Divorce Services

Mission Statement                                           Don't Miss These Financial Details 

Thinking about getting divorced?                Top 6 Serious Financial Mistakes

Divorce Financial Consulting                         Divorce Options

How can a CDFA help me?

For most people, divorce will be the largest financial transaction in their lives.  It may also be the most emotionally chaotic and traumatic transition.  Economic theory tells us there should be no emotion in the equation when making financial decisions and all available information should be at our disposal.  So how can you hope to make good decisions about the financial health of your family in the midst of emotional chaos?  What happens when you don't have all the information?

Divorce Mission Statement

To help you identify and prioritize your objectives and empower you to get through this emotional life changing event through education, support and objective advice.

Our goal is to make sure you act legally, think financially and operate logically. 

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Thinking about getting divorced?

Are you thinking about getting divorced?

Or perhaps you are already part way through the process?

Possibly you are nearing the final settlement and looking for reassurance that your proposed financial agreement will work for you.

Every divorce is different, but there are basic steps you can take at each stage to ensure success.

A financial advisor who specializes in divorce, assisting during the process, can make it clearer and less frightening.  JMC Consultants helps educate clients and support them through the divorce process to ensure they make the best decisions for their long-term financial future.

The legal system can be overwhelming.  Taxes and financial documents can be intimidating and feel like a foreign language.  You may not have much experience managing finances and are in an emotional, vulnerable, challenging time.  More and more people going through divorce find it helpful to have an advocate to walk them through financial options, introducing alternatives and helping to develop solutions so you can make informed long-term decisions.

We can help look at the financial pieces, decipher the jargon and clarify how it applies to you.  Attorneys are great at navigating the legal piece but financial opportunities can be missed without the benefit of a divorce trained financial advisor being included in the mix. 

Often we have seen a client or their attorney offer to trade away an asset that may have hidden value without realizing the implications.   It will be crucial for you to identify your interests and prioritize the outcomes that are most important to you.  You don't want to minimize the importance of a seemingly small financial detail now that can make a difference of tens of thousands of dollars later.  Don't miss the opportunity to look out for your financial future. 

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Divorce Financial Consulting

 Act Legally, Think Financially, Operate Logically

The dissolution of a marriage can be a time of emotional turmoil and financial unrest.  For most people, divorce will be the largest financial transaction in their lives.  The lengthy divorce process can strain your finances and emotions, leaving you feeling out of control.

With the right preparation, you can help protect your interests and take charge of your future.  We work to help reduce your anxiety and make sure you know the long-term financial impact of your divorce settlement.  We assist you in creating a “Financially Smart Divorce“ by helping you understand financial issues that relate to your divorce: 

• Separate (non-marital) vs. marital property
• How to value and divide property
• How to divide retirement and pension funds
• Whether it makes sense to keep or sell your home
• How to choose the best settlement based on the short-term and long-term financial impact
• Spousal support (maintenance) and child support
• Tax implications of the decisions you make
• How to avoid some of the most common mistakes made by divorcing couples
• How to budget and prepare for your next chapter
• Money Management and Financial Planning

 How We Work:

• As a financial neutral with couples who are engaged in a mediation or collaborative divorce process
• As part of one spouse’s divorce team for cases that are adversarial

 What We Do:

• Show you the future effects of numerous settlement options in the form of spreadsheets and graphs
• Give you professional help so you really understand the financial issues
• Work with your attorney, mediator or collaborative team to structure an equitable settlement
• Trace assets, income and other forensic work
• Value closely held businesses or property
• Appear in court as an expert witness
• Provide post-divorce financial planning

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How Can A Certified Divorce Financial Analysts Help Me?

In most divorce cases the husband has an idea of how the assets should be split and so does the wife. Are they the same? Very Seldom!

His proposal versus Her proposal…

• Is it fair?
• Is it equitable?
• Is there a difference?

In property divisions, you trade assets back and forth until the couple agrees on a division. It means splitting the property equitably. It does not necessarily mean equal” - it means what is “fair”.

A 50/50 division of property may not produce equal results - or equal standards of living after the divorce - if the two spouses are unequally situated at the time of divorce.

