Spartanburg Divorce Lawyer & Attorney : Stevens-MacPhail Law Firm : South Carolina Family Law Serving Columbia, Charleston, Greenville, Hilton Head Island

Over the last few months, I have been pleased to publish “Your Family’s Financial Plan:  Are You Prepared in Case of a Family Catastrophe?” by Aimee Waite, a Financial Advisor with Raymond James & Associates.  If you missed them, please be sure to read part one and part two.  Today, I am pleased to bring you the final installment of this series.  I would like to once again thank Aimee for sharing this information with you, and I hope that you find it helpful.

Part 3: What to do if your spouse, who is responsible for the family finances, is unwilling to discuss specifics and answer your questions.

Knowing specifics about your family’s financial situation is critical, especially if there’s reason to believe you are headed for divorce. Most importantly you should know the details of your family’s income, expenses, assets, liabilities, the location of important documents, user names & passwords for online accounts, account numbers and retirement benefits in place. In most cases, all you need to do is ask your spouse for this information and he/she will provide it. If they are not willing to comply, you’ll need to gather the information on your own. Here are some helpful tips:

1. Start with your tax return. Before you sign the upcoming year’s, make a copy of it and ask questions about it. Also locate past tax returns and keep your own copies. If you don’t know where they are kept, you can contact your CPA or the IRS to request copies. If contacting the IRS, you’ll need to fill out Form 4506. The following information can be found on the tax return:
   
   • Annual income including salary, bonuses, commissions, etc.
   • Dividends & interest received from investments.
   • Income received from any side business such as rental or partnership income.
   • Gains and losses from assets sold during the year.
   • Itemized deductions.
2. If your spouse owns his/her own business, the financial statements from the business are a source of information. Specifically, the company’s profit & loss statement and balance sheet will be helpful.
3. Make copies of statements that come in the mail. Your bank statement will reveal information about income and expenses paid on a regular basis. Your brokerage statement will provide information about assets that you own and possibly retirement planning.
   
4. You may want to hire your own professionals to provide advice and expertise, especially if you are headed towards divorce and don’t want to use the same professionals as your spouse. It will be helpful to seek advice from an attorney, financial advisor and CPA.

This information is provided by Aimee Waite, Financial Advisor, with Raymond James & Associates, 101 W. Broad Street, Greenville, SC 29601. If you would like to contact Aimee in regards to your financial planning, you can reach her at 1-800-922-2364 or Aimee.Waite@RaymondJames.com.

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Pursuant to an Administrative Order issued on April 2, 2008, the South Carolina Supreme Court drastically overhauled the Financial Declaration that must be filed in Family Court cases.  This is the first significant change to the Financial Declaration form in almost twenty years.

I believe that this new format will prove to be much more useful once the Judges, attorneys, and parties get used to it.  It not only provides more information, but it also provides more practical, helpful information.  Some of the more significant changes are:

• The field to include the social security number has been deleted;
  
• "Husband/Father" replaces "Husband" and "Wife/Mother" replaces "Wife";
  
• The "Marital Assets Addendum" section has been deleted, along with endnotes 1-4 on the previous form and endnotes 1-21 were added throughout the form to define the associated terms;
• The following sections were added to the form: "Any Non Marital Property Claimed By You," "Financial Accounts Section," "Voluntary Retirement Accounts and Pension Accounts Section," "Publicly Held Stocks, Bonds, Securities, Mutual Funds Section (Non-Retirement)," and "Real Estate Section."
  

You can download a copy of the new form by clicking HERE. 

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Several weeks ago, I published part one of “Your Family’s Financial Plan:  Are You Prepared in Case of a Family Catastrophe?” by Aimee Waite, a Financial Advisor with Raymond James & Associates.  Today, I am pleased to bring you part two.  Thanks again to Aimee for sharing this information with my readers.

Part 2: Changes to be made to your financial plan if you get divorced and how to figure your expenses and income as a newly single person.

Whether you are a man or woman getting divorced, you will need to evaluate your current financial plan and make necessary changes. Here are some of the most important things to keep in mind.

1. Create a budget. For an entire month, keep track of your income and expenses and then decide how the divorce will change them. Your bank statement is a good indication of both income and expenses. Then ask yourself - after the divorce, will you have less income? Higher expenses? Your financial advisor is also a good resource to help you determine what you have and what you’ll need. Remember, it’s best to estimate expenses as higher and your income as less to make sure you have enough money available.
2. Evaluate insurance needs. 
   • Health Insurance:  After the divorce, will you still have health insurance? Will your children? Who pays for the health insurance? And is the coverage only temporary? 
     
   • Life Insurance:  This is especially important if you are receiving child support or alimony payments from your ex-spouse. If you are, make sure that your ex-spouse has life insurance and that you, as the custodial parent, are the beneficiary. And periodically request proof that the policy is in force.
     
   • Talk to your attorney about whether this should be a part of your divorce settlement.
     
   • In addition to life and health insurance, make sure to change your beneficiaries and modify your property insurance as necessary.
     
   • If you need new insurance, make sure to get several quotes so you know you’re getting the best coverage at the best price.
3. Revise your will and your estate plan. Your attorney, financial advisor, and tax advisor will be able to help you with these as there are many factors to consider. Specific areas to note are how the divorce will affect the tax aspects of your estate plan, gift tax implications to consider, and changing the power of attorney, personal representative, or successor trustee listed in these documents.
4. Financial Goals & Investment Style. You may find that after the divorce you have new financial goals and you need to prioritize them. For example, now it may be your ex-spouse’s responsibility to pay for the children’s college education giving you the opportunity to travel. Or, you may need to wait a little longer until you retire because your annual expenses have increased. Your investment style may also change based on your needs. It may be necessary to be more aggressive or conservative with your investments. Sit down with your financial advisor to discuss your needs and then prioritize them. Decide on an investment style that best suits your situation.

