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98680904Cash flow refers to how your money moves in your household, from the time it is received to when it is spent. When your cash flow is “positive,” it means you have more money coming in than going out; you are spending less than you take in each month. You want positive cash flow in order to pay for expenses and also save and invest money for goals. After a divorce, however, you may find your cash flow is tight or even negative. That is, you are spending your cash almost to zero each month or spending even more than you take into the household. To improve your cash flow, here are several steps to take: 1. List all your sources of income. Your income could include any of the following:
  • Spousal maintenance/alimony
  • Child support
  • Part-time and full-time wages, bonuses and commissions
  • Self-employed income
  • Rental income
  • Royalties
  • Investment income
  • Pensions or draws from retirement accounts
Different sources of income are taxed differently, so you need to know your true after-tax income. Consult a CPA or financial advisor to learn more about this. You’ll also need to know how often you receive each source of income and if it’s fixed/guaranteed (paychecks) or variable (self-employment income). 2. Determine your historical monthly spending. Look back 6-12 months to get an accurate picture of expenses. This could include everything from car or home maintenance to vacations, kids’ sports activities or insurance premiums. Look up spending summaries on your Quicken account or request statements from your bank or credit card companies. Don’t make yourself crazy trying to document every expense to the penny. Just come up with a monthly average per expenditure (e.g. $1,000 on holiday gifts averages out to about $83 a month). Reviewing your spending habits can be a valuable exercise. You’ll likely see areas where you could realistically cut spending in order to improve your cash flow. 3. Decide if positive cash flow requires more income or less spending – or both! There are only two ways to improve cash flow: increase your income or reduce spending. You can increase income by finding a job, increasing the hours you work or finding a different job with a better salary. You could also consider returning to school to train for a better-paying job. Temporary jobs, such as retail during the holiday season, can also provide a cash cushion to meet immediate or pressing needs. If you are already working as much as you can, then look for ways to cut spending. Divide your expenses into fixed expenses (like rent or mortgage), escrow expenses (such as insurance or taxes), and living expenses (groceries, haircuts, school expenses). It is often in the living expenses category that you can find areas to cut — at least short term — in order to create a more workable budget and money habits. Keep going back to this list and making cuts until your budget is less than your income. If you are in the habit of using credit cards as your cash overflow account and aren’t paying off the balance each month, this is another sign that you may not have positive cash flow. Stop using credit for any living expenses and give yourself a cash allowance instead. You will quickly assess needs and wants by looking at the remaining cash in your wallet as the weeks go by. Be gentle with yourself. A new cash flow system takes 30 to 90 days to start showing positive results. Staying in a budget takes practice, but can become fun as you have more money to save for vacation or that retirement dream.
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175383921In my last post “Getting Unmarried: Gray Divorces”  I wrote about the increasing number of divorces for those over the age of fifty. Also of note was how Gray Divorces have many of the same foundational issues as any divorce although there are some distinct differences. Regardless of the issues, a trained financial neutral plays a critical role in the collaborative process. Money matters can be a bed rock of tension in divorce cases.  Financial issues are often cited as a major reason for marriage breakups. A financial neutral assists couples in navigating their finances. They help with the two major financial components in divorce. One is the balance sheet (list of all assets and liabilities), and two the cash flow and support. So what does a financial neutral actually do you ask.  First and foremost a financial neutral is just that – an impartial expert on financial issues. They remain unattached to any particular outcome. A good financial neutral can be worth their weight in gold when it comes to helping couples navigate money issues in divorce. Financial neutrals help a couple gather and identify the financial information needed. I often hear from spouses the detail involved in gathering the financial information is something they have never experienced. The reason for this is all assets and liabilities, each and every one, is separately noted in the final decree so as to leave no doubt who gets what and who is responsible for what. Independent third party written documentation is needed to support each asset and liability. This information gathering is a part of the process that can’t be short circuited. Having said this, when information gathering is completed by a financial neutral it can save spouses a considerable sum. Think about it. You are paying one professional, the financial neutral, to complete this process vs. each spouse providing the same information to each of their attorneys who in a non-collaborative divorce will have to review and assimilate  all the information provided, ask questions of their clients, and then likely have to converse with the other spouse’s attorney. Financial neutrals can assimilate and organize this information in a streamlined manner with the couple’s cooperation. Usually financial neutral hourly rates are less and sometimes significantly less than attorney rates. Once all financial information is collected and organized the financial neutral creates a marital balance sheet listing each and every asset and liability. The marital balance sheet forms the basis for discussion as to how each asset and liability is allocated between spouses. In the collaborative divorce process, couples make their own decisions about asset and liability allocations to each spouse.   