innovative_divorce

Should I Get a Divorce?

Wed, 21 Aug 2019 02:33:20 GMT

Clients are increasingly asking, “Can I afford a divorce?”

Here’s a true story…

My parents were married for 71 years, having tied the knot after Dad returned home after WWII. As in all marriages, my parents had their ups and downs. As I reached adulthood, I noticed that my parents weren’t arguing as much as they did when we were children. So, one day, I asked my mother (now in her late 50’s) as to “Why?”

She took a quiet moment and then replied, “There comes a time in your life when you realize that you’ve achieved the best that you can do for yourself and afterwards things become easier.” My parents were very proud of what they considered to be a successful marriage and the raising of a family.

But modern influences have changed our expectations. Partners facing emotional hardships are less willing to settle for limited rewards. As a CDFA® professional and divorce financial planner, clients are increasingly asking, “Can I afford a divorce?”

This question has two important issues; one for the PRESENT and one for the FUTURE:

1. PRESENT: How much can I expect from a divorce settlement?

2. FUTURE: How will I be able to cope in the future given possible terms of the divorce?

Resolution requires a deep dive into personal finances. It is a difficult, laborious and often emotional task that requires assistance.

Sample concerns may be:

How can I protect my children from the financial hardships of divorce?
How may my spouse and I amicably resolve our debt and mortgage payment issues?
Or for those who are closer to retirement: Will changes to Social Security and the upcoming boost in required distribution ages for IRAs affect my long-term divorce settlement?

If the answer is YES to proceed, then I highly recommend divorce mediation with a third-party neutral. Including a Certified Divorce Financial Analysts® adds value. They can analyze the future consequences of settlement options and help you to make important budget decisions that affect your family. In short, A CDFA® professional provides the financial information you need to make a well-informed decision.

I recommend that you think in financial terms early in the process. A bad marriage can take years before forcing a divorce decision. Learn what’s involved before you “jump off the cliff”. If moving ahead is your best course, I strongly suggest that you hire a divorce mediation team that includes both legal counsel and specialized divorce financial planning expertise.

A Bargaining Chip in Alimony: IRAs

Sat, 10 Aug 2019 15:04:56 GMT

Loss of alimony deductions create concerns...

The loss of alimony deductions puts more money into Uncle Sam’s pocket and leaves less cash for the recipient of spousal maintenance. With the inception of the Tax Cuts and Jobs Act (TCJA), alimony for divorce settlements drafted after 2018 are now taxable to the payor spouse who is often in a higher tax bracket than the recipient.

So, how about utilizing an IRA asset to create a lump sum payment? Under the new law, IRAs provide new opportunities in alimony planning if certain conditions exist.

Hypothetical Example: George and Harriet have been married for 25 years. They have completed the division of their assets. In addition, their marital settlement agreement requires George to pay spousal maintenance for 10-years at $10,000 per year. George’s income tax bracket is 35%. Harriet’s tax bracket is 12%.

Consider the following:

If George pays Harriet her $100,000 periodically over 10-years, his tax liability at 35% will be $35,000. His out-of-pocket increases to $135,000.
Alternatively, George makes a lump-sum payment by rolling over $112,000 of his remaining IRA assets to Harriet. He’s covered his $100,000 alimony obligation plus added $12,000 to cover Harriet’s taxes for when she takes distributions under her separate name
By transferring the income tax liability back to Harriet by means of an IRA Rollover, George potentially saves $23,000 as follows:

$ 35,000 – Tax liability if George pays alimony overtime

(12,000) – Advanced to Harriet to cover her taxes

$ 23,000 – Potential Tax savings for George

This strategy works best when the receiving spouse has time before taking withdrawals. This allows the continuation of possible tax-deferred growth on a retirement asset. A Certified Divorce Financial Planner (CDFA®) can assist you in determining your preferred settlement strategy, by walking you through 10 and 20-year projections. We can evaluate multiple options using advanced divorce financial planning techniques that are not available when solely working with an attorney or other professionals.

Admittedly, there are pros and cons to consider when calculating lump sum marital support as part of your divorce planning. For example, what kind of IRA is it and can it be rolled over? Is this strategy appropriate for the case at hand? Also, what are the possibilities of the receiving spouse remarrying? Are there other conditions that may cause an early expiration of the payment term?

I’ve also worked with divorcing clients who have a prevailing need for closure above all else. They’ve simply reached their limit and can go no further. When discussing marital settlements, funding a lump sum maintenance payment with an IRA may provide the financial support and emotional release these individuals require.