This information is provided by Aimee Waite, Financial Advisor, with Raymond James & Associates, 101 W. Broad Street, Greenville, SC 29601. If you would like to contact Aimee in regards to your financial planning, you can reach her at 1-800-922-2364 or Aimee.Waite@RaymondJames.com.

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The beginning of every new year also begins "financial aid season" for those parents whose children will attend college in the fall.  Considering how expensive colleges have become and the amount of financial aid that can be gained (or lost) through this process, parents should educate themselves as much as possible about this process.

The Los Angeles Times recently published an article containing the tips to help parents avoid the most common mistakes when filling out financial aid forms.  You can read the whole article by clicking here, but a summary of the tips is listed below:

• Buckle down and apply
• Don't procrastinate
• Ignore retirement assets
• Don't repeat assets
• Note exemptions
• Benefit from divorce
• Save that password

Source:  "Parents Often Fumble on Financial Aid Forms" by Kathy M. Kristof, published in the Los Angeles Times.

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Today, I am proud to present part one of “Your Family’s Financial Plan:  Are You Prepared in Case of a Family Catastrophe?” by Aimee Waite, a Financial Advisor with Raymond James & Associates.  I want to thank Aimee again for allowing me to publish her series, and I hope that my readers find it enjoyable and informative.

Part One:  What you should know about your family’s financial plan in case of a family catastrophe and how to prepare now.

Every married woman and man should insist on knowing specifics about the family’s financial plan. Even if you feel that numbers are not your thing, remember that it’s easier to understand these things now, before a catastrophe happens, than while you’re dealing with difficult times. These simple steps may alleviate some of the stress you’ll face:

1. Open at least one checking, savings, or money market account in your own name. If it’s a joint account, list your own name on the account, Mary Smith, versus Mrs. John Smith.
2. Get a credit card in your own name. This will help you establish a history of credit which may be essential if you find yourself on your own.
3. With your spouse, review your wills, life insurance, trust agreements, and other important documents. It’s important to know where these documents are located and how to get to them in case of an emergency.
4. Participate in meetings with your financial advisor, attorney, and accountant. Don’t be afraid to ask questions and know how to get in touch with these professionals.
5. Know how to read your financial statements. Again, don’t be afraid to ask questions, and if you’re unsure of something, ask your financial advisor. That’s part of the service for which you are paying and your financial advisor wants you to be comfortable with your investments and financial plan.

This information is provided by Aimee Waite, Financial Advisor, with Raymond James & Associates, 101 W. Broad Street, Greenville, SC 29601. If you would like to contact Aimee in regards to your financial planning, you can reach her at 1-800-922-2364 or Aimee.Waite@RaymondJames.com.

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I am pleased to announce that my blog is now the exclusive online home for a new series, “Your Family’s Financial Plan:  Are You Prepared in Case of a Family Catastrophe?” by Aimee Waite, a Financial Advisor with Raymond James & Associates.  I am thrilled to have Aimee as one of our guest authors, and I look forward to bringing this series to you over the next several months.  Here is a preview of this interesting new series:

This four part series will be posted on a monthly basis, beginning tomorrow, and it will cover several topics every man and woman should know about their financial plan. The series will include:

1. What you should know about your family’s financial plan in case of a family catastrophe and how to prepare now.  (February)
   
2. Changes to be made to your financial plan if you get divorced and how to figure your expenses and income as a newly single person.  (March)
   
3. What to do if your spouse, who is responsible for the family finances, is unwilling to discuss specifics and answer your questions.  (April)
   
4. How a qualified financial advisor, as well as other professionals, can assist you during these difficult times.  (May)
   

In today’s volatile economy, it is important for everyone to have a solid financial plan to rely upon, and it’s equally important, in case of family catastrophe such as death or divorce, that all family members are included in the planning process and are well educated about the family’s financial resources and investments. Unfortunately, many women, and even men, leave this important task to their spouse or other loved ones, which means they may be left in the dark when faced with the challenges of continuing on their own. We never know what lies ahead, so it is imperative to plan for the future today.

This information is provided by Aimee Waite, Financial Advisor, with Raymond James & Associates, 101 W. Broad Street, Greenville, SC 29601. If you would like to contact Aimee in regards to your financial planning, you can reach her at 1-800-922-2364 or Aimee.Waite@RaymondJames.com.

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A divorced spouse is generally eligible to collect Social Security benefits based on the ex-spouse’s record of work and earnings, said Lita Epstein, author of The Complete Idiot’s Guide to Social Security and Medicare, but it’s not automatic and you should contact the Social Security Administration to see if you’re eligible.

To be eligible, you must clear some hurdles. Following is a summary of the general rules:

• Your marriage had to have lasted at least 10 years.
• You must be at least 62.
• You’re not married.
• The ex-spouse must be at least 62.

In general, you won’t automatically receive benefits.  Kurt Czarnowski, regional communications director for the Social Security Administration, said “we’re not at the point where you have automatic enrollment in Social Security” in such circumstances.

So visit your local Social Security office or call the agency toll-free at 1-800-772-1213. In the interview process, you’ll be asked whether you’ve ever been married, which will lead the agency to see if you’re eligible for benefits based on another’s record of work and earnings.

