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142840211Over the next couple months, I will discuss the various dimensions of Social Security.  So many people look at the Social Security program as the simple process of going in to the Social Security Office to claim benefits sometime after age 62, when they decide to stop working. This is putting the cart before the horse in that they have not factored Social Security’s impact on their retirement cash flow into their decision of when to retire. The Social Security program has a complex set of rules that if understood, can influence the when-to-retire decision and a person’s retirement lifestyle. First the basics, let’s say someone owes you money and they have agreed to pay you a certain amount at a defined time in the future. For your benefit, you and this person also agreed on some leeway in these terms – a sliding scale for getting your money earlier or later than the agreed upon date. If you called as soon as the agreement allowed and said that you wanted your money, they only have to pay you 75% of the agreed upon amount.  If you tell them you want them to pay you at the very latest date then they will pay you 32% more than agreed.  When you get your money back really depends on when you need it.  If you find yourself in a financial bind you will likely ask for it early and accept the discounted amount. If you don’t need it at all, you may be happy to wait until the very latest to get the surplus. Social Security works in a similar manner. The agreed upon amount is your “Primary Insurance Amount” (or PIA). The date upon which you will receive 100% of your PIA is what Social Security calls your “Full Retirement Age” (or FRA). Everybody retiring now has a FRA is between ages 66 and 67. Anyone born after 1960 has a FRA of 67.  As long as a person works and pays Social Security taxes for 40 quarters (10 years) they are eligible for the standard PIA based on how much they paid in over the years (survivor benefits and disability benefits are a whole other discussion). Social Security has a sliding scale like our loan example, if you want your benefits before your FRA, then you may get as little as 75% of your PIA.  If you wait until age 70, you are entitled to get 132% of your PIA. Whether in a financial bind or not, the most popular age for starting to receive social security benefits is 62 – the earliest age possible for most people. Approximately 32% of men and 38% of women begin receiving benefits soon after they reach 62. The average age of when people apply for benefits is 64 so the majority apply for benefits before their full retirement age and accept some degree of reduced benefits. Only 2% of applicants wait until age 70 to get the greatest benefit possible. Some might have a legitimate financial need to apply early, but many are probably just tired of working and want to start retirement as soon as possible.  For whatever reason, it would be safe to say that there are a lot of people out there not putting much thought into when they begin to receive benefits. This is unfortunate because unlike the loan example where only one payment was made, Social Security pays month after month. The decision to start receiving benefits early or late is therefore reinforced every month. Many people depend on Social Security for a significant part of their retirement income and as such, the level of their benefit greatly influences their retirement lifestyle. In my next blog entry we take a look at the impact of claiming benefits before one’s FRA.
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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.
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182470705Once you have created a budget and projected your expenses into the next 12 months, there are additional steps you can take on a daily and monthly basis to improve your cash flow. Remember your goal is positive cash flow that allows you to save money for short and long term goals such as remodeling your kitchen, taking an exotic vacation, helping your child with college and saving for retirement. Add these ideas to your list of budgeting for a new life: Pay yourself first. Too many people make the mistake of saving if they have money left over at the end of the month.  By setting up a pre-determined amount of savings that is automatically transferred from your checking account each month, the money will be out of sight and you will enjoy the results of savings growth. If you receive your payroll electronically, your employer may agree to deposit a pre-determined portion of your payroll right into your savings account, too. Give yourself a cash allowance. Oddly enough, if you have a set amount of cash to spend on lunches or small purchases for each week, it’s harder to spend it. Try it! Use shopping lists. Avoid spending money on things you don’t need by planning your shopping trip with a list. Shopping will be faster and you’ll spend less if you stick to the list. Make sure that the items on your list are also part of your budget! Distinguish between wants and needs. Paying down debt and saving money are needs. Buying cool leather boots or a new tool set might be wants. To be sure, wait a day or two before buying them and see if it’s keeping you awake at night. If it isn’t, it’s a want you can do without — at least for now. Pay down high-interest credit cards. Finance charges on credit cards can quickly devour any savings you’ve managed to achieve elsewhere in your budget. Pay more than the monthly minimum or negotiate a debt payment plan to pay down high-interest cards. And, once you pay them off, follow these tips so that you charge only what you can pay off each month. You’ll have more money to save or spend on wants as well as needs! With these tips and others (like enlisting the help of a Certified Financial Planner® professional), you will keep track of your budget, be accountable and anticipate a financially secure future! You could even model a thing or two to your kids and friends!
