Tag Archives for " certified divorce financial analyst "

Jul 19

Getting Help When You Need It Most

By Chris Chen CFP | Divorce Planning , Financial Planning

Getting help when you need it most

chess pieces divorcingWhen “Lindy” was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband “Ted,” she panicked. She would have asked her lawyer for
guidance, as 79% of divorcing individuals end up doing, but she was not sure that her divorce lawyer could give her the guidance she needed .

The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision “on the steps of the courthouse”, so she said no.

Even Lindy’s lawyer was happy with the process

Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce have become terribly complex ranging from shorter-term tax issues to longer-term financial planning issues.  Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, divorce lawyers are unable to counsel their clients in depth on the financial implications of divorce , which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.

According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces . According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations and 40% of those mediating their divorces feel the same way.

No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.

In Lindy’s case, she was fortunate to be referred to a Divorce Financial Planner by a divorce coach. Divorce Financial Planners build on financial expertise often acquired by Certified Financial Planners (CFP®) or Certified Public Accountants (CPAs). They also often hold the Certified Divorce Financial Analyst (CDFA®) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, Divorce Financial Planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning.

They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?

In Lindy’s case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony.

However, Ted’s offer was still not clear about his employee stock options, as he did not know how to value them. In addition, the offer did not address the issue of college funding for their 13 year old daughter.

Lindy’s Divorce Financial Planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer. After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy’s lawyer was happy with the process , as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.

A previous version of this post was published in Kiplinger

Apr 09

Health Insurance Issues Post Divorce

By Chris Chen CFP | Divorce Planning

Health Insurance Issues Post Divorce

With children and income issues on top of the list of critical concerns, health insurance is often overlooked by divorcing individuals, their divorce mediators and divorce lawyers . Everyone agrees that health insurance is important, but expects or hopes that a solution will find itself.
In the case when one of the divorcing parties has employer provided health insurance, it is assumed that this will continue for the divorcing spouse, as mandated by Massachusetts law. In addition,, people usually don’t think of the tax consequences of continuing employer based health insurance for a divorcing spouse . That is because employer based health insurance is considered a non-taxable fringe benefit for the employee and his or her family under IRS rules. Yet that does not necessarily imply a tax free benefit for an ex-spouse.

Health Insurance, Divorce and the IRS

Under IRS rules, a benefit provided by an employer to the former spouse of an employee, is a taxable benefit to the employee. Hence the employee must pay federal income tax on his ex-spouse’s health insurance. In turn that imputed income could be deducted as alimony by the taxed employee. That would create additional taxable income for the ex-spouse.

Under IRS rules, a benefit provided by an employer to the former spouse of an employee, is a taxable benefit to the employee

To make matters worse, employers are just waking up to the issue. Starting in 2013, employers have started to apportion the value of fringe benefits on employees’ W2 forms. This will greatly facilitate including an ex-spouse’s share of health care insurance on the employee’s W2 form in January 2014, and, thus increase the employee’s taxable income.  In turn, should the employee deduct the insurance as alimony, the ex-spouse must add the amount to his or her own taxable income, or face the consequences of under-reporting income.

Dealing with Health Insurance in a Divorce

In a divorce negotiation where the amount of alimony and the sharing of tax benefits are vigorously negotiated between the parties, to add health insurance choices and their consequences to the menu may not be welcome. It would be hardly better, for the parties find out the consequences after the fact.
As financial planners with a divorce specialty, we recommend that the ex-spouse should get his or her own insurance as soon as possible. That is not always feasible in the short run. As an alternative, we recommend to choose the best option available with all eyes open to the consequences.
If you would like to learn more, ask for the white paper that I co-authored with Justin Kelsey, Esq., or call one of the authors for a consultation.

Apr 09

In a Divorce, can we share a Certified Divorce Financial Analyst™?

By Chris Chen CFP | Divorce Planning

In a Divorce, can we share a Certified Divorce Financial Analyst™?

Sometimes we get asked by clients who are working through a divorce whether it is OK to share financial analysts with their spouse. In some cases, it works.

For instance in a Collaborative divorce, the financial planner often works neutrally for both parties, while the spouses are represented separately by lawyers . In mediation cases, we have worked for both parties as well. In either the collaborative or mediation methods, the parties often aim to shape their divorce agreements in good faith as it best suits them. They will try to reach an agreement that is “fair and equitable” without the court making decisions for them. In those cases, it may make sense to share a financial planner. Indeed, it may even facilitate and speed up the process.

In the more common adversarial process (each party talks through their own lawyer), people ask us also whether they can share financial specialists.

We do not recommend it. We do not do it. We believe it is important in a divorce to get competent financial advice  in addition to competent legal advice, however, we could not provide that should our loyalties be split.  In that case, the answer is no.

 

Other posts you may find interesting

Pension Division in Divorce

4 Risks of Pension Plans in Divorce

Post-Divorce Investments