Tag Archives for " divorce "

Apr 15

McKenzie Bezos: 4 Wealth Strategy Concerns

By Chris Chen CFP | Divorce Planning , Financial Planning , Tax Planning

McKenzie Bezos: 4 Wealth Strategy Concerns

source: pexels

On April 4th, it was announced that McKenzie Bezos would be receiving 36 billion dollars worth of assets from her divorce from Jeff.  

First of all, congratulations to Jeff and McKenzie for keeping this divorce process short, out of the media as much as possible, and out of the courts. We are not going to know the details of the Bezos’ agreement. However, some information has been disclosed in the press.

As reported by CNN, McKenzie is keeping 4% of their Amazon stock, worth approximately 36 billion dollars. Jeff retains voting power for her shares as well as ownership of the Washington Post and Blue Origin, their space exploration venture. According to The Economist, this makes the Bezos divorce the most expensive in history by a long shot.

As a post-divorce financial planner, I feel a little silly thinking of what I would tell McKenzie to do with her money now. The magnitude of her portfolio is well beyond run of the mill high net worth divorces with assets only in the millions or tens of millions of dollars. McKenzie can buy $100M or $200M houses and condos wherever she wants. She can have her own jets and her own yachts. She could buy an island or two.

Unsurprisingly, McKenzie’s wealth is concentrated in AMZN stock. That has worked out well for the Bezos’ for the past several years. It is likely to continue to be a great source of wealth for both of them in the future. As it stands, McKenzie is now the third richest woman in the world. Who knows, if she holds onto AMZN stock, she could become the richest woman in the world one day! McKenzie’s concerns with budgeting, taxes, and wealth strategy will soon be in a class of their own.

There are, however, some lingering considerations for McKenzie, particularly when it comes to capital gains taxes, portfolio management, philanthropy and wealth transfer.

Capital Gains Taxes

McKenzie probably has an enormous tax liability built into her AMZN holdings. While I am not privy to her cost basis, it is not unreasonable to assume that it is close to zero since the Bezos’ have owned Amazon stock since the company’s inception. Should McKenzie sell her AMZN stock, the entire amount would likely be subject to capital gains taxes. As such McKenzie may not be worth quite $36 Billion after taxes are accounted for .

A benefit of keeping the stock until her death is that her estate will benefit from a step up in cost basis. This would mean that the IRS would consider the cost of the stock to be equal to the value at her death. This favorable tax treatment would wipe out her capital gains tax liability.

Portfolio Management

Nevertheless, the standard advice that wealth strategists give clients with ordinary wealth applies to Ms. Bezos as well: it would be in McKenzie’s best financial interest to diversify her holdings. Diversifying would help her reduce the risk of having her wealth concentrated into a single stock. It is a problem that McKenzie (and Jeff) share with many employees of technology and biotech startups.

McKenzie might not want to sell all of her AMZN stock or even most of it. Although we have not read their separation agreement, she has probably agreed with Jeff that she would retain the bulk of her holding. She may also believe enough in AMZN and Jeff’s leadership to sincerely want to keep it. Regardless, McKenzie should still diversify her portfolio to protect herself against AMZN specific risks.

Philanthropy

An advantage of having more money than you need is that you have the option to use the excess to have a measurable impact on the world through philanthropy. In 2018, Jeff and McKenzie created a $2B fund, the Bezos Day One Fund, to help fight homelessness. Given that the home page of the fund now only features Jeff’s signature, this may mean that Jeff is keeping this also. McKenzie will likely organize her own charity. What will her cause be?

Philanthropy can be an effective tax and estate management tool , primarily because, within limits, the IRS allows you to deduct your donations against your income thus helping you manage current and future taxes. For McKenzie, it is about deciding what to do with the money, instead of letting Congress decide.

Wealth Transfer

McKenzie’s net worth is far in excess of the current limits of federal and state estate taxes. Unless she previously planned for it during her marriage, she will have to revise her estate plan.  Even though she would benefit from a step up in basis on her AMZN stock if she chooses not to diversify, she would still be subject to estate taxes, potentially in the billions of dollars.

Of course, no matter how much estate tax McKenzie ends up paying, it is likely that she will have plenty to leave to her heirs.