About CDFAs:

CDFA professionals often work as third-party neutrals during mediation, educating and enabling the client towards better decision making. We also team with attorneys who seek support for individuals in adversarial situations by requesting our divorce forensic services or investment product knowledge. Our training and certification are governed by the Institute of Divorce Financial Analysts (IDFA™)

For further information or to request a complimentary strategy session, please contact Diana Longo, CDFA® at http://www.innovativedivorce.com

About Diana Longo: Frustrated by the lack of insight and questionable distribution decisions made by financial clients facing divorce, Diana set her goals to become a CDFA professional and Mediator. In 2016, she founded Innovative Divorce Services LLC. Diana views her work as an opportunity for individuals to gain reconciliation and to prepare for their future. She is a continuing legal educator to attorneys with approved by the Superior Court of New Jersey. She is an active member and education presenter for the New Jersey Association of Professional Mediators. Diana also participates in the CFP® Board’s mentorship program, assisting aspiring certificants towards reaching their professional goals.

New Legislation and Planning Taxes Around Your Divorce

Mon, 22 Jul 2019 18:25:12 GMT

Proposed tax legislation requires the knowledge of a CDFA® Professional

2019 will be the year of greatly anticipated Retirement Tax Reform.

There have been multiple bills and proposals affecting Retirement Reform facing both houses in Congress. Among them are:

• RSSA – Retirement Security and Savings Act of 2019

• RESA – Retirement Enhancement and Savings Act

• SECURE – Setting Every Community Up for Retirement Enhancement Act of 2019

Each chamber (the Senate and the House of Representatives) will vote on their respective bills. After achieving affirmative votes, members from each house will form a conference committee to meet and work out the differences.

A common theme in these Congressional Proposals is to delay retirement by allowing us to save for a longer period in order to meet the demands of our increased longevity and higher lifestyle expectations.

Two very important proposals are:

1. To increase the RMD (Required Minimum Distribution) age from 70-1/2 to 72 (or possibly 75).

2. To remove of age limitations for Traditional IRA Contributions (allowing retirement contributions to continue as long as you wish beyond age 70)

But how will these proposals affect our divorcing clients and how they mediate settlements?

Splitting retirement assets and providing for retirement are primary drivers in divorce mediation, particularly for “Grey Divorces” (marriages lasting more than 20-years).

I anticipate new expectations and discussions centering on later retirement ages and our ability to increase our savings that will become an important part of future divorce negotiations. Attorneys often use Social Security’s eligibility age as the benchmark for retirement. This is going to change.

For example,

1. What will be final effect on a settlement agreement if the obligor or recipient is expected (or required) to continue full income for an additional 2-4 years as part of the agreement?

2. How will the increase in retirement savings affect taxation and net-income in future years when discussing the need for future support?

3. How much longer will the continuing employment, alimony or its savings allow the resident spouse to stay in the house?

As a Certified Divorce Financial Analyst® and Divorce Mediator, I help my clients and their attorneys to find the most tax-efficient settlement. This often leaves them with more money in their pockets. While there are no specific answers to the questions I listed above, clients deserve to understand the increased options and choices that a divorce financial planner can provide.

Divorce Financial Planning and the Importance of Your Estate

Thu, 11 Jul 2019 20:00:01 GMT

Some things that are forgotten...

As a Certified Divorce Financial Analyst® and Divorce Mediator, I ask every divorcing client the following question:

Do you want your “almost” ex-spouse to be responsible for your medical decisions in the event of an emergency?

Most clients resoundingly answer, “NO.” Yet, the task of completing of new estate documents often ends on the bottom of an overwhelming “To-Do” list.

I understand why. Divorce is a crushing experience. However, I must emphasize the importance of creating new estate documentation in a timely manner. This includes your new Will, Power of Attorney, Healthcare Directive (aka Living Will) and if applicable, the formation of Trusts. Children also require completed guardianship designations.

I’ll use myself as an example. I am a cancer survivor of 8 years. However, in July of 2011, I was called out of a business meeting to receive a call from my physician. Fast surgery was imminent. The one consolation I had during this emergency was that I had my wills, health directives and power of attorney already prepared. I had to prioritize other issues. I don’t know what I would have done if I had run around under that much pressure to deal with executing legal documents!

I am one of the lucky ones! Surgery was successful. I look forward to good health and close relationships with my family and clients for many years to come.

However, as a professional Mediator and Certified Divorce Financial Analyst®, I feel so passionately about this subject that I include a special requirement in every Memorandum of Understanding that I write. It states that both parties that must complete new estate documents within 90 days of marriage termination. Beneficiary changes are often forgotten or delayed, so I also include this type of information within my documentation according to the agreements reached by our mediation appointments.