Assuming you’re eligible, you’ll receive a monthly benefit based on your record, or on your ex-spouse’s record, whichever will pay you more.

A few other points:

• If you have been married more than once, and each marriage lasted at least 10 years, you’re generally eligible to collect Social Security benefits based on either ex-spouse’s record of work and earnings — whichever will pay you more, Epstein said.
• If you’re divorced and your ex-spouse has died, you may be eligible to collect a survivor’s benefit based on that ex-spouse’s record of work and earnings, Czarnowski said. Contact the agency to check on the rules and to see if you’re eligible.
• There are lots of rules and other details regarding a divorced spouse and eligibility for Social Security benefits, too many to list here.
  

For more information, read “Social Security: Understanding the Benefits” and “Social Security: What Every Woman Should Know.”  (Note:  This booklet includes information that applies to both men and women.) For a free copy, visit your local Social Security office, call the agency toll-free at 1-800-772-1213, or visit the agency’s Web site:  www.socialsecurity.gov.

Source:  "Social Security Survives Divorce" by Neil Downing, published in the Providence Journal.  Thanks to Jeffrey Lalloway of the California Divorce and Family Law blog for his post on this subject.

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The following tips can help make your divorce case easier, less stressful, and less expensive:

1. Locate, organize and copy all financial records. Make one copy for yourself and a second for your attorney. Save the originals.
2. Close all joint bank and brokerage accounts. If that’s not possible, freeze access to the accounts.
3. Close all joint credit accounts. Open new accounts in your own name.
4. Maintain a written record of all expenses run up during the separation. This also includes joint expenses such as bills paid and home improvements or auto maintenance.
5. Establish your net worth. Keep a record of all income during the separation. Save pay stubs, bank and brokerage statements.
6. The forced sale of stock or other investments is likely to have tax implications. Consult your financial planner as needed.
7. Before the settlement conference, make a list of what you seek right down to household goods.
8. If there’s something you know your soon-to-be ex wants in the property settlement, don’t give it away in a hopeless effort to establish goodwill. Use it as a bargaining chip and trade it for something you want.
9. Settle out of court. This will cut legal costs and ease your jangled nerves.

Source:  "Making Divorce As Painless As Possible" by Scott Reeves, published at Minyanville.  Thanks also to Jeffrey Lalloway of the California Divorce and Family Law blog for his post on this subject.

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USA Today recently published the following five common mistakes couples make when they separate their finances and tips on how to avoid them:

1.  Hanging onto the house at all costs.

Many couples scrambling to obtain a divorce settlement wish to keep the house at any cost. However, financial experts say that more attention should be given to who can afford to maintain the property, pay the mortgage, and manage the taxes. While it is possible to ask for spousal support to help make the mortgage payments, unexpected maintenance costs may pop up, and make home ownership more of a liability than a luxury.

2.  Failing to make a clean financial break.

Clean separation of assets and debts is another difficult task, but one that Howard Dvorkin, the founder of Consolidated Credit Counseling Services says is absolutely necessary, or the consequences can be devastating. Although the task may seem insurmountable, “the alternative is much worse,” says Dvorkin. “Having a spouse drive up your debt when you’re not married anymore” can seriously affect one’s credit score.

3.  Counting on your ex to honor financial commitments.

Depending on your former spouse to comply with financial arrangements is also a huge mistake, according to this article. Although both parties in a divorce are beholden to a court-ordered divorce agreement, creditors do not fall under that arrangement. If your ex spouse is supposed to pay the mortgage, but doesn’t, “the lender is going to sue both of you,” remarks Melissa Avery, an Indianapolis family law attorney.  If your ex fails to pay the mortgage, you may be hurt when applying for future loans.

4.  Forgetting to change your will and beneficiary forms.

Wills and trusts can also be seriously impacted by divorce proceedings. If divorced spouses wait unnecessarily long to change a beneficiary on a will, for example, the money may go to the wrong person — your new spouse may get nothing, while your ex spouse inherits the amount provided for in your will.

5.  Overlooking taxes.

Finally, NEVER forget which amount of money in your divorce settlement is alimony, and which amount is child support. Whereas child support payments are not taxable to the recipient, alimony payments are. Furthermore, there are limits to how long a person can receive such payments — child support payments can no longer be received once the child turns 18 or is done with college, while spousal support generally ends once the recipient remarries.

Source:  "Breaking Up Is Hard To Do Financially" by Kathy Chu, published in USA Today.  Thanks also to the California Family Law Blog and the Georgia Family Law Blog for their posts on this subject.

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The new passport requirements that complicated travel this past summer have also uncovered vast numbers of parents who owe back child support.  Through its Passport Denial Program, the State Department denies passports to noncustodial parents who owe more than $2,500 in back child support. Once the owing parent has satisfied their child support arrearage, they may reapply for a passport.

Considering that millions of additional travelers are now required to have passports to fly back from Mexico, Canada, the Caribbean, and South America, collections under the Passport Denial Program are on pace to almost double this year.  States have reported collecting at least $22.5 million through the program thus far in 2007.  Perhaps this is one program that the government has finally gotten right.

Source: "New Passport Rules Help Recover Back Child Support" by Dan Nunley, published at his Oklahoma Family Law Blog.

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The American Bar Association released a report just over five years ago that was very critical of the “standard” way that many (if not most) attorneys charge their clients for their services.  Its conclusion was that “[t]he billable hour is fundamentally about quantity over quality, repetition over creativity.”  To me, that doesn't sound like it contributes at all to what should be the attorney's ultimate goal -- providing clients with the best possible service.