Financially, McKenzie Bezos has what wealth strategists would consider as ‘good financial problems’ . She has the financial freedom to focus on the important aspects of life: family, relationships and making a difference.

 

A version of this post appeared in Kiplinger on April 12, 2019

Jul 19

Post-Divorce Investments – What do I need to plan for now?

By Eric Weigel | Divorce Planning , Investment Planning , Portfolio Construction , Risk Management

Making Your Post-Divorce Portfolio Reflect the New You

Divorce is the final step of a long process. Whether the marriage was long or short, the end of marriage brings about the conclusion of an important phase of your life.

Divorce is an emotional event sometimes anticipated years in advance and at other times coming totally out the blue.

In all cases whether anticipated or not, divorce is a stressful event. According to the Holmes-Rahe Life Stress Inventory Scale divorce ranks as the second most stressful event that a person can experience in a lifetime.

Typically when you divorce you end up with an investment portfolio that is ½ of your old couple’s portfolios. Invariably, your new portfolio will not be suitable anymore.  If you haven’t been the “financial” person in your marriage you may not even know what you own.

Most likely you will need to make changes to your portfolio to suit your new situation. You are now also solely responsible for your financial health.

Your post-divorce portfolio should reflect your updated needs, objectives and comfort level with investment risk.  This may not be what you bargained for or you may feel ill-prepared to handle this on your own.  You may feel that your life is out of your sync, but aligning your financial assets to your new situation is entirely under your control.

Why do you need a new portfolio once you divorce?

For one, the dollar amounts are less than before and your current investment strategy reflects your goals as a couple rather than your own objectives going forward.

Moreover, most likely your confidence is a bit shot and your desire to take much investment risk is lower than before.

Ok, are you with me? You can control this aspect of your new life. What steps should you take to get the ball rolling?

We suggest an approach rooted in our P.R.O.A.C.T.I.V.E methodology.

The first step involves thoroughly examining your new situation from a non-financial standpoint.  Where do you want to live? What type of lifestyle are you looking for? If you have children what type of issues do you need to account for?

The second step is to re-evaluate your comfort with taking investment risk.  Now that you are solely in charge of your financial life how do you feel about taking on risk? Are you comfortable with the inevitable stock market swoons that occur periodically? Are you able to think as a long-term investor given your recent divorce?

The next step is really important. Your post-divorce portfolio needs to work for you. Establishing a hierarchy of financial objectives will drive the type of strategy that is most appropriate for you.

Is your primary objective to save for retirement? Do you have any major objectives besides retirement? Maybe you need to fund college tuition for your two kids.  Maybe you plan on buying a new home in 2 years once your life has settled down?

Next you need to deal with the nitty gritty of figuring out exactly what you own and cash flow budgeting.  What you own should not be difficult to figure out as you have just gone through the divorce process.

The second part of cash flow budgeting is often highly sensitive for people not used to budgeting during their marriage.  If you have never had a budget or stuck to one this step seems like a major imposition. But unless money is so plentiful you have no choice.

At least for a period of time you will have to keep track of your expenses and gain an understanding of where the money is going. The reason this is important is that you may need to tap into portfolio gains to fund your living expenses. If that is the case, your portfolio should be structured to write you a monthly check with a minimal amount of risk and tax consequences.

The next step in the P.R.O.A.C.T.I.V.E process is to evaluate your tax situation. If you are in a high tax bracket you might want to favor tax-advantaged investments such as municipal bonds. If your income is going to be taking a hit post-divorce you probably will end up in a lower tax bracket increasing the attractiveness of a Roth conversion to your traditional individual retirement account.

The last three steps all involve figuring out how best to construct your investment portfolio.  Going from your pre-divorce portfolio to something that fits your needs and goals will usually require some major re-adjustments in your strategy.

Going through our P.R.O.A.C.T.I.V.E process or a similar approach is probably the last thing you want to do on your own.  Most likely you will need the help of an advisor to work through this.

Keep in mind that the reason you are doing this is to regain control over your financial life. You sought the help of a lawyer during your divorce. Now is the time to move forward and seek the help of financial professionals with an understanding of your situation and new set of needs.

What is the best way to implement a portfolio strategy for newly divorced people?