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78426475Money can be a major cause of stress in a marriage, so it should come as little surprise that solving money problems can be even more complicated in divorce. Divorce usually comes at a time of economic strain in a marriage and, of course, adds fuel to the fire by immediately adding additional expenses; the cost of a second home, legal fees and the cost of other divorce professionals. The fear of scarce resources can cause people to “fight for a bigger piece of the pie”. However, it soon becomes clear that, if both sides fight hard for a bigger slice of the pie, the  legal fees and other expenses of maintaining the fight will cause the pie to shrink and the fear of having too little to rise. So, how can couples rise above the dilemma of draining resources from a rapidly shrinking pie? Here are a few quick tips:
  1. Recognize that the most expensive part of a divorce is conflict. The desire to “lawyer up” and to focus on “winning” generally just creates economic loss for both parties. Most importantly, there are ways to protect your interests that work better, and put more money in your pocket, than gearing up for a fight.
  2. Look for true “win-win” solutions that can actually make the pie bigger. Believe it or not, there are ways to think creatively in a divorce that will actually help both you and your spouse get more resources; including ways to save on taxes and transaction costs and ways to build in true incentives for both of you to earn more income and/or spend less money.
  3. Improve your money sense. In the end, you will be left with your share of the assets, income and liabilities of the marriage. Your financial future will depend on your ability to manage your share, perhaps more than any other factor. Divorce provides an opportunity to improve your money skills, including your spending habits and earning power.
Collaborative Divorce, because it focuses on reducing conflict and increasing skills, and because it gives you the assistance of a neutral financial expert, provides many opportunities to improve in each of these areas. To learn more about the Collaborative options, and other ways to help address divorce financial issues  go to www.collaborativelaw.org or www.divorcechoice.com.
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Selling a home is stressful. Getting divorced is stressful. Combining the two events can seem extremely daunting, but it doesn’t have to be. Here are five staging tips to ensure quicker, higher offers on your home.
  1. Curb Appeal. The outside of your home is the first impression a buyer will have. Keep the lawn mowed, and shrubs and flower beds cared for. A well maintained lawn and some fresh flowers can go a long way. If the outside maintenance was previously your ex’s responsibility, consider whether this is something you are able to take care of yourself or if you will need to hire out. With winter in the Midwest on the approach take snow removal into consideration as well.
  2. De-clutter. A divorce is a good time to de-clutter all areas of your home. Since you will be splitting up belongings anyhow, now is a great time to de-clutter, sell, donate and start fresh with only the clothing, furniture and decor that you truly utilize. Online garage sales are all the rave right now for selling belongings. A good rule of thumb is if you don’t want to move it, get rid of it now. Going through drawers and storage spaces to get rid of junk is one part of de-cluttering, but also removing items like small appliances and magazines from the countertops creates a cleaner looking spaces.
  3. Remove personal items. You have probably already began to do this as those old family photos might not be as appealing to have on your walls after your spouse has moved out. There are different schools of thought on this and your realtor will likely have their own opinion, but your tasteful, professional photos of the kids don’t necessarily have to go. Removing personal items can also help you begin to detach yourself from the house. Don’t forget to tuck away personal care items in your bathroom, which will simplify your countertops.
  4. Create neutral spaces. Pick up a paintbrush and tone down any bold color choices in favor of a more natural palette. The mustard yellow accent wall in your kitchen or those bubble gum pink walls in your daughter’s room may appeal to you, but toning them down will make your house more palatable for potential buyers and they will be able to envision their decor and taste in the house. Consider rearranging and/or removing some furniture to create more visually open and appealing spaces. If your ex is going to benefit from the sale of your home, be sure to discuss their involvement in the painting and handiwork as well.
  5. Lastly, consider the appeal your home has on the senses. What does it smell like? Avoid spray scents and instead bake bread or cookies. Open the blinds and curtains to let light in. Turn on the lights. Consider the temperature inside of your home. Whether it is summer or winter choose a temperature that is comfortable and invites people to stay and look at your home.
