Jersey Shore Collaborative Law Group

Written by JSCLG Member Shawn Jacobwitz , CFP ©, CDFA^TM

The dust has settled and your client’s divorce is finally over. Now what? Here are some pointers on where to start.

The first thing you can do to help your newly divorced client move onto the next phase of their life is create a post-divorce checklist.

Post-Divorce Checklist

Each item on the checklist will not be applicable to to all divorcees, however, having a comprehensive list will show your client that you have a plan to help them start their new financial life. These are some of the major items that need to be done for your client as soon as the settlement is written and signed:

• Re-title the house and automobile if necessary
• Refinance the house
• Remove ex-spouse from joint credit cards, brokerage and bank statements
• Open a checking/savings account in the client’s own name
• Transfer retirement assets to the client’s own retirement account per the settlement agreement

There are other items that pertain to estate planning and beneficiary updates that need to be included in the post-divorce checklist. These items may not need to be updated immediately, but they are still an important part of your client’s welfare and will have to be dealt with soon after the divorce is final. These items include:

• Change the beneficiary on IRA and all other retirement accounts, i.e. 401(k), 403(b), etc.
• Change the beneficiary on insurance policies and annuities
• Update or originate a will
• Update living wills, health care powers of attorney, revocable trusts and other estate planning documents

Remember, your newly divorced client has already dealt with many details and most likely the last thing they want to do is make more decisions. A gentle conversation can go a long way in helping your client understand the importance of making and implementing these changes.

Disclaimer: The information provided here is for general informational purposes only and should not be considered and individualized recommendation, legal advice, or personalized investment advice.

Members of the Jersey Shore Collaborative Law Group will hold the group’s monthly meeting on Thursday, April 26. Here are the details:

Thursday, April 26, 2012
8:30-10:30am
Eatontown Sheraton

We look forward to seeing all JSCLG members on the 26th!

Written by JSCLG Member Douglas Lyons, CFA®, CFP®

Divorce can be a traumatic experience for many, but by avoiding some common financial mistakes, divorce can be made a little easier. Whether you are using the collaborative process, mediation, or litigation, understanding the following five issues will help you move more confidently into the next stage of your life. Also, assembling a team of advisors, such as an attorney, financial advisor, and/or mental health professional/coach, is critical to helping you understand the challenges and opportunities that lead to a fair settlement.

The first and most pervasive financial issue you need to consider is taxes. Income, capital gains, and estate taxes all may come into play with your divorce and can have a significant impact on your settlement. For example, alimony received is fully taxable, but alimony paid is deductible on the tax return of the payer. In other words, a $100,000 alimony payment would really be $70,000 after-tax to the recipient and a $70,000 cost to the payer (assuming a federal and state marginal tax bracket of 30%). Capital assets such as bonds, stocks and real estate are another asset that may be received in a divorce. The difference between the capital asset’s fair market value and what was originally paid for it (or cost basis) is taxed at the owner’s current (capital gains) rate. A $350,000 investment portfolio may have a cost basis of $50,000 resulting in $300,000 of the portfolio being taxed. A final divorce decree nullifies a pre-divorce Will and potentially subjects you to unwanted and potentially avoidable estate taxes. Beneficiary designations on assets like retirement accounts and /or life insurance policies do not automatically change post divorce. So by not addressing your estate situation an unintended benefit may transfer to an ex-spouse, while that benefit is taxable in the decedent owner’s estate. Consult a tax expert and/or estate attorney before altering your current tax or estate situation.

Retirement accounts can be fraught with potential land mines for the unwary. Retirement assets such as IRAs and/or 401(k)s can be transferred from one spouse to the other as the result of a divorce through a Qualified Domestic Relations Order (QDRO) without immediate tax consequences. If immediate liquidity is needed to support one’s lifestyle then retirement assets may not be the best assets for you. Any withdrawal from these types of retirement accounts will result in income tax at the current owner’s rate (to the extent it exceeds cost basis). If the owner is not yet 59 ½, a withdrawal can result in a pre-mature withdrawal penalty of 10%. So, if the previously mentioned investment portfolio of $350,000 was liquidated from a retirement account (and assuming a zero basis, 30% marginal tax rate, and 10% penalty), you would receive just $210,000, far less than what you may have expected to receive.