The most important aspect of post-divorce portfolio is that it fits you and your new circumstances and desires.  Using our P.R.O.A.C.T.I.V.E methodology as a framework for evaluating your needs and desires we suggest implementing a portfolio structure that encompasses three “buckets”.

A “bucket” is simply a separate portfolio and strategy that has a very specific risk and return objective. Each bucket in our approach is designed to give you comfort and clarity about its role in your overall portfolio.

What is the role of these “buckets”?

Each “bucket” has a very specific role in the overall portfolio as well as very explicit risk and reward limits.

We label our three “buckets” as the Safe, the Purchasing Power and the Growth portfolios.

The role of the Safe Bucket is to provide liquidity and cash flow to you to meet your short-term lifestyle needs. How much you have invested in your Safe portfolio is a function of how much money you need to fund your lifestyle over the next few years.

The second bucket – the Purchasing Power portfolio – is designed to allow you to enhance your lifestyle in terms of real purchasing power.  What this means is that every year your portfolio should have a return exceeding inflation.

Finally, the third bucket – the Growth portfolio – is designed to grow your portfolio in real terms. This portfolio is designed to maximize your returns from capital markets and will be almost exclusively invested in higher risk/higher reward equity securities.

Conclusion:

Going through divorce is one of the most stressful situations anyone can face. Transitioning to a new beginning may take a short term for some but for most people the period of adjustment is fraught with uncertainty and doubt.

People often worry about their finances and whether they can maintain their lifestyle.  A life event such as divorce also tends to shorten people’s horizon as their outlook in life often lacks clarity.

The implications from an investment standpoint are primarily a temporarily diminished desire to take on portfolio risk and a shortening of time horizons.  In English this translates to searching for greater certainty and not looking too far out.

As wealth managers our first goal is to first understand the client’s circumstances and needs once the divorce is finalized. Our P.R.O.AC.T.I.V.E process serves as the framework for initiating and exploring client concerns and issues.

Our P.R.O.A.C.T.I.V.E approach is designed to make your money work for what you deem important.  Divorce is difficult and transitioning to a new beginning takes time.  As you adjust to your post-divorce life your financial assets will also need to be managed consistent with the new you.

At Insight Financial we are experts at guiding you through this difficult adjustment period and transition into a new beginning. To read our full report on our approach for managing your post-divorce investments please click here.

Our wealth management team at Insight Financial Strategists is ready to help you in your transition.  To set up an initial consultation please book an appointment here.

 

Other posts you may find interesting

Pension Division in Divorce

4 Risks of Pension Plans in Divorce

Post-Divorce Investments 

 

 

Jun 15

4 Risks of Pension Plans in Divorce

By Chris Chen CFP | Divorce Planning , Financial Planning , Retirement Planning

4 Risks of Pension Plans in Divorce

Although the number of pension plans has significantly declined over the years there are still many of them out there, and many divorcing couples have to figure out how to deal with them. The prime benefit that a pension plan provides is a fixed lifetime income.  A stream of income in retirement could well be a pension synonym. It used to be that fixed income was considered a negative. However, nowadays it is the lucky retiree who benefits from a pension plan!

In case of divorce, issues surrounding who is entitled to the pension present a challenge especially in the case of grey divorces (usually defined as people over 50).  Divorce and pension plans can sometimes generate conflict as the owner of the asset will often feel more proprietary about it than with other assets. Employees are often emotionally vested in their pension. They feel, more than with other assets, that they have really earned it. And that their spouse has not.  They often will have stayed in a job that they may not have liked for the privilege of qualifying for a higher paying pension. Couples look forward to getting that income when they retire. And so spouses will want to make sure that they get their share of it as part of the divorce.

Pension rights after divorce are determined as part of the overall divorce process. In a negotiated divorce, the parties can decide, within limits, how to divide their assets. In the worst case, the courts will make the decision.

What is a pension plan and how does it work?

