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Determining who is best qualified to help you reach your financial goals, understanding what they can do for you, and getting clarity on how they get paid for their services may be a challenge if this is all new to you. Here are some useful tips to find the right financial professional to help guide you through your financial matters. Designations The finance industry excels at creating financial designations for every conceivable financial situation.  If you are looking for a financial planning generalist who can help you with most issues, look for someone with either a CFP®, ChFC® or CFA® designation. A Certified Financial Planner® (CFP®) is the dominant designation for financial planners. The Chartered Financial Consultant® (ChFC®) designation is similar to CFP®. A Chartered Financial Analyst® (CFA®) is an expert in investment management, but has also studied the basics of financial planning.  In addition to one of these designations, many financial advisors who work in the divorce area also have a CDFA™ designation (Certified Divorce Financial Analyst®). Background Check Once you find some candidates with the right credentials, do your homework and check out their website to see how much experience they have and if they indicate any specialty. You should also look into whether they have had any disciplinary issues with regulators, by performing a FINRA BrokerCheck® search. The Financial Industry Regulatory Authority (FINRA) has a file on every advisor working with a FINRA-registered brokerage firm at www.finra.org/Investors/ToolsCalculators/BrokerCheck Initial Meeting Questions Most financial planners will be happy to sit down with you for an initial meeting at no cost or obligation.  The initial meeting is your chance to learn more about the financial planner and their business, to explain your situation and learn what services the planner offers. The following are some essential questions to ask at the initial meeting. What experience do you have? The financial planner may have significant financial experience but it is the experience they have counseling individuals that really matters. What is your approach to financial planning? Ask what types of clients and financial situations the advisor typically works with.  For example, a planner that specializes on working with business owners may not be the best choice if you are newly divorced and in need of budgeting help. What services do you offer?  Some financial advisors may focus on helping you with your investment needs, where others will also provide comprehensive financial planning (i.e. retirement, education, estate, tax and budget planning). Many planners expect to manage your portfolio along with the other services that they offer.  Financial planners may also be good resources for and work closely with tax accountants and attorneys. Do you work alone or with a team? Financial planning is often done with a team approach where several specialists will assist the lead planner. When your financial planner is in meetings, it is good to know if there is someone else in the firm who can answer your questions or take care of basic requests in a timely manner. How much do you typically charge? How do I Pay for your services?  Financial planners may charge for their services in several ways. If they are only creating a plan for you, it may be a set project price or by the hour. If they are will be managing your investment portfolio on an on-going basis, they may earn a commission on the investments or a charge a fee based on the size of your portfolio. There are numerous questions that you should consider based on your own situation.  Remember that you are under no obligation in this meeting. If you intend to work with this planner over the long-term, it may take more than one meeting to determine if they are the right fit for you.  Whatever planner you decide to work with, make sure you know what services will be provided and how the planner will be compensated.  
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182478021-cashflow-gettyimagesOne of the challenges of divorce is separating income that used to be joint income, along with separating into two households versus one. This is a recipe for cash flow drain for most couples.  All of the sudden the same income(s) that supported one household must now support two households. I want to share an example of how cash flow solutions can be achieved through the collaborative divorce process.  Assume we have a couple struggling to make their cash flow positive which is often the case with divorce.  A substantial strain on their living expenses is secondary private school tuition for two more years for their child. This amounts to approximately $15,000 for tuition the first year and another $18,000 for the second year.  They are attempting to make these payments from existing income.  The strain of these payments coupled with divorce has become unbearable.  The parents are both determined to keep their child in this private school through the eighth grade. Additional assumptions include this couple having a small first mortgage on their home.  This mortgage requires a monthly payment of approximately $1600.  In our example, we would research refinance options including home equity loans.  After researching options an acceptable bank loan could provide them with the flexibility needed to lower the monthly cash flow shortage from over $1300 to approximately $220.  While this does not completely cover the entire cash flow shortage, it improves it significantly. The parents could draw from other savings if needed to make up this shortfall or look to further reduce some expenses.   An agreement could include that each parent would pay one-half of the cost of the second year private school tuition.  They both would have the flexibility to pay their share of the tuition from income sources, from savings, or some combination of the two. Structuring this part of their plan allows them to accomplish several goals.  One is to keep their child in the private school for the two additional years until graduation.  Secondly, it allows one spouse to stay in the home until the child enters the public school system and graduates from high school.  At that time, the spouse retaining residency in the home could either buy out the other spouse’s interest in the home or the home could be sold with sale proceeds being shared between the two spouses. Not all cash flow challenges can be so easily resolved.  What makes this situation work is everyone knowing what the goals are and everyone working together to help the couple find solutions that are in the best interest of the family and their children. Collaborative divorce, with the use of selected experts in their fields, can help divorcing couples navigate difficult issues with money, children, relationships, and emotions.  To learn more about collaborative divorce visit www.collaborativelaw.org and be sure to check out our blog site on a variety of topics at www.collaborativedivorceoptions.com.
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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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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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200150399-001As another tax season comes to a close, there are people all over the country digging through shoe boxes and file cabinets trying to meet their tax accountants’ request for cost basis information on an investment they sold last year. Hundreds of thousands of tax returns are moments away from being filed if only the taxpayer could find that elusive cost basis information. So what is cost basis, why is it so important, and why can’t anyone ever find it? At its simplest, cost basis is the purchase price you paid for an investment or piece of property. More than that, it also includes the expenses that went directly into the purchase including commissions, trade fees, appraisal and legal expenses. Cost basis can also grow over time due to reinvested dividends on mutual funds or if you made significant improvements to your property. When you sell an investment or property, cost basis is vital for figuring out if you made or lost money on the sale. The IRS wants to know your gain on the sale and expects you to pay taxes on it. If you lost money on an investment, it is important to report that as well. The loss will almost always be subtracted from your gains on other investment sales thereby lowering your tax bill. The IRS puts the responsibility for keeping track of cost basis on the owner of the investment or property. Maintaining good records on investments in particular seems to be impossible for all but the most organized. With the blizzard of paperwork that the investment company sends aren’t they keeping track of this? Yes and no. Prior to 2011, the investment companies kept track of your cost basis but they were under no obligation to transfer that information if you transferred your assets to a new investment company. Statements at your new investment company would only reflect the cost basis of investments purchased through them. As of 2011, all investment companies are required to transfer the cost basis information when transferring assets. Unfortunately, if an account has been moved a couple times prior to 2011, the cost basis of some assets is only known if the owner still has the records of the original purchase. Anyone one with a brokerage account (not an IRA which gets taxed differently) or investment properties needs to keep good records of their purchases and related expenses. While investment companies are finally doing their part, it will be years before all the investments purchased before 2011 with missing cost basis information are sold and people can throw out those shoeboxes of old statements. For anyone splitting up assets in a divorce, it is important to get the cost basis information during the divorce process. Make sure to get a statement of any investment account being split. Also make sure to get all the expense receipts for any investment properties that are being transferred. If you get this information during the divorce, you don’t have to go asking for it later only to find that the statements got thrown out during moving or mysteriously “disappeared”.
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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.