Thinking of your house as just another investment will help you achieve a more favorable financial settlement. In the end, you may end up with your current home but hopefully only after realizing that you can afford to stay there. First, you must have the home’s value appraised. Just like a capital asset or retirement asset, you need to next determine the home’s after-tax value. Current tax law allows a single individual to exempt $250,000 of gain before calculating capital gains tax (holding requirements apply). Couples can exempt $500,000 of gain. So depending on the divorce settlement, it may be more advantageous to sell the home prior to finalizing the divorce. If the home has a mortgage, it’s important to have the mortgage refinanced in only the name of the person keeping the home (unless otherwise negotiated). If you disclaim ownership of the home, you will still be liable for the mortgage liability if your spouse doesn’t refinance in just their name.

Next, make sure to consider your risk coverage. This includes life, disability, long-term care, medical, home and auto, and liability insurance. Most likely your coverage for many of these risks was based on joint pricing discounts. Investigate the costs before entering into a settlement. If alimony is being received, requiring life insurance on the spouse paying alimony should be considered to protect the receiving spouse’s lifestyle. As mentioned earlier, also review beneficiary designations of all outstanding life insurance policies. If you are on your spouse’s medical coverage, you may be entitled to continue that coverage through COBRA. While you will be responsible for paying the premium, it may be cheaper and provide better coverage than insurance you could obtain on your own. (COBRA can last for 36 months as a result of divorce.)

Lastly, relying on alimony can be a comforting but potentially ruinous long-term decision. Aside from the stinging reminder of your divorce that alimony brings, it also can erode your lifestyle. (See whitepaper “Inflation & Termites” in publications at Tridentwa.com.) Your ability to live the way you are accustomed to living is eroded each and every year because inflation eats away at the buying power of your fixed alimony payment. Structuring alimony that increases as your lifestyle needs change or receiving a lump sum amount and investing in a diversified portfolio can mitigate the impact of inflation and thereby preserve your lifestyle needs.

Whether you are in the beginning phase of a divorce or your divorce has been finalized, it’s never too late to put your team together to achieve financial security.

• The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
• All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

• Trident Wealth Advisors does not provide legal, tax or accounting advice. Any statement contained in this communication (including any attachments) concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code, and was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of Trident Wealth Advisors should obtain their own independent tax advice based on their particular circumstances.

Written by JSCLG Member Debra Fournier, Certified Financial Planner®, Certified Divorce Financial Analyst™

Wow! What a response to my last article. I have come to realize that more people than not are unprepared when it comes to divorce. Mental health professionals I have spoken to say that divorcing a spouse can sometimes be more emotional than losing a spouse to death. Emotions often cloud your decision making which can lead to poor choices when it comes to finances.

Making changes to a property settlement agreement is almost impossible. There must be hard proof based on fraud, deceit or a major mistake. In other words, get it right the first time. With that said, I have met with too many individuals who were not clear on the financial outcome of their divorce.

Request a credit check. I recently met with a client who was unaware of a significant home equity loan balance on the marital home. The couple opened a line of credit during the marriage for emergency reasons. When reviewing the tax returns, I noticed a deduction for mortgage interest (the home had been paid off a few years earlier). By doing a credit check on herself, she would have seen the outstanding balance. By the time she found out, they were already negotiating the settlement. After selling the home and paying off the debt, both walked away with much less than anticipated. Go to www.annualcreditreport.com, a site set up by the big three credit reporting agencies in the U.S. to furnish free annual credit reports, as required by federal law.

Did you know that if you were covered for health insurance under your ex-spouses employer’s plan, you may qualify to continue your coverage for up to 36 months under COBRA? One caveat—it’s not automatic. You need to contact the employer within 60 days of the divorce and complete the necessary paperwork.