Approximately two years ago, I began handling all family law cases on a fixed fee basis instead of charging by the hour as I had done for many years.  When a client hires an attorney on an hourly basis, that client is basically writing the attorney a blank check and crossing his/her fingers hoping that the total fees are what he/she anticipated.  I know that if I was the client, I would definitely prefer the certainty of knowing the total cost instead of hoping for the best.

Specifically, I believe that clients receive the following benefits from hiring attorneys for a fixed fee:

• Clients know the total cost up front, which enables them to determine prior to retaining the attorney whether or not they can afford his/her services and to budget for the attorney's fees and costs. 
  
• Clients have another basis upon which to compare attorneys, both in the manner they charge for their services (fixed fee vs. hourly) as well as the amount charged ($X vs. $Y).
  
• Clients never end up in fee disputes with their attorneys, because all fees were negotiated and agreed upon before the representation began.
• This method encourages open communication from the client to the attorney.  In hourly billing situations, clients sometimes hesitate to provide information to the attorney because they know that they will incur fees and costs for doing so.
• Clients have a higher level of trust with their lawyers, which results in a better working relationship, which frequently yields better outcomes in the clients' cases.

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Couples who have children and were previously married face a number of estate-planning issues.  For instance, should the bulk of the estate be left to the spouse, to the children, or both?  The failure to properly address these issues in a timely manner can result in serious, unintended consequences. 

The "short" answer to this potential problem is to consult with an estate planning attorney to discuss the options available to you based upon the facts of your particular case.  The Winston-Salem Journal recently published a very insightful article on this subject, and I recommend that you read it in order to consider these issues.  You can read this article by clicking HERE.

Source:  "Sticky Issue: Avoiding The Problems That Come Up in Estate Planning for Parents of Blended Families" published in the Winston-Salem Journal.

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Approximately two years ago and after much thought, I decided to stop handling family law cases on ah "hourly" basis and to instead handle them on a fixed fee basis.  It was probably the best thing I've ever done for my practice.  My clients love the many benefits of this fee method, such as the certainty of knowing the total cost of their case before it begins, and my quality of life has improved because I do not have to track every minute of every work day.  I am not the only proponent of fixed fee billing in domestic cases, as you can see from the following article published at the Pennsylvania Family Law Blog:
 
It has long been my belief that the billable hour system, by which many attorneys charge their clients and earn their livings ( and as I do, too for some matters, by way of disclosure) creates an inherent tension between the attorney’s interests and those of the client. If the attorney is being paid by the hour, doesn’t he or she benefit from taking as much time as possible, or at least as much as the client will be willing to pay for, in completing a task? Of what possible benefit is this to the client? This is a primary reason that I have started to use alternative fee arrangements, such as flat fees, staged fees and success based fess and the like, for more matters, with the goal ultimately of using such arrangements in all cases. It is my view that legal fees, like fees for any other service, should be based on value added. Even some in biglaw are now seeing the light. In an article in the August 2007 issue of the ABA Journal, best selling author and Chicago litigator Scott Turow fairly well lays bare the flaws in the billable hour system. Whether Turow’s large law firm colleagues follow his lead or not, however, I intend to continue to pursue a full transition to alternative fees. My clients deserve nothing less.

Source:  "Burying the Billable Hour" by Mark E. Jakubik, published at his Pennsylvania Family Law Blog,

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In her article, The Devastation of Divorce, Trish Berg states that children of divorce suffer a myriad of losses when their parents divorce.  Ms. Berg says that it’s difficult to understand the impact divorce has on the children's lives until we examine the losses they suffer in this process.  She lists the following five main losses children experience during divorce:

1. Loss of Dad - When parents divorce, typically the dad leaves the home, and may not be present much in the lives of the children. This causes an emotional vacuum for the children, and they may feel rejected, alone, and unloved, no matter how much the single parent loves them.
2. Loss of Money – When dad leaves, so does a lot of the money. Economic resource are, at best, cut in half, at worst, single parent families live in poverty.
3. Loss of Security – Kids of divorce often move to a new, smaller home, in a new town, with a new school. They now have to visit their dad. If mom and dad then begin dating, an entirely new stress is added to their lives. Their sense of stability and security is shaken as their world has forever changed.
4. Loss of Harmony – Many kids whose parents divorce feel caught in the middle. The fighting may have stopped, but now Mom may talk negatively about dad, and dad may gripe about mom, all in front of the kids. Parents may play games with visitation, and hold the children as emotional ransom. This loss of harmony causes tremendous chaos and stress for kids.
5. Loss of Simplicity – Life for children of divorce can get very complicated. They have to schedule everything they do, and remember what weekends they are visiting dad so they don’t play in a soccer league with games then. They have to split heir holiday time - Christmas Eve with dad, Christmas morning with mom. And when life events hit, they have to worry about mom and dad being in the same place. Who will come to my eighth grade graduation? Will they see each other? Will they fight? Family life is now complex and chaotic, and that will last for the rest of their lives.

Note from Ben Stevens:  While I agree with many of Ms. Berg's points, her article presumes that the mother will have custody of the children.  Of course, as I have discussed previously on this Blog, that is not necessarily the case.  Fathers who are active in their children's lives have a good chance of getting custody, if they sincerely desire and take the proper steps to do so.

Source:  "The Devastation of Divorce" by Trish Berg, posted at Inspired Parenting.

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From the Family Law Taxation blog:

In order for a taxpayer to be entitled to the dependency deduction, the taxpayer must satisfy rather explicit statutory requirements. In the case of a divorce or separation, this can be particularly difficult for the individual that does not have custody (referred to as the "noncustodial parent") -- even if the individual was "granted" the deduction as part of the divorce proceedings.