The value of a pension benefit can be difficult to determine. Unlike other accounts, pensions don’t come with a statement that makes them easily comparable to other assets; they come with the promise of a benefit (the monthly payment that someone might get at retirement). So the number one priority when a pension is involved in a divorce is to get a valuation. The financial consequences of divorce are serious, and not getting a valuation may lead to struggling financially after divorce

Risk of Valuation

Even when valued, the number provided on a report may lead to a false sense of security. Unlike other retirement statements, the value of a pension is estimated using the parameters of the beneficiary and of the pension. In most cases the divorce pension payout is calculated with a predetermined formula based on the employee’s length of employment and income.  In some cases, the benefit may vary depending on a few other factors.

The next step is to estimate how long the benefit might be paid. That is done using actuarial tables. Based on periodic demographic studies, actuarial tables predict our life expectancy. Some actuarial tables include those produced by the Society of Actuaries, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation (PBGC). A pension valuation will normally use the estimates from the actuarial tables representing  an average life expectancy of a cohort of people born in the same year. The estimates are usually accurate within their parameters, as individual variability is smoothed out  for large populations. However, individual longevity is harder to predict as it may fall within a wider range.

With the amount of the payment and the length of time that the payments will be made, how much is all of that worth?   Pension valuators use a “discount rate” to approximate the value of a future payment. The principle is that the value of a dollar paid next year will be less than the value of a dollar paid today. Hence you should be willing to accept less than a dollar for the promise of a payment next year, and even less for the promise of payment the year after.  

Financial analysts will use the concept of the prudent rate of return, the rate that a prudent person would invest at in order to receive that dollar next year or beyond. That of course could be subject to interpretation. Often the standard that is used is the government bond rate for the duration of the payment.  US government bonds are often considered to be risk free by economists and the public, although that too is subject to debate (Currently US government debt is rated at AA+ (below AAA) by Standard & Poor’s, the leading debt rating agency). Nonetheless that rate is often used for individual pension valuations.

The PBGC, on the other hand, has developed its own rates. The PBGC uses different rates before retirement, and rates during retirement. The former are significantly higher than the latter and assumes a rate of return that is in excess of the risk free rate.  That may be a better model for actual human behavior, as people will normally be tempted to take more risk for a better return, rationalizing, of course, that the incremental risk is not significant. On the other hand, for rates during retirement the PBGC uses rates that are well below the norm, reflecting the reality that retirees are even more risk averse than the average population.

Financial analysts will determine the value of the pension by taking a present value of the pension payments over the expected longevity of the individual at the determined discount rate(s). The number that comes out is usually a single number assuming a date of retirement.  

Understanding that we are working with an estimate, people usually ignore the fact that the magic number does not take into account the likely variability of  the inputs, in particular longevity.

If you will be the alternate payee (ie, if you are the spouse aiming to get a share of the other’s pension), it is important to pay attention to the fact that the real value of your share of the pension will fall within a range. It will not be a single number Hence when you trade that pension for another asset that has a fixed value, you want to make sure that you are not short changing yourself.

On the other hand if you are the beneficiary of the pension, it is painful enough to give up a share of it.  You don’t want to give up part of that asset if it will not be fully used. If it is the alternate payee that passes away early, his or her stream of payments stops, and, in most cases, does not revert back to you, the initial beneficiary.  If that were to happen you will have wasted a potentially substantial asset.

In summary it is important for divorcing couples to fully understand the value of their pensions for themselves and for their spouse.  Divorce already destroys enough wealth. There is no need to destroy more.

Risk of Default

Pensions have a risk of default or reduced benefits in the future. According to the Society for Human Resources Management  114 pension funds are expected to fail in the next 20 years. That is true even for pensions that do not look like they are in trouble currently. Some people may think that this is farfetched. Yet you only have to look at the Pensions Right website to convince yourself that benefit reductions do happen. When you consider that retirement can last 20, 30 or 40 years, you will want to evaluate if your pension plan is robust enough to last that long, and continue making payments for that long.

The risk of benefit reductions or outright default may apply mostly to the private sector. Yet public sector plans may be at risk also. For instance, Social Security has a trust fund that, together with payroll deductions, funds its retirement benefits (social security retirement benefits are effectively a pension). According to the 2009 Social Security Trustees Report, the Social Security trust fund will run out in 2037. When that happens, the Trustees project that retirement benefits will be cut by 24%.  

