to keep more of your money in your family where it belongs. This same collaborative attorney offered yet another question to ask a potential attorney. Ask if they believe a couple in conflict, going through divorce, can negotiate settlement outcomes without the use of threats or coercion to get what they want. If the attorney insists on using threats and coercion, they are likely not that skilled in interest based negotiations. Instead, they draw lines in the sand using threats and coercion. This leads to even more conflict and increasing costs meaning less money for you and your spouse to keep in your family. A settlement-oriented attorney will answer this question by explaining the differences between position-based negotiation and interest-based negotiation. One last question to ask a potential attorney is if they handle all parts of the divorce or do they often use outside experts such as a child specialist when children are involved or a financial specialist. The attorney who says they handle everything themselves may end up costing you and your spouse the most. This attorney is saying they are experts with children, finances, and legal matters. Rarely, if ever, is this the case. A child specialist financial specialist can bring great value to your divorce process. A parenting plan, which goes far beyond who stays overnight when and a financial plan to give both you and your spouse comfort in knowing you will be making the best use of your financial resources should give you and your spouse a degree of comfort and peace of mind. Besides that the cost of one child specialist and one experienced divorce financial specialist will be considerably less than attorney costs for dealing with these same issues. As you listen to the answers potential attorneys give when asked these three questions outlined in this post ask yourself: Is this attorney able to help me, and my spouse, work through our differences using the process we chose? Will this attorney seek to find outcomes that work not just for me but also for my spouse? Will this attorney choose to do all the work himself or herself or will they utilize experts in specific fields such as children, finances, and or relationship coaches when needed or helpful? Hearing the answers to these simple questions can help you decide whom to choose as an attorney. Choose wisely by being intentional, thoughtful, and in alignment with your goals, values, and beliefs. Doing so will allow you to keep more of your money in your family.
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140196043-studio-portrait-of-young-man-contemplating-gettyimagesFor 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.
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As a parent to youth players and season-ticket holder to a semi-professional team, I watch a lot of soccer. My daughter’s team plays at the elite level. In a game, they move around, pass to a teammate, trap the ball, look around while the teammates move around, pass again. Three passes before any shot on goal – this is the coach’s rule.  Professionals play similarly. As I watched these girls move, pass, trap and shoot, I reflected on the greater symbolic meaning of that technique. This technique teaches the players to be better teammates. To share the field, utilize space and be mindful in the movement towards a common goal. The girls are learning ball control and how to find open space on the field so it will be easier for their teammates to find them. They are shifting from individual players to teammates – recognizing teams are better off than superstars and that where there’s a superstar, there are always superstar teammates. Ultimately, they are also learning the importance of practice, hard work and of taking the perspectives of others. This is similar to parenting. We keep moving around to get open – make ourselves open and available to our children so we can receive whatever they have to give. Sometimes they are giving love.  Or, it may be a moment of frustration, when they are lashing out. Regardless, we work hard to be open to whatever they are passing our way. Our children make a pass. We trap it. We wrangle in the emotion, or question, or need. We move it forward and pass it on. This pattern continues until we launch them into the world. Even then, we stay open for the pass back and ready to continue to help them reach their goals. Being open to the pass is important. Practice and effort take work, but there is joy in that work as well as in the outcome. With children, we often think about what we want to teach and how we want to guide and shape their futures. This year and moving forward, I want to be more present to what they can teach me.
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138710659-financial-advisor-talking-to-customer-gettyimages5 quick Divorce financial tips: These five are only a starting point.
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
Utilize an experienced divorce financial planning specialist.  They are your best resource for helping you keep more of your money in your family.