Dependency deduction for noncustodial parents: The noncustodial parent is not entitled to the dependency deduction unless the individual attaches a valid written declaration (IRS Form 8332 or its equivalent) to their Federal tax return for the year the deduction is claimed. In the event a written declaration relinquishes more than one year, then the original must be attached to the first claimed year and a copy attached to each subsequently claimed year.  For a discussion of these rules -- see FAQ: Dependency Deduction.

In Chamberlain v. Commissioner, the U.S. Tax Court ruled that the former husband (taxpayer) was not entitled to the dependent deduction for one of his children because he didn't attach a valid IRS Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parents) to his 2003 Federal tax return (the child credit was also denied because it is premised on being entitled to the dependent deduction for the child). The Tax Court concluded that the attachment of a Post-It note referencing the initial (1995) Form 8332 didn't satisfy the statutory requirement of attaching a valid written declaration.

The taxpayer's former wife executed a Form 8332 in which she relinquished the dependency deduction for one of their two children beginning in 1995 and for all future years. The taxpayer claimed that he attached the original Form 8332 to his 1995 return, but that a subsequent fire destroyed all of his copies. The IRS was unable to provide a copy because their 1995 tax return information had been destroyed (pursuant to IRS document destruction policies).

This result may seem harsh, but as the Court indicated, "Although we are sympathetic with [taxpayer's] plight, we are bound by the wording of the statute as enacted and accompanying regulations when consistent therewith."

Source:  "Dependency Deduction Goes Down in Flames: Tax Court Rules Noncustodial Parent Is Not Entitled to Dependency Deduction Because a Valid Form 8332 (or Equivalent) Wasn't Attached to His Tax Return" published at the Family Law Taxation blog.

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Reasons to consider filing your taxes separately from your spouse:

• You don't trust your ex. When you sign a joint return, you can be equally liable for all taxes, penalties and interest owed. If your ex-spouse doesn't pay, the IRS can come after you for the whole amount.  However, you might be able to claim innocent spouse relief if your spouse greatly understated his or her income and you had no way of knowing that when you signed the return.
  
• Your ex owes back taxes, back child support from a former marriage or has defaulted on federal student loans. If you file jointly under such circumstances, any refund you may be entitled to may be put toward your ex-spouse's debts.
• One of you has a low income but very high deductions. In this case, it may make more financial sense to file separately.

If you file separately, you forfeit the following credits and deductions:

• Earned income tax credit (EITC)
• Child and dependent care credit
• Adoption expenses credit
• Hope and lifetime education credits
• Qualified tuition deduction
• Student loan interest deduction
• Ability to deduce some of your Social Security benefits

The following factors determine which parent gets to claim the children as dependents on his/her tax returns:

• Unless there is an agreement or order stating otherwise, the custodial parent – that is, the parent with whom the child lives -- normally takes the dependency exemption when you file separately.
• The custodial parent can sign a formal release enabling the non-custodial parent to claim the child.  This often makes sense if the noncustodial parent earned the most income during the year.
  
• The dependency exemption cannot be divided, even if the children lived with each parent one-half of the year. Only one parent can claim the exemption for each child.
• Unlike with alimony payments, child support payments are not deductible to the parent who makes them, nor is it treated as taxable income of the parent who receives them.

Even if you decide to file separately from your spouse, you must still cooperate with him/her for these tax issues, for the following reasons:

• You must put your spouse's name and Social Security number on your return, so the IRS can match up both your returns to see if there are any discrepancies.
• You either both have to itemize or you both have to take the standard deduction.
• If you do itemize, coordinate who takes which deductions that you normally would have taken together as a couple.
• If you file jointly, decide before filing your return just how you'll divvy up the refund or the tax bill, and consider put any such agreement in writing or make it part of a court order.

Source:  "Recently Split? Avoid Costly Tax Mistakes" by Jeanne Sahadi, published at CNNMoney.com.

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One of the most frequently overlooked areas of family law is that of tax consequences.  Many family law practitioners do not fully understand the in's and out's of the applicable tax laws, which can result in their clients having unwanted "surprises" down the road.  Alan Pearlman of the Chicago Family Law Blog recently published the following article, which does a great job of analyzing and explaining the major tax issues for property division, child support, and alimony that divorcing parties should consider.

Prior to filing for divorce, various federal tax considerations should be reviewed due to their potentially profound implications. Among the major issues commonly covered in a divorce decree or agreement are: alimony, sometimes referred to as "spousal" or "separate maintenance" support; division of property; and child support. Each has its own tax treatment and implications.

Division of Property

Most divorces involve a division of the property owned by the couple. Such a division of property is not usually a taxable event, i.e., neither owes taxes nor gets a deduction from income because he or she receives certain property as a result of the divorce.

There are, however, tax implications following divorce that affect future taxes. More specifically, selling personal and real property in the future may require spouses who received such property (pursuant to a divorce) to pay taxes in connection to that property.

Personal and real property have a "basis" for federal tax purposes. The basis is usually the purchase price of the property. When the property is sold later, the amount by which the sales price exceeds the basis is called "capital gain." Capital gain is usually taxable at special rates. Thus, when property distributed pursuant to a divorce decree is subsequently sold by the receiving spouse, the receiving spouse may be required to pay taxes on the proceeds of the sale.

For example, in a divorce, the wife may receive the family home while the husband might receive stock or other investments equal in value to the house. If the house has a lower basis than the stock, when both are sold, the husband could end up with significantly more money, because he owes less capital gains tax.