Couples must ultimately reach agreements on the balance sheet. The financial neutral along with each spouse’s attorney helps facilitate these discussions. The alternative in more traditional litigated divorce cases is someone else, a judge, makes decisions for the couple since they are not able to agree on their own. Financial neutrals help spouse’s asses their ability to meet their reasonable living expenses (cash flow). This part of the process includes analyzing income sources and estimating future living expenses. Generally spouses are asked to complete some sort of budget template. In my experience both as a financial neutral and a financial planner, I find most people do not care for the term budget. I do a fair amount of public speaking and when I ask people what they think of when they hear the word budget it usually has a negative impression like restrictive or confining. I have attempted to remove the word budget from my vocabulary as a result and replaced it with cash flow or spending guide.  Budgets tend to be backward looking while the words cash flow and spending guide are future oriented. Assessing income and expenses (cash flow) provides each spouse with a realistic look at their financial security moving forward. Financial security is the number one goal I hear that each spouse wants to achieve. No one has ever told me they want financial insecurity. A realistic look at cash flow for each spouse is critical to providing the financial security they seek. Here is a phrase I have used when having cash flow discussions. If your outgo is greater than your income, then your upkeep may be your downfall. Think about that for a moment. Better yet remember it, as it will serve you well no matter your financial stage in life. Yes the balance sheet with its listing of all assets and liabilities and the cash flow and support pieces form the two financial pillars of every divorce. Sometimes the financial issues can become very emotionally charged. A well-trained experienced collaborative financial professional along with the help of other collaborative team members can help keep spouses on track. I encourage couples to the extent possible to look at these decisions as business decisions. It’s easier said than done but in the end it usually is a business decision. I am a firm believer that each spouse and their family are far more important than any numbers on a balance sheet or cash flow report. In my book and in my work people always come first before numbers. There are other important financial issues a financial neutral can assist with. Watch for part II of “Getting Unmarried: Money and Divorce.” There I will talk about marital and non-marital property, analyzing tax implications of various scenarios for child support and/or spousal maintenance; analyzing property and business interests, debt pay off scenarios, and comparing pros and cons of using one asset over another. Is a collaborative divorce process right for you? If you or someone you know may be looking for a divorce alternative without court click on this link to learn more:  www.collaborativelaw.org
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During and after a divorce, tax matters take on new importance since your financial circumstances have probably changed, as has your filing status. If you were in charge of tax returns during your marriage — and especially if you were not — keep these tips in mind to support the best possible outcome when filing your annual returns. Some legal fees are deductible. While most court costs and legal fees for obtaining a divorce are not deductible, some are, including:
  • Fees paid for tax advice related to a divorce
  • Fees paid to determine or collect spousal maintenance
  • Fees paid to determine estate tax consequences of a property settlement
  • Fees paid to professionals if the services were completed to verify the accurate amount of tax or to assist in obtaining spousal maintenance (appraiser, actuary, etc.)
These deductible costs are usually claimed as a miscellaneous itemized deduction on Schedule A of your income tax forms, but are subject to the 2 percent of adjusted gross income floor.  Talk to your tax advisor to see if you qualify. You may be held liable for past unfiled joint tax returns or audited returns. Even if you were not involved in the preparation of your taxes during your marriage, you may still be held liable for unfiled returns or inaccurate returns. You can request copies of past federal and Minnesota state tax returns from your tax advisor or from the IRS and Minnesota Department of Revenue (Federal Form 4506-T and Minnesota Form M100). Plan ahead for filing of future tax returns. Your marital status on December 31 of a calendar year determines your filing status for that year. If you were married most of the year, but your divorce is finalized on December 31, you cannot file as married joint, but would instead file as either head of household or single. If you are in the process of getting divorced, consider working with your spouse, your attorney and a tax professional to determine which filing status would best suit your financial situation. Also, keep in mind during the divorce process that it helps to spell out the following in the divorce decree:
  • Who will itemize mortgage interest, real estate tax, charitable contributions and other itemized deductions?