A Certified Divorce Financial Analyst… examines the FINANCIAL issues of a divorce and provides you and your lawyer with powerful data to support your case.

You receive…

• Help in achieving a financially fair divorce settlement.
• Personalized charts and graphs tailored to your divorce.
• An explanation of your reports in language that you can understand.

You gain an understanding of the Financial Issues of…

• Personal versus marital property
• Valuing and dividing property
• Retirement and pensions
• Alimony (also known as maintenance and spousal support) and child support
• Splitting the house
• Tax problems and solutions

You benefit by…

• Having peace of mind that your settlement is financially equitable
• Hearing an objective viewpoint in an emotional situation
• Getting expert advice about your special financial needs

We believe in financially equitable divorce settlements…and you should too! 

A Certified Divorce Financial Analyst looks at the division of assets in a future sense. It may very well look equitable today but once the numbers are tallied and the CDFA applies other factors such as inflation, cost of living, taxes, retirement, and any other increased or decreased factors, the outcome may look very different.

Let’s look at an example: Ted offers the following division of assets.

Sue gets the house ($132,000 equity) and $86,000 of Ted’s RRSP. Ted will get the remaining $218,000 thus dividing the assets equally. Ted will pay $1,450 per month in alimony for 5 years and $550 per month in child support. Sue earns $18,000 a year and Ted earns $92,000 per year.

Sound fair? Here’s the result of Ted’s proposal…

Fig I

Figure I shows that within 10 years, Sue’s assets are gone (including the house) while Ted’s net worth has increased.

Too often, what appears to be equal can eventually leave one of the parties in deep financial distress. To maintain even a modest lifestyle, the lower wage-earning spouse is frequently forced to spend savings and other assets just to survive.

Using the Divorce software, a Certified Divorce Financial Analyst will show you the result of any given proposal:

Fig II

Figure II shows how more alimony for a longer period of time helps Sue while Ted is still able to increase his net worth.

The final result shown on a chart or graph can sometimes reveal consequences to one spouse so severe that it can lead a court to quite a different conclusion about what is financially equitable.

Don’t be fooled by equal numbers…look at the long-term effect of the proposal before agreeing to any settlement.

Call a Certified Divorce Financial Analyst to schedule an appointment. This could be the most important phone call you’ll ever make.

Why do I still need a divorce lawyer?

The answer is simple. A lawyer is an expert in the law, whereas a Certified Divorce Financial Analyst is an expert in the financial issues of divorce. Each posses a significant, but necessary role in the divorce process.

If a couple cannot agree on a divorce settlement, a CDFA can testify as an expert witness on the financial issues associated with the divorce case.

A Certified Divorce Financial Analyst does not take the place of a lawyer. Even if you and your spouse are able to agree to a divorce settlement, we recommend that you spend at least one hour with a divorce lawyer to look over the legal issues that are associated with all divorce cases.

What does all of this cost?

It’s difficult to answer this question because each CDFA sets his or her own fee structure. Some charge by the hour; others charge per case.

We can tell you that whatever you pay upfront for CDFA services could save you a lot of money in the future. You can always go back to court to modify child support and/or alimony but you only have one chance to divide the assets. As shown in the case above, had a Certified Divorce Specialist not run Ted’s proposal, Sue probably would have signed on the dotted line not knowing what the long-term effect of that proposal would cost her.

If your concern is that a CDFA is only needed for a high net-worth client - you’re wrong. Statistically it’s the middle income families that benefit the most. Long-term marriages (10 years or more), a marriage where one spouse contributes 75% or more of the income, one spouse or both own their own business (or have ownership in a business), or there are stock options - are prime candidates for needing the services of a CDFA.

Remember…

Once you get past the emotional element of the divorce…the rest is simply a business transaction.

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Don't Miss These Final Financial Details

Moving into the next chapter of your life means wrapping up old business so that you can stay focused on the future. Here are a few helpful tips to make sure that you don’t leave open any doors that really should be closed for good.

Some parting items that you and / or your attorney may need to deal with when your divorce decree is handed down.