On the other hand, under tax law applicable at the beginning of 2004, the first $250,000 (for individuals) or $500,000 (for couples) of the taxable gain on the sale of a qualifying personal residence is exempt from tax. In light of these tax issues, selling the house before the divorce, then dividing the proceeds, might make more sense.

Child Support

The parent who is granted custody of the child or children from the marriage, usually receives a set amount of money per month as "child support." Child support payments are not includable in the taxable income of the receiving spouse and are not tax deductible by the spouse making the payments.

If the written agreement or divorce decree orders both child support and alimony and the spouse making the payments pays less than the required total amount, for tax purposes, the child support obligation is deemed paid in full first. Only money exceeding the amount of the child support obligation is treated as alimony.

Alimony or "Spousal Support"

In general, for federal income tax purposes, alimony and "separate maintenance payments" are "deductible" from the income of the spouse paying and includable in income for the recipient. "Deductible" for federal income tax purposes means it is subtracted from a taxpayer's gross income before taxes are calculated, resulting in lower taxes. Taxpayers with a threshold amount of deductions must file a particular form with the IRS when paying income taxes and list such deductions.

Between the time a couple separates and a divorce decree is granted, one spouse may pay money for the support of the other spouse. These payments are deductible as long as they are made pursuant to a decree, court order or a "written separation agreement." In order for alimony payments to be deductible, federal tax laws and regulations require the following:

• The payments are made in cash, check or money order (no promissory notes, transfers or use of property, transfer of services, etc.) to the spouse, or to a third party in lieu of alimony at the written request of the recipient spouse, stating the payments are intended as alimony, and the request is received before the tax return is filed
• The divorce decree, order or the written agreement of the parties does not identify the payments as something other than alimony
• The spouses do not file a joint return with each other
• The spouses are not members of the same household when the payments are made, if they are legally separated under a decree of divorce or separate maintenance – separation within the family home is not sufficient
• There is no liability to make the alimony payments after the death of the recipient spouse – if part of the payment amount continues after death, that portion is not deemed alimony, and if all of the payment continues, none of it is alimony
• The alimony payments are not treated as child support

Source:  "Deductibility of Divorce-Related Payments" by Alan Pearlman, published at his Chicago Family Law Blog.

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The U.S. Department of Labor published an article which answers the following common questions about drafting Qualified Domestic Relations Orders (QDROs):

• What is the best way to divide a participant's pension benefits in a QDRO?
• How much can be given to an alternate payee through a QDRO?
• Why are the reasons for dividing the pension benefits important?
• In deciding how to divide the participant's pension benefits, why is understanding the type of pension plan important?
• What are survivor benefits, and why should a QDRO take them into account?
• How may the participant's retirement benefit be divided if the pension plan is a defined contribution plan?
• How may the participant's retirement benefit be divided if the pension plan is a defined benefit plan?
• May the QDRO specify the form in which the alternate payee's benefits will be paid?
• When can the alternate payee get the benefits assigned under a QDRO?
• What is earliest retirement age, and why is it important?

Source:  "Drafting Qualified Domestic Relations Orders" published at the U.S. Department of Labor website.  Thanks to Grant D. Griffiths for his article on this subject published at his Kansas Family & DIvorce Lawyer blog.

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Qualified Domestic Relations Orders (QDROs) are documents used to allocate retirement accounts when parties get divorced.  For people that don't regularly deal with QDROs, they can be quite confusing.  Fortunately, the U.S. Department of Labor published an article which answers many of the most common questions in great detail, including:

• What is a Qualified Domestic Relations Order?
• What is a Domestic Relations Order?
• Must a Domestic Relations Order be issued by a state court?
• Who can be an Alternate Payee?
• What information must a domestic relations order contain to qualify as a QDRO under ERISA?
• Are there other requirements that a domestic relations order must meet to be a QDRO?
• May a QDRO be part of the divorce decree or property settlement?
• Must a domestic relations order be issued as part of a divorce proceeding to be a QDRO?
• May a QDRO provide for payment to the guardian of an alternate payee?
• Can a QDRO cover more than one plan?
• Must all QDROs have the same provisions?
• Who determines whether an order is a QDRO?
• Who is the administrator of the plan?
• Will the Department of Labor issue advisory opinions on whether a domestic relations order is a QDRO?
  

Source:  "Qualified Domestic Relations Orders" published at the U.S. Department of Labor website.  Thanks to Grant D. Griffiths for his article on this subject published at his Kansas Family & DIvorce Lawyer blog.

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This is the ninth installment in the series of posts by Michael Sherman of the Alabama Family Law Blog on the steps to take when it becomes apparent that a divorce may be imminent.  His series takes an honest, practical approach in showing people how to protect their interests and make prudent preparations in such a situation.  Here is Step 9 - Avoid additional debt or major purchases:

We continue our series on practical steps to take when you are about to face divorce.  We are now to step 9 which is simple, but important:

Avoid additional debt or major purchases.

This suggestion goes hand in hand with assessing how to handle the credit accounts, but deserves its own separate mention.  If a divorce is going to happen, you want to be conservative with the finances.  It is not time to be putting in a pool, buying a new car, or buying new furniture on credit.  You want to simplify the financial situation not make it more complex. 

When the divorce occurs, one of the primary things that has to happen is for the divorce court to allocate who will be responsible for what debts.  Generally speaking, the less complex the debt situation, the easier task that will be.

