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172399714Did you know that there is a National Financial Literacy Month?? Well, there is! The powers that be have selected April to be the Financial Literacy Month. Why April rather than July probably goes to the fact that so many people are acutely aware of their financial situation as they write out a check to the IRS. So, what is financial literacy and how does one become more financially literate? Financial literacy is about taking control of your finances by fully understanding the impact of your spending, saving and debt obligations on your financial well-being.  It is about making well-informed purchasing decisions and understanding the difference between wants and needs.  A financial literate individual understands the importance of saving for the long-term. They are committed to the budget that they created, which includes saving for specific large purchases, as well as longer-term financial goals such as a comfortable retirement. Financial literacy involves understanding the pros and cons of debt and being proactive about managing one’s debt obligations.  A financial literate person knows the importance of maintaining a good credit score and gets a copy of their free credit report annually at www.annualcreditreport.com.  Financial literacy is about recognizing when you have a problem managing your debt and getting assistance to help you manage the situation. Financial literacy is also about communicating openly with your significant other about financial matters. It is about teaching your children good financial habits such as saving for big purchases, starting a retirement account early and not getting in over one’s head in debt. So, now that you know what financial literacy is, go to www.financialliteracymonth.com to see what tools and information they have to help you be more financially literate.
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88962094-household-bills-in-shape-of-question-mark-gettyimagesOnce you have completed your divorce, the list of things to figure out can be daunting. It can be easy to push off those things that don’t seem to affect your daily routine.  Some of those things that you have been putting off are likely financial – a lump sum distribution from the divorce just sitting in cash, a 401(k) in need of rollover or perhaps a credit card balance that never seems to get any smaller. It’s time to make understanding your financial situation part of the process of building a new life. The longer you wait, the greater likelihood that your inaction will impact your long-term financial success.  If you don’t know where to start, then it may be a good idea to seek out the assistance of a financial planner.  While financial planners may have specialties, the financial planning process is fairly standard for all planners.  At the core of the financial planning processes is evaluating your financial needs and goals, and helping you take steps toward meeting those needs and goals.  The general steps to the financial planning process are as follows: 1. Determining your financial goals What are you looking to achieve? Do you need to invest that cash in your savings account or rollover a 401(k)?  Do you need to figure out how you are going to pay for your child’s college education? Do you need to get a firm handle on your expenses and cash flow? (budgeting) 2. Gathering your information If you have recently completed your divorce, this step should be easy.  For your divorce, you needed to collect all of your financial information.  You can just pass this information on to a financial planner (bank, retirement, and investment statements, liabilities (credit cards, car loan, mortgage), and your income information, such as a pay stub and a tax return.  A copy of your divorce decree also provides pertinent information. 3. Analyzing your information The financial planner will stitch together all of the financial documents in your life to create a picture of your financial situation. 4. Creating your financial plan A financial plan lays out your financial goals and your financial situation.  From there, your financial planner will work with you to create a plan of action for meeting your financial goals, based on your financial situation. 5. Implementing your financial plan Your financial plan is going to be a little different from everyone else’s plan. Implementation of a financial plan can take many forms as well.  It may involve reallocating your portfolio, setting up a program to save for college, purchasing insurance, or creating a budget. 5. Monitoring the progress of your financial plan In the stock market and life, things happen, situations change. Financial plans are not engraved in stone, never to be changed.  They have to be flexible to adapt to the changes that happen in the financial markets and in life. While the financial planning process is fairly standard across the industry, the financial products and solutions recommended by financial planners are not.  Much like your physical health, if you are not sure if the recommended products or plan of action are best for your financial health, seek a second opinion.  You are more likely to be committed to following a financial plan if you understand the financial products in your portfolio and are certain that your financial planner has put your interests first.