 Assets: 

• Remember to separate all accounts and change titles where applicable.
• For investment accounts it is most important to change your beneficiary designations as these will override what is written in a will. If this step is missed your ex could end up with assets you did not intend for them to have.
• Don’t forget to have your attorney file QDRO’s if you have qualified funds to split as a part of your divorce settlement agreement.

Debts:

• Remember to separate all accounts and change titles where allowed.
• If you are still liable for joint debts that could not be separated before the divorce was final, then make it a top priority to get your name removed from as many joint debt accounts as possible now and when able in the future (such as when the primary residence can be refinanced).
• Make sure to review your credit reports from all three agencies in 3-6 months after the divorce is finalized and correct any errors you may find.

Liabilities:

• Make sure that your divorce decree handles what will be done with any joint taxes that may be owed or refunded. This includes federal, state, local, property and potentially others.

Protection:

• Be sure to visit an estate planning attorney and have your wills changed.
• Change beneficiaries on all life insurance policies. As with investments, these beneficiary designations override a will.
• Change and remove spouse from other insurance policies – Health, Homeowners, Auto, Umbrella, etc. 

 Support:

• If you are receiving spousal and child support and need to go back to court to ask for modifications in the future, please beware of the IRS child contingency rules that could put you in a potential tax trap if you are the one paying support. Make sure to check with your CDFA or CPA if you do ask for a modification around either of these items so you don’t inadvertently end up with a hefty tax bill. 
• These are items that are frequently forgotten amid the turmoil of divorce. It is vitally important that you follow-up on these things as soon as possible to avoid unintended consequences that can come back to haunt you years later.

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Top 6 Serious Financial Mistakes

Believing that an equitable division of property means a 50/50 split

Equitable does not mean equal! Depending on the state, circumstances such as length of marriage and income and future earning capacity may be considered when property is split. For example, a 30 year-old woman with an advanced degree will probably rebound financially much faster than a 55 year-old homemaker that's been out of the workforce for decades. It is important to understand that you could be entitled to more, or less, than 50%, depending on the circumstances and choices made during the marriage.

Not knowing the difference between separate and marital property.

There are some differences in how each state defines property, but generally anything you owned prior to the marriage is separate property (including, in most cases, your engagement ring). In addition, if you received an inheritance, gifts from third parties (not your husband) or were awarded "pain and suffering" in a personal injury case they would typically also be considered separate property. However, all property that is acquired during the marriage (including gifts that you gave each other for birthdays, anniversaries, etc.) is considered to be marital property no matter which spouse owns the property or how it is titled. There are some gray areas here, so it is important to contact a divorce professional to understand your rights.

Forgetting Assets

People tend to forget assets such as pensions, 401Ks, IRAs, stock options, restricted stock, deferred compensation, life insurance, annuities, value of professional licenses, tax refunds, time shares, country club memberships and other executive perks such as accrued vacation time. All of these items have value and should be considered during a divorce.

Not analyzing how your various divorce settlement options will impact your future financial security.

Once your final divorce decree is signed, it may be difficult, or even impossible to make changes. Unfortunately, you often have only one shot to get it right, so you should do everything in your power to make sure that you do. Don't let your emotions or your desire to finalize your divorce stop you from thoroughly analyzing both the short- and long-term financial and tax implications of any proposed divorce settlement. What may initially seem reasonable may prove to be disastrous for you 10 or 15 years down the road. The only way to know that is to work with an experienced divorce financial planner who can analyze your various divorce settlement options to make sure that your financial future will be secure. Please remember that most divorce attorneys are not trained to do that type of in-depth financial analysis (they just don't teach that in law school).

Not understanding why some assets that are valued the same are not worth the same.

It's important to understand that not all assets that are valued the same are actually worth the same.