I should note again, all of this is general information.  Your own specific situation may cause you to need to vary from it.  For example, there are times when you may have to get an automobile and it would be better to do it before the divorce because you won't have sufficient credit on your own after the divorce.  So, obviously you will want to get specific advice from your own lawyer - which is why Step 1 was find a wise guide (an experienced, competent divorce law specialist)!

Source:  "Divorce Preparation: Step 9 - Avoid additional debt or major purchases" by Michael Sherman, published at his Alabama Family Law Blog.

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This is the eighth installment in the series of posts by Michael Sherman of the Alabama Family Law Blog on the steps to take when it becomes apparent that a divorce may be imminent.  His series takes an honest, practical approach in showing people how to protect their interests and make prudent preparations in such a situation.  Here is Step 8 - Address the Credit Account:

We pick up with Step 8 in our series on practical steps to take when a divorce is imminent.  Step 8 is Assess how to handle the credit accounts.

If a divorce is imminent you do not want to be liable on any accounts on which your spouse has charging privileges.  It is not unheard of for an angry spouse, upon learning of a divorce, to go on a shopping spree.  Likewise, some lawyers may advise their clients to take out cash advances on joint cards to provide a cushion while the divorce is pending or to charge a large amount in lawyer’s fees on to joint cards.

You will want to consider canceling such joint accounts or at least reducing the spending limits.  If they are an authorized user on charge cards in your name, see what steps the credit card companies require to remove them as an authorized user.

Also consider home equity lines of credit. You may need to consider whether you should close it or restrict access pending the resolution of the divorce.

Whatever you do, do not neglect thinking seriously about how to handle this issue, and discuss it with your lawyer before making a final decision.

Source:  "Divorce Preparation: Step 8 - Address the Credit Accounts" by Michael Sherman, published at his Alabama Family Law Blog.

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Mother's Day is this coming Sunday.  Most everyone appreciates their mom, but have you ever considered the monitary value of what she does?  Well fortunately, someone has...

The mom pay wizard calculator at Salary.Com determined that the typical stay at home mother works 40 hours at base pay and 52 hours overtime for a total of 92 hours a week.  Mothers perform ten jobs at home, namely:

• cook
• housekeeper
• day care center teacher
• laundry machine operator
• van driver
• facilities manager
• janitor
• computer operator
• chief executive officer
• psychologist

Salary.Com also says it would take $138,095 per year to buy those services if she did not perform them.  This Sunday, tell your mother how much you appreciate her, and be glad that she never sent you an invoice!

Source:  "How Much Is a Stay at Home Mom Worth?"  by James J. Gross, published at his Maryland Divorce Legal Crier.  Thanks also to Grant Griffiths of the Kansas Family & Divorce Lawyer blog for his post on this subject.

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This is the seventh installment in the series of posts by Michael Sherman of the Alabama Family Law Blog on the steps to take when it becomes apparent that a divorce may be imminent.  His series takes an honest, practical approach in showing people how to protect their interests and make prudent preparations in such a situation.  Here is Step 7:  Assess the Financial Accounts:

We continue with our series on steps to take when divorce is imminent.  We are on to Step 7 which is Assess the Financial Accounts.

Source:  "Divorce Preparation: Step 7 - Assess the Financial Accounts" by Michael Sherman, published at his Alabama Family Law Blog.

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This is the sixth installment in the series of posts by Michael Sherman of the Alabama Family Law Blog on the steps to take when it becomes apparent that a divorce may be imminent.  His series takes an honest, practical approach in showing people how to protect their interests and make prudent preparations in such a situation.  Here is Step 6 - Establish Your Own Credit:

We are now on to the sixth step in our series on preparing for divorce.  The sixth step is: Make sure you have your own credit established.

If you do not have your own credit history, you should begin the process of establishing it now.  Obtain a gas card and a credit card.  You will need to have your own credit established after the divorce.  And, the sooner you begin the process the better.  So, don't wait until after the divorce.  You can start this immediately.

Once you've obtained the accounts, you can imrpove your credit by using the cards and then paying them off each month.  At this point, it is important that you use these cards only to the degree that you can pay them off each month. Your goal is to establish a favorable credit history, not to run up a bunch of debt.

Source:  "Divorce Preparation: Step 6 - Establish Your Own Credit" by Michael Sherman, published at his Alabama Family Law Blog.

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Once your divorce is finalized, it is time to begin laying the groundwork for your future. Finances are an important part of becoming self-sufficient and nurturing the new you. Here is a checklist of items that are important to cover when ensuring your finances are headed in the right direction.

• Establish Yourself Financially.  If you haven't already, you want to make sure you have a credit card as well as a checking and a savings account in your name. It is important to maintain or begin building your credit as soon as possible.
• Understand Your Divorce Ruling.  In order to make smart financial decisions, you need to understand fully the financial ramifications of your divorce. Will you be paying or receiving alimony? How will these payments be structured? What property or assets will you be receiving and when? Are you eligible for a portion of your former spouse's social security payments? Take time to discuss these issues with your lawyer to be sure you understand them fully.
• Pursue the Paperwork.  Pay careful attention to all details and documentation surrounding your legal and financial status. Make sure you change any beneficiary information on insurance policies or pension plans. Be sure to adapt your will, trusts or estate planning documents to reflect your current intentions for the assets they cover. Also, take the time to make sure any documents concerning power of attorney or guardianship have been updated.
• Be Insured.  Now that you are on your own, you want to make sure that you have all the necessary forms of insurance to protect yourself and your property. This includes health insurance, life insurance, car insurance and homeowner or renters insurance. Make sure all forms of insurance are in your name and that you understand the terms and conditions of each policy. Remember that you need to create a filing system for copies of all your financial documents and to keep an extra copy of these important papers in a safety deposit box.
• Educate Yourself.  You don't want to jump into major financial decisions before getting your bearings and making sure you fully understand the landscape. Many people find themselves in a situation where they are responsible for financial tasks that they never had to perform in their marriage. Take time to educate yourself and understand your financial options. Use some of the online resources listed at the bottom of this page or seek out a financial expert who can help you grasp a better understanding of your money matters.
• Audit Yourself.  You don't want April 15th to roll around only to realize you aren't sure about your tax status or what to do next. Work with your attorney and your ex to ensure any outstanding tax filings from your marital period are filed. Make sure you have the knowledge or the support of a financial expert to ensure you can continue filing your taxes on time and correctly.
• Create a Financial Plan.  After you have assessed your financial situation, made all the appropriate revisions to reflect your single status and gained the knowledge you need to manage your money, then it is time to create a financial plan that includes your budget, debt repayment and a savings/investment strategy. Depending on your financial situation, you may want to utilize the assistance of an expert to ensure you develop the best plan possible.