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154502639-man-finding-jobs-gettyimagesWhen one spouse in a divorce has been unemployed for an extended period, it can often be a frightening situation for that particular spouse.  It can also be frightening to the other spouse.  This fear shared from opposite perspectives can lead to heightened conflict and tense communications.  This conflict and challenged communications can impede the entire divorce process.  However, it does not have to be this way. What if in the divorce process, there was a way for someone to explore these fears from a deeper perspective? The spouse who has been unemployed for some time, perhaps because of child rearing responsibilities, is extremely anxious or downright scared about how they will ever be able to make it. The employed spouse is anxious and downright scared they will forever face having to support their non-working spouse.  Both have legitimate fears and concerns. Let us look at some options that may help both at least minimize some of these fears. In a collaborative divorce , professionals, whether they are coaches, financial specialists, child specialists, or attorneys, have access to tremendous resources to help couples in this type of situation.  Vocational assessments can help determine a person’s aptitude for specific job classifications and what the expected salary ranges are for beginning, mid-level, and more experienced levels.  Sometimes additional training may be required to either add new skills or perhaps update skills from the past. Career coaches can help with packaging (marketing) a spouse for employment, resume creation, interviewing skills, and a game plan with target dates for employment. This type of effort requires genuine commitment on the part of the spouse seeking employment and the spouse who is employed.  The commitment comes in the form of the unemployed spouse diligently working with the vocational counselors and coaches to follow recommendations provided. Commitment from the employed spouse comes by supporting the spouse seeking employment both emotionally and financially.  When this commitment is genuinely felt by both spouses, good things can happen. The unemployed spouse will be able to obtain employment at a more rapid pace, which in the end serves to boost their confidence and self-esteem. This can have a mushroom effect to fast track the non-working spouse to employment with higher earnings. If the employed spouse sees progress to help the non-working spouse with employment, their fears of having to fully support their non-working spouse forever can be significantly reduced. Sounds like a win-win to me. The keys to all this happening is commitment, transparency, and genuineness from all involved including spouses and members of the divorce team. Of course, if you do not have a divorce team and are stuck in a more traditional divorce process, the commitment, transparency, and genuineness more than likely does not exist at all. This begs the question of which divorce process do you really want to pursue?  A collaborative divorce provides an environment described above where you and your spouse make decisions together that are in your best interest.  A more traditional or litigated divorce process is a process often forced upon you and then someone else makes decisions for you that affect your future.  Stop and think before you choose.  Choose your process wisely.
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185064996-credit-score-gettyimagesDivorce is not fun for anyone nor is it a financially savvy thing to go through. You are splitting up what you own and what you owe to others. This often includes unpaid credit card balances and loans. What can you do to protect yourself? I always recommend to individuals and couples going through divorce or even contemplating divorce to immediately check your credit report. You can do this by going to www.annualcreditreport.com. This is the official consumer site provided in cooperation with the three major credit bureaus (Equifax, Experian, and Transunion) and the Federal Trade Commission. You will be able to obtain your credit report free from each of the three credit bureaus. Other websites may offer free credit reports but often want you to sign up for something. Watch out for these gimmicks or better yet just use the site mentioned here. After obtaining your credit report, get three different highlighted markers. Read through the report and highlight all open accounts listed as joint, use a different color highlighter to mark all accounts listed as authorized user, and yet a different highlighter to mark all accounts listed as individual in your name only. You will want to make sure that all joint credit cards, loans, and indebtedness accounts are closed post-divorce and are so noted in the divorce Judgement and Decree. Closing the accounts does not release you as a joint owner from the liability to pay remaining outstanding balances. It is critical to remember that even though the divorce decree may place responsibility for debt repayment on certain accounts to your spouse, you will remain liable to the creditor/lender should your spouse default on the payments. Even late payments could show up on future credit reports affecting your own credit score. Ideally on any joint debt accounts you will want your spouse to either pay these debts off in full or refinance the outstanding debt in their own name with their own new accounts. You will also want to address any accounts where you are listed as an authorized user. An authorized user has the same liability as a joint owner for any indebtedness on the account. The sort of gotcha on these types of accounts is that an authorized user is not always able to close the account. Any individual accounts held by you will be your responsibility to repay. I always recommend that to the extent possible attempt to emerge from the divorce with as little consumer debt as you can. Doing so will allow you to maximize your cash flow to meet your current living expenses and hopefully save for future goals. Keeping an eye on your credit and following these few simple steps can go a long way to helping you protect your credit, your credit score, and give you confidence to maximize your cash flow. Divorce as painful as it can be also creates opportunities to start anew.