Social Security: Did you know that you may be entitled to half of your ex-spouses social security benefits? You are entitled to a divorced spouse’s insurance benefits on the worker’s Social Security record if:
• The worker is entitled to retirement or disability insurance benefits;
• You have filed an application for divorced spouse’s benefits;
• You are not entitled to a retirement or disability insurance benefit based on a primary insurance amount which equals or exceeds one-half the worker’s primary insurance amount;
• You are age 62 or over;
• You are not married; and
• You were married to the worker for at least 10 years before the date the divorce became final.

If you would like more information, visit the IRS website at ssa.gov. For information about potential benefits on someone else’s record, you need to call or visit a local social security office.


Debra Fournier is not an attorney and does not provide legal advice. All information is financial in nature and should not be construed or relied upon as legal advice. Individuals seeking legal advice should solicit the counsel of competent legal professionals knowledgeable about the divorce laws in their geographical areas. Securities offered through LPL Financial Member FINRA/SIPC.

Collaborative Law – It’s Not Just Being Cooperative

The practice of Collaborative Law is rapidly gaining recognition and creating value for clients who agree to use it.  First created in the context of Family Law, many practitioners and theorists are urging its use in business contexts.  A robust academic literature is arising, professional associations are forming, and a Uniform Collaborative Law Act has been framed.  Yet many attorneys and observers still confuse the practice with “cooperating with the adversary” or “having a creative attitude.”

This program is aimed at dispelling these misunderstandings.  The panel of speakers will explain the theories underlying Collaborative Law practice, address the ethical opinions that have arisen regarding the four-part agreement that is the core of Collaborative Law practice (see http://meetings.abanet.org/webupload/commupload/DR035000/sitesofinterest_files/EthicsPaper(20091010).pdf), and discuss the features and issues raised in the Uniform Collaborative Law Act (see http://www.law.upenn.edu/bll/archives/ulc/ucla/2009am_approved.htm)

Presenters:
• Linda Piff – Wall, NJ
• Jeffrey D. Urbach – Edison, NJ
• Anna-Maria Pittella – Red Bank, NJ

Moderator: Risa Kleiner – Princeton, NJ

Linda Piff, Esq., is President of Practical Collaborative Solutions, LLC.  She is a member of the International Academy of Collaborative Professionals and of the Collaborative Law Committee of the Dispute Resolution Section of the American Bar Association.  She writes and speaks frequently on the topic of Collaborative Law, including a video media presentation found at www.YouTube.com/PiffNoto.  She holds a J.D. with Honors from Rutgers University.

Jeffrey D. Urbach is a Certified Public Accountant with experience in forensic accounting.  He is experienced in matrimonial and commercial matters in which business valuation, asset tracing and other related skills are called for.  He has been court-appointed for these purposes by courts in New Jersey and is a frequent speaker on the topic.  He holds an Adjunct Faculty position at Rutgers Graduate School of Business, from which he received an MBA.

Anna-Maria Pittella is an attorney, accredited mediator and collaborative family practitioner.  She was recently honored by the 2009 Professionalism Award from the Ocean County Bar Association and Commission on Professionalism in New Jersey.  She was awarded a JD from Seton Hall University School of Law and is a founding member and past President of the New Jersey Collaborative Law Group.

Risa A. Kleiner has been certified by the Supreme Court of New Jersey as a Matrimonial attorney and accredited by the NJAPM as a divorce mediator.  She has been a trained Collaborative Practitioner since 2007 and is a founding member and Vice-President of the Mid-Jersey Collaborative Law Alliance.  After 20 years of litigation experience, she now focuses her practice on Collaborative Family Law and Mediation.

Date: March 9, 2011

Location: New Jersey Law Center, New Brunswick

Fee: No Charge for NJAPM Members; $10.00 for Non-Members

Optional Cold Buffet: $20.00 (MUST PRE-PAY ONLINE BY 12:00 NOON Monday March 7)
Buffet Includes: Gourmet Sandwiches (Wraps and Specialty Breads), Pasta Salad, Garden Salad, Fresh Fruit and Cookies

Schedule:

6:00pm Gather
6:30pm Business Meeting
6:45pm Presentation
8:15pm Adjourn

Click here to register and pre-pay for buffet.

(NJAPM members should log in first to avoid having to retype your contact information.)