It should be noted that Social Security benefits are not divisible in divorce  The beneficiary keeps his or her benefits. The ex-spouse can get 50% of the beneficiary’s benefits (if married 10 years or longer) or 100% of his or her own, whichever is higher, but not both. That happens without prejudice to the prime beneficiary.

However, in 2037, both parties can expect a Social Security retirement benefit cut of 24%, unless Congress remedies the situation beforehand.

Personal Risk

People also underestimate personal risk. If you receive a pension as an alternate payee (ie the spouse who is getting a share of the pension from the former employee), you will want to consider the risks that your payments may be interrupted due to issues with your ex-spouse. Many pensions stop spousal payments when the beneficiary passes. When that happens, the alternate payee will have to find an alternate source of income to compensate.

It is worth remembering that our life expectancies are random within a range. The expected longevity of women reaching 65 years of age is to 85 years of age.  We often anchor on this or other numbers forgetting that few women pass away at 85. Most will pass away either before 85 or after 85. According to a paper by Dr. Ryan Edwards for the National Bureau of Economic Research, the standard deviation for longevity is 15 years. That means that most women will live to 85, +/- 15 years. From 70 to 100 with an average of 85. That is a wide range! What if the beneficiary of the pension passes away 10 years before his her life expectancy, and the alternate payee lives 10 years longer than life expectancy? That means that the alternate payee may have to do without his or her share of the pension for 20 years or longer (if the two ex spouses have the same expected longevity).

And what about inflation risk?

Most pensions do not have a Cost of Living Adjustment (COLA). That does not apply to all of them. For instance, the Federal Employee Retirement Systems (FERS) has a limited COLA. Effectively, when there is no inflation adjustment, the value of a pension payment is reduced every year by the amount of inflation. How bad can that be, you ask? Assuming a 3% inflation rate the value of a fixed payment will decrease by almost 50% over 20 years.  . What is the likelihood that expenses will have reduced by 50%?

A Last word

Pensions are a very emotional subjects in divorce. Perhaps because we are naturally risk averse, and perhaps because our risk aversion is exasperated by divorce related anxiety, we like to cling to what we perceive as solid. People will often want to keep the marital home, even if they cannot afford it, or take a chunk of a pension even when it may make better sense to trade it for another asset. Worse yet they will want to know whether to keep the house or pension in divorce.

What other asset you may ask? You could trade the pension for a tax- deferred retirement asset, such as an IRA or a 401k.  Or any other asset that you and your spouse own. The right decision will end up being different for everyone.

As a Divorce Financial Planner, it is my task to make sure that each side understands exactly what is at stake, and to help prepare them for rebuilding financially after divorce. In many cases it makes sense for both parties to get a share of the pension. In others it does not.  How to keep your pension in a divorce is a vital question. Even more important is to understand the true value of the pension, and its ambiguities.  It is a difficult task in a process that is already filled with anxieties and uncertainties to focus effectively on yet one more ambiguity. Yet for successfully managing finances after divorce it must be done.

 

Other posts that you may find interesting:

Pension Division in Divorce

Post-Divorce Investments 

In Divorce, Can We Share a CDFA?

 

 

Jun 13

Alimony…not far from Acrimony

By Thomas Seder | Divorce Planning , Financial Planning

Alimony...not far from Acrimony

Alimony issuesA major issue between divorcing and divorced spouses is that of spousal support, or alimony.  The issue is freighted with significant financial and emotional ramifications.  The aim of spousal support is to provide needed economic support to the lower-earning spouse.  It takes into account a variety of factors, including length of the marriage, ages and health of the parties, earning capacity, assets of the parties, needs of the recipient, and the payor’s ability to pay.

In 2011 the alimony laws in Massachusetts underwent significant reform .  Prior to this enactment of alimony reform, alimony was “forever”, even for short-term marriages.  Under the old laws, retirement of the payor didn’t necessarily provide relief from the payor’s having to continue support payments indefinitely.  You can get a summary of the new law here.