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Stocks, bonds, mutual funds, annuities, chances are you own a couple of these financial instruments and possibly all of them in your portfolio. Wouldn’t it be nice if someone clearly explained what they are and why you should invest in them? Let’s see if we can get the basics of stocks straight in less than 5 minutes. Stocks When you own stock in a company you are a part owner of that company. Stock (also called equities) are sold in units called shares. Each share of stock in a company represents a fractional ownership in that company. Since most well-known companies have issued millions of shares their stock, each share represents a very small fraction of the overall ownership in that company. An owner of stock (called a stockholder or shareholder) is entitled to a portion of the company’s profits if the company’s board of directors decides to distribute them. Profits that are distributed are called dividends. Dividends tend to be distributed on a quarterly basis. Not all companies distribute their profits to the stockholders. Young fast growing companies, in particular, usually choose to reinvest their profits in expanding business operations. Older established companies with few opportunities to grow their business, utility companies for example, tend to distribute a large portion of their profits in the form of dividends. In situations where the company is sold or liquidated, shareholders will receive a cut of the net sale proceeds. All the company’s creditors get paid before this happens including employees, suppliers, creditors and even Uncle Sam when taxes are owed. The chance that there will be nothing left after everyone else gets paid is one of the intrinsic risks to stock ownership. There are two ways to make money from owning stock – the cash flow from dividends and capital gains. If a stockholder sells their shares for more than the purchase price they make a profit called a capital gain.   The value of a company’s stock rises and falls based on the performance of the company and the outlook for the economy as a whole. If a company is successful, such that its business is expanding then people will want to buy its stock to get in on the growth potential. If the overall economy is expected to grow, this is expected to benefit many companies as well.   Companies tend to report on the performance of their business on a quarterly basis which can greatly impact the stock value. In between those quarterly reports the stock value is more influenced by the constant stream of reports about the state of the economy. Companies are limited by the government as to how much and how often they can issue stock. Once they issue a share of stock, that stock is bought and sold on a stock exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Actual physical stock is rarely exchanged anymore; brokerage accounts are electronically credited or debited for the purchase or sale of stock. Companies contract with a transfer agent to keep track of the constant changes in the ownership of their stock. Five minutes are almost up so let me just say that stock ownership is a good way to grow wealth but it must be done with a view to the long term. Stocks prices can fluctuate greatly in times of economic upheaval so it is not a place for putting saving for a near-term purchase. Over the long term though, stocks have always rebounded and rewarded the patient investor.