I thank you for your kind patience. Please seek an estate attorney for further legal advice.

The "Kitchen" Divorce

Mon, 18 Mar 2019 15:30:45 GMT

Case Study and Little Known Resources Available to Divorcing Couples

Case Study : Jim and Carrie have known for years that a divorce is imminent. The kids are now grown. But the question remains, "Should we spend the rest of our lives together?” Jim and Carrie decide to call it quits, they want to be fair to each other and split assets 50/50. They go to a mediator with the hopes of achieving a non-contested divorce with ease and to check for anything else they may have forgotten.

Unfortunately, traditional mediators may have legal knowledge, but they often lack the full understanding as to the financial complexities of divorce. As a result, significant financial risks exist that may not be fully addressed in a mediation setting. A Certified Divorce Financial Analyst® can offer significant value to couples like Jim and Carrie. CDFA’s are divorce financial planners whose job is to protect the client’s financial interests as a part of a dedicated divorce team. Yet, few know of the designation and the availability of their special resources. For example, as a Certified Divorce Financial Analyst® and professional mediator, I see clients who experience these common errors:

1.) DETAILS! Your divorce professionals need to know EVERYTHING about your finances. Yet, many couples require an in-depth “reality check” of their budgeting and expenses. They do not understand how to adjust budgets to a new lifestyle and instead build increased resentment against their spouse. Money often creates a larger emotional issue.

2.) Couples often face some sort of trigger during mediation and that will suddenly remind them of a forgotten detail, asset or debt. Collecting this information and its appropriate documentation is time consuming and not easy. A Certified Divorce Financial Analyst ® can guide you.

3.) Correct valuation of assets and debts is another area where mistakes often occur. Items can easily be under or overstated. Making changes after agreements are reached is a difficult process.

4.) Taxes can make or break a settlement agreement. What the couple decides MAY NOT be what they receive after taxes. As a member of your divorce team, a Certified Divorce Financial Analyst® changes the guessing game with advanced tools and financial analysis.

5.) One of the top fears clients face regarding divorce is their uncertainty about the future as they ask, “Will I be OK?” “Will I run out of money?” “Can I afford to keep my house?” Working with clients and their lawyers, a CDFA® forecasts both the short- and long-term effects of the proposed settlement. CDFAs are divorce financial planners with techniques to run 10, 20 or 30 year projections.

Couples who negotiate a “Kitchen” divorce wish to create an equitable settlement without the delays and costs of an adversarial process. The role of the Certified Divorce Financial Analyst is to provide financial expertise necessary for clients to achieve a successful closure to their marriage and as they rebuild their financial future.

Diana Longo is a Certified Divorce Financial Analyst®, Divorce Financial Planner and Professional Mediator. A long-time resident of West Orange, she founded Innovative Divorce Services, LLC located at 277 Fairfield Rd, Ste 212, Fairfield, NJ 07004. https://www.innovativedivorce.com

5 Tips That Will Make Your Divorce Mediation a Success

Thu, 31 Jan 2019 20:48:47 GMT

By Diana Longo, CDFA ®

I recommend Divorce Mediation because it provides a non-adversarial approach to legally end a marriage. The mediation process resolves many decisions. Who will get what property? Who will have custody of the children and how will visitation work? Will someone have to pay alimony? Yes, mediation resolves many situations, but it can also be hard work.

Here’s a quick list of 5 Tips that will help you make your divorce mediation a success. Please share this list with your spouse and follow this series of blogs as I focus and explain each tip. You’ll have the advantage of reading short case studies that I have experienced during my role as a Certified Divorce Financial Analyst® and professional divorce mediator.

1. Mediation is a perfect “Reconciliation Opportunity”

You can be angry and possibly still hate each other but conduct negotiations in good faith and with a respectful attitude. Focus on creating peace of mind for later years.

2. Engage a divorce financial planner that is specifically trained in divorce taxation to advise you in your proceedings. As Certified Divorce Financial Analyst professionals, our clients can think “outside the box.” You can go beyond what’s generally done, review multiple settlement options and understand their effects 20 years into the future.

3. Be open to proposals and ideas.

Mediation is about negotiation and resolving what is best for your future and that of your spouse. For example, certain objects may have an emotional value far above their monetary worth, but will you feel the same way in 10 years?

4. Report financial information accurately.

Your financial information is the foundation of your proceedings. Know your budget, verify your spending and give an ACCURATE report. Be forthright and on time when delivering financial statements and documentation.

5. Prioritize family relationships .

The marriage may end, but the family continues. Aim to become the best family in divorce that you can be.