  • Who will claim any dependent children’s exemption and tax credit?
  • Who will take any long-term capital loss carryover?
  • Who will claim any quarterly estimated tax payments made during the year?
  • Who will report investment income from joint accounts?
 If this is not clearly spelled out in your divorce decree, consult with your tax professional or attorney for guidance. Review your tax situation to determine withholding, estimated tax payments, cost basis of assets and taxable retirement benefit distributions. Your W-4 withholding may need adjustment after your divorce to ensure that enough tax is deducted from your wages — or less tax, depending on your situation. You should also determine if you need to make additional estimated quarterly tax payments to cover spousal maintenance or personal investment income (which does not have taxes withheld like wages). You’ll need to know the cost basis of your personal investments, real estate and any life insurance with a cash value. If you sell these assets in the future, the cost basis will determine if you have taxable income from the sale. Finally, if you take a distribution from a retirement account during the divorce process, you may have to pay taxes on that income. Plan ahead for your taxes during the divorce process and prior to filing that first post-divorce return. You’ll reduce the time, cost and potential frustration of this necessary part of your new life.
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New YearAfter the magic of the holidays dies down it can be hard to pick up the pieces. This holds true even if your holidays didn’t seem magical. The hustle and bustle of shopping, cooking, traveling, holiday parties, etc., can create a pretty good distraction and may have you wondering, “now what?” The stress of the holidays can send couples on the brink of divorce over the edge, and likewise, people set on divorce tend to try to get through one last holiday season together “for the kids” or “for the family.” More people file for divorce in the month of January than any other time of the year. Typically the day most common for filing for divorce is the first day of the first full work week of the year, which for 2014, would be Monday, January 6. We all know New Years is as good of a time as any to start setting goals. What do you want 2014 to look like for you? Finalizing your divorce, fine-tuning your parenting plan or saving up for a much needed vacation? Fill in the post-holiday gaps by working on your goals. Maybe that vacation won’t be a reality for a long time, but planning is half the fun. Start a board on Pinterest, take a stay-cation and discover all the amazing things your city has to offer, start journaling, pick up an old hobby that maybe you haven’t done since before marriage or before kids. This painful time is a growing point in your life and there are lessons to be learned during dark times, lessons that Daisy Camp can help walk you through. Daisy Camp is a one of a kind retreat that provides financial, legal and experienced advice from qualified professionals that can help women that are going through a divorce transition. Coupled with the business seminars, many inspirational and self-care sessions help enable women to navigate the business and emotional realities that come from a divorce proceeding. Daisy Camp will be offering its first retreat of 2014 on January 25th. If you or a friend find yourself amongst the post-holiday divorce statistics please remember Daisy Camp is here to offer divorce education and support. Find more info at www.daisycamp.org.
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Raggedy Andy for Halloween
Tonda as “Raggedy Andy” for Halloween
Halloween is my favorite holiday. I always dress in costume even if I am not going to a Halloween party. In the past, I have dressed as Ms. Piggy, Jacqueline Onassis Kennedy, the Medusa, a Cone Head, the Pinball Wizard, and stuck my head inside a carved pumpkin, just to name a few. It’s the time of year for tricks or treats. While treats are the standard fare, I sometimes think it would be fun to give out tricks instead. Tricks are not appropriate, however, in your divorce process. But many people feel they have been tricked when they find out later they agreed to an ill-conceived settlement. Even if technically there had been no trickery in the settlement process, what was probably missing from it was the transparency and education needed to make informed decisions. By using the collaborative divorce process, you and your spouse are assured of complete transparency of all facts relevant to making an informed decision about your settlement. Furthermore, you both receive the added value of consulting with the appropriate expert to thoroughly understand what the facts mean, be they financial facts, child development facts, legal facts, or communication and relational facts. Making informed decisions is critical to achieving a successful and durable settlement customized to the future needs of your family. No tricks. And yes, treats are still possible despite a divorce.