Not surprisingly, there are countless horror stories regarding alimony and how it has contributed to financial and emotional ruin.  The Alimony Reform Act of 2011, which took effect in March 2012, was intended  to bring more fairness to the alimony calculation and is highlighted by the following:

(1) it ends payments for life;

(2) it ties the duration for paying alimony to the length of the marriage;

(3) for long term marriages (more than 20 years), alimony ends at Full Retirement Age , as defined by Social Security (though the judge has discretion in awarding indefinite alimony in long-term marriages); and

(4) alimony may be terminated, reduced, or suspended when the recipient spouse lives with another person for at least three months (the “cohabitation” issue).  

To get your comprehensive summary of the Massachusetts Alimony Reform Law click here.

One conclusion gleaned from the legislation’s focus on limiting the duration of alimony is that it becomes more critical for the lower-earning spouse to find employment, in order to be self-sufficient when alimony ends.  

Child support in many ways is tied to alimony .  For example, in cases where the combined incomes of divorcing spouses is above $250,000, there may be no alimony granted…the only form of support may be child support.  Also, depending on the respective tax brackets of the divorcing parties, it may sometimes be beneficial to both to consider using “Unallocated Support”, which is essentially re-characterizing child support as alimony.

While Alimony Reform does much to clarify certain issues, there still remains room for interpretation, and different judges may adopt very different positions on the same fact patterns…one should bear in mind that nothing is etched in stone.  Nonetheless, familiarity with these guidelines should help to point you in the right direction on the subject of alimony.  The issues are complicated and intertwined and should be reviewed with an attorney, or divorce financial planner.  However, to start our handy reference may suffice!

May 30

The IRS thinks you are cheating on your Spousal Support

By Chris Chen CFP | Divorce Planning , Financial Planning

 

The IRS thinks you are cheating on your spousal support

Spousal SupportAccording to the Journal of Accountancy, the IRS has increased resources devoted to scrutinizing alimony, or spousal support.  

As is well known amongst divorcing individuals and the professionals who support them, the tax code allows the payor of spousal support to deduct it from taxable income, while the recipient must include it in taxable income. So if Kevin pays Kate $30,000 of spousal support a year, he can reduce his taxable income by that amount while she is supposed to claim it as income, and pay taxes. 

Predictably, divorced couples don’t agree about spousal support any more than they do about anything else. On March 31 2014, TIGTA , the Treasury Inspector General for Tax Administration, an IRS watchdog, issued a report identifying a large tax gap between spousal support deductions by payers and the corresponding income claimed on ex-spouses’ returns.

With its mouthful of a title (“Significant Discrepancies exist  between Alimony Deductions Claimed by Payers and Income Reported by Recipients“), TIGTA clearly wants us to pay attention.  TIGTA found that for the 570,000 returns that they analyzed for the tax year 2010, deductions exceeded income by more than $2.3 billion. More than 47% of returns showed discrepancies between the spousal payments deducted and the income reported.

According to Mike Conti, a CPA in Boston, TIGTA estimated that the IRS revenue loss from spousal support errors could add up to $1.7 billion over a five year period. Although that is small compared to the estimated $385 billion tax gap experienced in the US, spousal support is now a target for the IRS that has been identified and quantified. 

In fact, the IRS reported adjusting its audit filters to catch more high risk returns. The WSJ reports that the IRS is developing “other strategies” to address the spousal support tax gap. In other words, divorcing individuals, at least those paying and receiving spousal support will be at a higher risk for an audit.

There are enough things going on in a divorce that a potential IRS audit may not make it to the top of the list of concerns.  However, given that it is now completely predictable, it is better for divorcing individuals to pay the extra attention and avoid the audit or be ready for it.

For people paying spousal support as well as for those receiving it, it is important to ensure that:

1. You fully understand what is alimony and what is not. Separation agreements are written in a legal style that is not always clear to non-lawyers. If you are not sure, if you have questions check with a financial specialist such as a CFP® professional, a Certified Divorce Financial Analyst (CDFA) or a CPA.

2. You agree with your ex on what spousal support amount you are putting on your respective tax returns. Having a discrepancy between what he files and what she files could put both of you at greater risk for an audit.

3. Your separation agreement correctly specifies spousal support. If it does not and you get audited, alimony could get disallowed. If you have not done so already, take the opportunity to verify that your separation agreement correctly specifies spousal support.

4. You get professional post-divorce support. You will need it anyway for any number of other issues. Analyzing spousal support and filing taxes correctly are just two of them.