In addition to these staging tips you may want to consider having your home professionally staged. A survey from the National Association of Realtors found that the average staging investment is 1-3 percent of the home’s asking price, which generates a home staging return on investment of 8-10 percent. Discuss with your realtor if professional home staging is something you should consider, but don’t skip out on these five tips which are crucial to home selling!
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Getting married is about love. Well the tide turns when a couple decides to get unmarried or divorced. Divorce is then about money and kids and hopefully not in that order. Being prepared to have financial discussions with your spouse, financial neutral specialist, or your attorney takes time, effort, and I think introspection, to create the greatest likelihood for a successful outcome. One of the most tedious and time-consuming tasks of getting unmarried is compiling all of the financial information necessary. One way or another you and your spouse need to provide copies of statements for all assets, liabilities, paycheck records, tax returns, deeds to your home, pension and 401k accounts, credit card accounts, bank accounts and more.  More than likely you will build a more complete documented financial record than most ever did during their marriage. I think the most important thing you can do to prepare beyond being fully transparent in disclosing and providing all financial documentation is to develop a healthy mindset.  While this is challenging it is certainly doable and worthwhile. The hard work it takes to develop a healthy mindset can save you time, money, and headaches. Just what do I mean by a healthy mindset? It helps to put all your focus on the future instead of dwelling on the past. Focus on your interests instead of positions. Interests are the underlying reasons why something may be so important to a person. Let us look at a simple example. Let us say we have one orange and two people who both want the orange.  They both draw lines in the sand saying no to the other in terms of giving up the orange.  This is a position, something both people decided. It is not until we ask why the orange is so important to them that we determine the underlying interests. What is it that caused each of these people in our example to decide they both want the orange? It turns out one wants the orange to eat and one wants the orange peelings for baking. By getting to the underlying interests, we solve the problem position of one orange wanted by two people.  Learn to think, talk, and express yourself in terms of your interests when negotiating with others. You will be amazed at what can happen and how seemingly unsolvable problems can be resolved. Helping you and your spouse speak in interests is something we as professionals do in the collaborative divorce process. Here are four other basic skills you can learn and practice to help you through the divorce process.
  1. Manage your emotions:  As I said earlier focus on solutions rather than reacting emotionally. Regardless of what someone else might say do not take it personally.
  2. Flexible thinking:  Flexible thinking will help you come up with new ideas and creative solutions. It is important for you and your spouse to maintain flexible thinking during the divorce process.
  3. Moderate behavior:  Moderating your behavior will help your spouse be a little more open minded, respectful, and less defensive.
  4. Checking in with yourself:  As you are going through divorce process checking in often with self on how you are doing on the above three items especially when under stress can help things go more smoothly.
While I cannot promise you, everything will be smooth sailing in your divorce by following these simple suggestions the seas of divorce can be less intimidating and help you reach your final port destination with a little less wear and tear.
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497335421If you have created an estimated monthly budget for your new household after a divorce, know that it will likely change down the road. You may discover after a few months that your spending estimates were unrealistic in some areas while other areas of spending were surprising or unexpected. Here are some tips for projecting your expenses realistically into the future. Plan for car purchases. Even if you don’t have a car payment now, you’ll need to replace your car at some point. Consider including a figure in your projected expenses for “car savings.” If you usually keep a car for eight to 10 years and think you’ll spend about $25,000 on a new vehicle, save $260 a month to buy a newer car for cash when the time comes. This means no new car payment, but you’ll have a new vehicle! If you purchase cars more often, factor in the sale or trade-in of your existing car when determining how much to save. Keep up with car maintenance. The older the car you have, the more money you should set aside for unexpected repairs as well as maintenance. Maintenance could include oil changes, replacing tires, fixing brakes, tune-ups and other recommended inspections. Regular maintenance will help your car last longer too. Escrow for home repairs. A good rule of thumb for home maintenance costs is to escrow 1 to 2 percent of the value of your home each year. A home valued at $300,000, for example, could have annual maintenance costs of $3,000 to $6,000. Costs will be on the higher end for older homes or maintenance you will hire out. Maintenance could include:
  • Replacing the roof, siding or windows
  • Caring for lawn and garden, landscaping, drainage
  • Fixing and replacing appliances
  • Repairs to plumbing or electrical
  • Cleaning and replacing carpets
  • Painting
  • Pool maintenance
  • Small maintenance for light bulbs, furnace filters, etc.