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In Part I of this series titled “Getting Unmarried” (my story), I wrote about making the decision to get divorced as being the most important and most difficult step for me.  I will tell you that after finally deciding to end my marriage, it was as if the weight of the world had been lifted from me.  This didn’t necessarily make the rest of the process any easier, but it did change the focus of my efforts to getting from point A to point B. Now that I had made the decision to end my 30-year marriage, my next step was to figure out how to do this.  At this point I had not discussed any of this with my spouse, although we both realized our marriage was under tremendous stress once again.  I didn’t have a clue where to begin.  I had no prior experience myself, nor had my parents been divorced.  I knew that listening to friends and family was not necessarily the best, as they naturally would find it difficult to be impartial.  I knew I didn’t want a costly or high conflict divorce. What I did want was an open, respectful, type of process that considered both of our needs and the contributions we both made to our family during our 30-year marriage.  I wanted to as much as possible be able to make decisions with my spouse about the outcomes rather than someone else making those decisions for us.  I assumed that if I ran straight to an attorney, I might run the risk of the process getting out of control.  At the time I didn’t personally know any family law attorneys.  What I chose to do was to find out about the different alternative processes to divorce, choose the one I felt most suitable for my circumstances, discuss with my spouse with the hope we could agree to a process, and then find the attorneys who could help us achieve these goals. While I knew, or I should say thought I knew, about the more traditional type of divorce process, this largely attorney driven (my opinion as a result of my divorce experience) method seemed too adversarial, too costly both financially and emotionally, and would not help me accomplish the goals I wanted to achieve.  Although this process did not seem suitable for me, in some cases depending upon circumstances, it may be the best and sometimes the only alternative available.  I would encourage anyone considering the traditional litigation type divorce process to thoroughly learn about all the process alternatives before embarking down this path. I had heard about mediation.  From my research I learned that a mediator is an independent, neutral third party who attempts to help divorcing couples resolve their differences and come to mutual agreements.  The mediator may or may not be an attorney. Regardless, the mediator is not able to advocate for either spouse, provide legal advice, nor draft any legal documents for filing with the court.  Each spouse may have his or her own attorney during the mediation process.  The attorneys, if any, may or may not participate in mediation sessions depending upon the couple’s desires. At the conclusion of mediation, the mediator typically drafts a memorandum of understanding outlining any agreements reached.  An attorney would be hired by one of the spouses to draft the necessary paperwork, using the mediator’s memorandum of understanding as a foundation for agreements, and submit the paperwork to the court. The drafting attorney is only able to represent one spouse.  The other spouse may find another attorney to review the draft decree on behalf of their interests. I always recommend that each spouse has their own attorney to make sure that each has an opportunity to ask about the law and that each fully understands the implications of their agreement.  There is nothing that requires the couple to complete the mediation process, which can be withdrawn from by either spouse at any time. While mediation seemed a better alternative to me than the traditional litigation type divorce, it still was not quite what I was looking for.  I felt as though there had to be some other way.  I started scouring the web for more information on how to get divorced or “unmarried.” Oh sure, the do it yourself options are often mentioned, but our circumstances were too complicated—long-term 30-year marriage, property, etc.—for a do-it-yourself kind of approach. A do-it-yourself divorce might possibly be used in a short-term marriage when there are no children and little property.  Furthermore, I am a believer that you get what you pay for and a do-it-yourself divorce never crossed my mind given our circumstances. In my next post I will continue with how to get divorced by sharing with you what I learned about something I had never heard of before, a collaborative divorce.  You owe it to yourself to learn about this alternative process so please stay tuned for the next session of “Getting Unmarried.” What is a collaborative divorce? Read the continued series here.