5. Avoid pushing the envelope on this issue. It is simply not worth the additional aggravation. 

(a version of this post appeared on boston.com)

 

Aug 15

Divorce and Empowerment

By Diane Pappas | Divorce Planning

Divorce and Empowerment

"Pareja" by Daniel Lobo on Flckr, License to Share under Creative CommonsAre you financially empowered? To answer this question, one must first know what it means to be financially empowered. The definition of the word empower is: to enable or to promote the self-actualization or influence of. Becoming knowledgeable about your finances can be an empowering experience, enabling you to realize a more secure financial future. Being financially empowered means making informed and effective decisions about the use and management of your money. Having the knowledge, skills and access to appropriate tools to effectively manage your finances, will help you and your family improve your long-term financial well-being.

But, if you are currently going through a divorce, your ability to make informed decisions about your financial future may be compromised, especially if you do not have a clear understanding of your finances.

One way towards empowerment during the divorce process is to seek the help of a divorce financial professional. A Certified Divorce Financial Analyst™ (CDFA), can become a valuable member of the divorce team, working closely with you and your attorney or mediator, to ensure that the proposed settlement works best for you and your family based on your particular financial situation. A CDFA™ can provide you with peace of mind knowing that all the different options were analyzed with respect to maximizing the available assets and minimizing any negative financial impact.

Many couples facing divorce are filled with fear of the unknown. Most of that fear lies in not knowing what their financial life will look like after divorce. Will I end up a bag lady? Will I be living paycheck to paycheck unable to ever enjoy life again? The best way to alleviate that fear is to know ahead of time what your financial life might look like. Using sophisticated tools, a divorce financial analyst can provide you with a projection of your future financial life. Knowing what your life might be like 5, 10 or even 20 years from now, will help to bring about the clarity and insight necessary to make those important financial decisions.

Clarity can only be achieved when each spouse fully understands what their needs are, what financial resources are available to them and what their options are with respect to different settlements and future impacts. From understanding what your new monthly expenses are going to be, to seeing the impact of the proposed asset split on long-term retirement projections, to understanding your options with regards to keeping or selling the marital home, being empowered with this important information will put you in control of the decision making.

Taking control of your finances will empower you through the divorce process, making it easier to transition into post-divorce life. While the emotional issues will still be present, knowing that you did the best you could with the resources available to you, should allow for the healing to take place. No one wants to worry about money, and when children are involved, it only creates more stress and heartache. Let a divorce financial professional help you achieve financial empowerment from the beginning so that your financial needs and concerns remain the centerpiece of your divorce settlement.

Jun 26

Overturning DOMA

By Chris Chen CFP | Divorce Planning , Financial Planning

Some financial impact from overturning DOMA for same-sex couples 

Overturning DOMAToday, the Supreme Court struck down the Defense of Marriage Act (DOMA), the 1996 federal law prohibiting married same-sex couples from receiving federal benefits.   According to Justice Kennedy who wrote the majority opinion “DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment.”

For states such as Massachusetts where same-sex marriage is legal, federal benefits that were previously unavailable can now be accessed by married same-sex couples.  Many of  the benefits are financial or have a financial impact.  For instance, with DOMA overturned, same-sex couples will now have the ability to file taxes jointly, or to qualify for social security benefits. In addition, same-sex couples can now simplify their legacy planning, since they will be subject to the same rules as opposite-sex couples.

Same-sex couples who divorce  will now be able to get the same benefits as opposite-sex couples.  For example, same-sex divorced couples can now divide property without incurring gift taxes.  When alimony is paid, the payor may now deduct the payments from taxable income.

Divorced same-sex couples may need to revisit their separation agreements.  For those people who have an alimony arrangement, as the alimony amount can now be deducted from the payor, it will also become  taxable to the payee.  Hence the amounts may need to be recalculated to take that new fact into account.   People who have had to pay gift taxes as a result of a property division pursuant to divorce may be able to reclaim those taxes.

These are exciting times for same-sex couples.  Life without DOMA will be easy to settle day to day.  For financial issues, such as financial planning and tax planning it may take a little more adjustment.  Make sure to contact your CFP and CPA for more details.