For example, let's say you're trying to decide whether to keep the $600,000 bank account or the $600,000 house that's completely paid off. You really love that house and you're leaning in that direction. Great idea? Maybe yes, maybe no. You need to remember a few things that will impact your bottom line - Like real estate taxes that need to be paid every year, upkeep and maintenance, fuel costs, etc. And when you eventually sell your home you may be hit with a big capital gains tax bill. For example, let's assume you bought the home for $200,000 and it's now worth $600,000. Your capital gain is $400,000. Subtract your $250,000 capital gains exclusion as a single person and you'll have to pay capital gains tax on $150,000. At the current capital gains tax rate of 15%, that's a $22,500 tax bill!

So which asset would you prefer now - the house or the cash?

Not securing alimony, property settlement and child support payments with life insurance.

If you are depending on alimony or child support to maintain your lifestyle and that of your children, have you ever stopped to think about what might happen if that were suddenly not available to you? Alimony payments will end upon the death of your ex-husband. In many jurisdictions child support will not end, but will become an obligation of his estate. One way to ensure that you would not be financially devastated by the death of your ex would be to obtain a life insurance policy on his life. As with everything else, there's a right way to do this and a wrong way and it is important to get guidance from an experienced divorce financial professional prior to settling your divorce.

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Divorce Options

  Separation:  Separated, but not divorced.

• Best Used For:  Couple does not want to divorce for religious or other reasons.  Can have child support, maintenance, and property settlement.
• Advantages:  Gives children and spouse time to adjust.  Gives couple time to settle property.  May retain health insurance.
• Disadvantages:  May prolong process.  May be more expensive."New life" may not be possible.

Pro-Se:  Divorces filed without the assistance of an attorney.

• Best Used For:  Couples with few disputes.  Couples with few assets – and those are easily divisible.  Childless couples
• Advantages:  Inexpensive.  Fairly quick
• Disadvantages:  May make legal mistakes. May make financial errors calculating support or division of property & debt allocation.  No professional help on legal, financial or emotional issues.

Mediation:  Couple uses a mediator to help voluntarily settle disputes over issues.  Mediator may help draw up paperwork.  Mediator may or may not be an attorney.

• Best Used For:  Couples who have issues to settle, but nothing that has to go to court.
• Advantages:  Can be less expensive than traditional method.  Neutral third party,     experienced in mediation.  Less adversarial.
• Disadvantages:  No one completely "on your side."  Not appropriate if spouse becomes difficult.  May need to resort to traditional divorce.  Either party (or both) may decide to retain attorney.  Even if mediator is an attorney, each may need review of paperwork by separate attorney (QDROs, etc.).

Single Attorney for Couple:  One spouse retains a single attorney to file for divorce.  All paperwork completed and filed by attorney.  Note: Ethically, attorney may only represent one party.

• Best Used For:  Reasonable, amicable divorces.
• Advantages:  Less expensive than 2 attorneys.  Less adversarial.  Can be a fairly quick process.
• Disadvantages:  One party has the benefit of legal advice, the other does not.  Not appropriate if divorce becomes difficult.

Traditional:  Each spouse has their own attorney.

• Best Used For:  Situations where spouse is difficult; non-cooperative.  Divorce has legal issues that require expert advice
• Advantages:  Someone completely on your side.  Expert confidential legal advice.  Traditional approach.
• Disadvantages:  Can be adversarial.  Can be expensive.  Is not always a cooperative experience.  May become a longer process.  Can destroy the emotional and financial facets of the family.

Collaborative:  Each side has attorney.  Each side has access to or is required to use other specialists (coaches, child coaches, financial experts, etc.).  All professionals have been trained in collaborative process.  All agree to collaboration and work together to resolve issues. If this fails, all professionals withdraw, and the spouses retain other counsel -- and professionals -- and may go to the traditional divorce method or other method.

• Best Used For:  Couples who wish to keep divorce private and avoid the loss of control over their family and money in open court.
• Advantages:  Less expensive than a traditional contested.  May be more productive.  Each party has a person looking out for their best interests.
• Disadvantages:  Not appropriate if spouse becomes very difficult.  If process breaks down, spouses will need to retain new attorneys.

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Jack M. Carstens does not give legal advice.  Divorce Options is for informational purposes only and does not replace the need for legal counsel.  For more information or to set up a meeting, e-mail: jack@headwayfinancial.com or call 314-843-2440.