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137547335-man-planting-euro-coins-in-soil-gettyimagesStocks seem to get all the attention with daily reports of what happened in the stock market. Bonds by comparison are the quiet, introverted sidekick to stocks. Nobody ever brags about their latest bond investment at a cocktail party. Nonetheless, bonds are an essential part of most portfolios and tend to become more so as we get older. Let’s take 5 minutes to understand bonds. Bond are loans that have been “securitized”, meaning that the face amount of the loan has been divided into equal-sized parts, typically worth $1,000 or $5,000. The equal sized parts are called bond certificates, which can then be bought and sold easily in the bond markets. Big issuers of bonds are corporations and governments. Borrowing money by selling bonds can be cheaper than going to a bank, particularly if the issuer wants to borrow a large sum and then pay it back over a long period of time, such as 20-30 years. Bonds issued by the U.S. Government are called Treasury bonds, bills or notes. Bonds issued by state and local governments are called municipal bonds, while bonds issued by companies are called corporate bonds. Bond Investors make money from the cash flow created by the bond issuer repaying the loan. Bonds are usually structured so that the owner of a bond (the Bondholder) receives interest payments at regular intervals. The bondholder is repaid their initial investment in the bond, along with the final interest payment, at the loan maturity date. Bonds are attractive to many investors because they provide a regular stream of income. The amount of income a bond holder will receive over the life of the bond is known the day it’s purchased. That knowledge means that bond values do not fluctuate nearly as much as stock prices. Bond values do fluctuate some, which is primarily caused by changes in the prevailing interest rates in the economy and the ability of the bond issuer to make bond payments. Bonds are an important part of investment portfolios because they typically act the opposite of stocks. Treasury bonds in particular will rise in value during times of economic stress, as people flee a falling stock market for the safe predictable return bonds offer. Bonds are also important because they provide cash flow to people taking regular draws from their portfolios to pay living expenses. If bonds are so much safer than stocks, why not invest 100% in bonds? Investing entirely in bonds is risky for the long-term because of the threat of inflation. Inflation causes the cash flow from a bond to become less valuable over time. And, although bondholders still get the principal they invested when the bond matures, that initial investment just doesn’t buy as much as it did 20 years ago.   Stocks on the other hand have a history of outpacing inflation over the long-term. This is why even the most conservative portfolio is better-off containing at least some allocation to stocks, as a hedge against inflation.
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Stocks, bonds, mutual funds, annuities, chances are you own a couple of these financial instruments and possibly all of them in your portfolio. Wouldn’t it be nice if someone clearly explained what they are and why you should invest in them? Let’s see if we can get the basics of stocks straight in less than 5 minutes. Stocks When you own stock in a company you are a part owner of that company. Stock (also called equities) are sold in units called shares. Each share of stock in a company represents a fractional ownership in that company. Since most well-known companies have issued millions of shares their stock, each share represents a very small fraction of the overall ownership in that company. An owner of stock (called a stockholder or shareholder) is entitled to a portion of the company’s profits if the company’s board of directors decides to distribute them. Profits that are distributed are called dividends. Dividends tend to be distributed on a quarterly basis. Not all companies distribute their profits to the stockholders. Young fast growing companies, in particular, usually choose to reinvest their profits in expanding business operations. Older established companies with few opportunities to grow their business, utility companies for example, tend to distribute a large portion of their profits in the form of dividends. In situations where the company is sold or liquidated, shareholders will receive a cut of the net sale proceeds. All the company’s creditors get paid before this happens including employees, suppliers, creditors and even Uncle Sam when taxes are owed. The chance that there will be nothing left after everyone else gets paid is one of the intrinsic risks to stock ownership. There are two ways to make money from owning stock – the cash flow from dividends and capital gains. If a stockholder sells their shares for more than the purchase price they make a profit called a capital gain.   The value of a company’s stock rises and falls based on the performance of the company and the outlook for the economy as a whole. If a company is successful, such that its business is expanding then people will want to buy its stock to get in on the growth potential. If the overall economy is expected to grow, this is expected to benefit many companies as well.   Companies tend to report on the performance of their business on a quarterly basis which can greatly impact the stock value. In between those quarterly reports the stock value is more influenced by the constant stream of reports about the state of the economy. Companies are limited by the government as to how much and how often they can issue stock. Once they issue a share of stock, that stock is bought and sold on a stock exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Actual physical stock is rarely exchanged anymore; brokerage accounts are electronically credited or debited for the purchase or sale of stock. Companies contract with a transfer agent to keep track of the constant changes in the ownership of their stock. Five minutes are almost up so let me just say that stock ownership is a good way to grow wealth but it must be done with a view to the long term. Stocks prices can fluctuate greatly in times of economic upheaval so it is not a place for putting saving for a near-term purchase. Over the long term though, stocks have always rebounded and rewarded the patient investor.
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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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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.