You might not need the full annual budget for maintenance every year, but you may need more than the budget in other years. Start a holiday savings account. December gift giving, let alone birthday and anniversary gifting, are often missed when budgeting. Consider the gifts you give, the decorating costs and entertaining you host as part of a holiday savings account. This is one area that, once budgeted, people often decide to scale down in future years. However, if it’s a priority for you, you’ll have cash to enjoy it instead of worries about the bills later! Vacations should be planned with cash. If you routinely take one family vacation a year or take trips to visit friends and family, add these expenses to your monthly budget and put away cash to cover costs that include airfare, car rentals, lodging, meals, touring and shopping. Don’t forget to budget for “big box” spending. People often create a projected budget for groceries or school shopping expenses, but an easier way to budget is to create a “big box” category to cover shopping at stores like Wal-Mart, Target, Costco or other department/membership stores. If you find yourself shopping at these stores at least twice a month, budget for the trips and bring cash. These are just a few of the ways you can project your future expenses and plan ahead. Other categories to consider include: health care, debt payments, charitable giving, and entertainment. Adjust your amounts as you start to see a pattern month to month, and you’ll have a clearer picture of your cash flow forecast!
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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.
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177884875The kids might not be the only ones headed back to school this fall. Divorce forces many parents back into the workforce, and for some, even back to school. Divorce can initiate some dramatic changes in your lifestyle, and it make you re-evaluate yourself and your career. Some former stay at home parents are now looking for an enriching way to increase earning potential by going back for a degree they never finished, for a new degree, or for some it may be their first time in college. Divorce forces many people to take a risk, to do something for their selves, to strive for personal growth and to set goals, which is why many decide going back to school is a good option for them. When evaluating if going back to school is the right option for you consider that your goals are: Are you hoping to begin a new career? Advance in your current career? How long will it take? What will you be able to earn when you are finished? Consider the cost: Ask your attorney about whether continuing your education post-divorce will affect your spousal maintenance. Check with your employer to see if they cover any of the cost. Discuss your financial situation at the college’s Financial Aid office to see if you may qualify for any grants or scholarships, and of course, compare tuition amounts for schools in your area. Typically called, “non-traditional students” divorcees, over 35, and typically women, make up a good percentage for the student population at community, private, and online colleges, which usually offer flexible schedules and work at your own pace credit loads to graduate. It is not easy taking a risk and making a big commitment to go back to school, but if you decide that going back to school post-divorce is for you, rest assured that you are not alone.
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186858906How to provide financially for children after divorce has been a much-discussed topic for decades. Courts have traditionally used child support guidelines established by state government to calculate a monthly payment from one parent to the other. The Minnesota guideline child support calculator incorporates a number of variables, including both parents’ incomes, number of children, parenting time percentages, and children’s medical and day care costs, in arriving at a monthly payment amount. While statutory formulas produce a number, they don’t always resolve the issue. Many unanswered questions may remain, such as: “Is summer camp included in my child support payment?” “Do I have to contribute toward dance lessons on top of my child support?” “Our child needs private tutoring … does my ex have to pay half?” “Who pays for hockey equipment and ice time?” Ambiguity often results in conflict. Some couples return to court again and again to try to resolve questions like these. The emotional and financial costs of repeated court appearances add up in a hurry. The Collaborative divorce process takes a different approach toward paying the children’s direct and indirect expenses. Parents compile a list of their kids’ direct expenses (clothing, haircuts, school lunches, daycare, summer camps, extracurricular activities, etc.) and then discuss options for paying these expenses. Some couples decide to fund a joint children’s account to be used solely for enumerated expenses. Others divide the expenses with mom paying some and dad paying some. Others decide to use the guideline calculator, spelling out how any additional expenses will be covered. Indirect expenses (housing and food) are included in each parent’s budget and are usually part of a more general discussion about support. Collaborative support agreements typically include periodic reviews allowing for adjustments as parents’ incomes and the children’s needs change. Plans like these can preemptively avoid repeated unpleasant discussions in the years following divorce. If you are interested in learning more about the Collaborative process, please visit The Collaborative Law Institute of Minnesota’s website.