Source:  "Post-Divorce Financial Checklist" published at EqualityInMarriage.org.

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Military.com recently presented the following five suggestions to help you financially prepare for divorce:

1. Gather all necessary information & make copies:

In many divorce cases, one spouse generally assumes the responsibilities of maintaining the household's financial foundation, leaving the other spouse to the household's up-keeping responsibilities. During the marriage, this may seem to be a convenient partnership, but in a divorce, this tends to leave one spouse unaware of what the other spouse is doing with respect to finances such as: income, expenses, investing, credit cards, loans, family business, etc. If you are contemplating divorce, the first step you should take is to gather all financial information and make copies. It is amazing how documents come up missing once divorce is being discussed between spouses.

Getting these documents through an attorney at a later date can be quite costly. You want to have them up front, whether they're originals or copies. The types of documents you want to have are your most recent: bank statements, credit card statements, investment account statements, retirement account statements, loan applications, last three to five years tax returns & W-2's, property tax bills, mortgage statements, credit report, etc. In other words, anything that has bearing on your financial situation.

2. Accumulate some cash:

Depending on the type of divorce you may go through, the process can be potentially expensive. Once you are beyond contemplating divorce, start to save some cash each week to accumulate some liquid funds. What you know is you want a divorce, what you don't know is how this divorce will affect you financially. Not only will you need some liquid money to live on, but you could need to hire legal representation, financial experts, and/or mental health professionals to guide you through your divorce and serve as your advocate.

Establishing some cash is a necessity because you will need to pay these people in the event you need use them. Some divorce professionals will not work for you without a down payment, and the last thing you want to happen is not to be able to hire someone because you haven't planned properly.

3. Determine the type of divorce you will have & mentally prepare for it:

Not all divorces are the way they are portrayed on television, roughly 5 percent of divorce cases go to court. Not all divorce cases require hiring an attorney. In the state of Wisconsin, nearly 65-70 percent of divorce cases are “Pro-Se,” which means without legal representation. You want to have an idea of what type of divorce you will have and mentally prepare yourself for the costs.

In my experience with divorcing clients, a litigated divorce tends to be the most expensive regarding fees. If you are in an amicable divorce situation, you may not need to seek the legal support that you would in a highly litigated and disputed case. You may only need assistance with the financial aspects of your divorce. If finances are the only areas of dispute, than seek assistance from a divorce financial analyst, and after those issues have been resolved they can refer you to an attorney that will draft your settlement agreement. This saves time, money and provides for a better relationship with one another post-divorce.

There are other areas of dispute that require other professionals in a divorce. For example, let's assume that you and your soon to be ex-spouse have no real issues except placement of your children. This is a perfect opportunity to seek guidance from a child specialist and/or mental health professional to determine what scenario's are best suited for your children. Then after you come to an agreement find an attorney to review and draft the legal documents necessary to finalize your divorce.

Divorce is emotionally detrimental, the last outcome you need is for it to be financially detrimental as well. You don't want to go into the process blind and each end up with a $20,000 legal bill, when your only issue pertained to dividing retirement accounts, for example. Do your research and find out what professionals you need to minimize costs.

Here is a list of your divorce options:

• Legal Separation – best used for couples that do not want to finalize divorce for various reasons (i.e. religious, health insurance, child support, maintenance, etc.).
• Pro-Se – best used for couples with few disputes, few assets, and no children.
• Mediation – best used for couples who have issues to settle, but no reasons to go to court (i.e. financial issues, custody issues, placement issues, etc.).
• Traditional – best used for couples that are non-cooperative and want to fight.
• Collaborative – best used for couples with assets, children and disputes that are seeking an amicable divorce and guidance through a team of professionals (attorneys, financial specialists, mental health professionals, etc.) that assist them through a mediation-style process.
• Cooperative – best used for couples with assets, children and disputes that are seeking an amicable divorce and a team of professionals that assist them through a mediation-style process.

Determining this will give you an estimate of what a divorce may cost you.

4. Make a detailed list of assets, debts & monthly income before your first consultation:

After you have determined the type of divorce you will go through, prepare your current financial position and have it ready for your first meeting with a divorce financial analyst. This step will save you time and money. The more detailed you are, the more cost effective it will be for you. You also want to make sure that you have an understanding of your monthly expenses as well as income. One area that is commonly argued, is the household expenses incurred by each spouse. On your detailed list show actual expenses that can be supported by credit card and/or bank account statements. Numbers don't lie, and these documents can serve as a support item for negotiating proposed settlements and property division.

Knowing what your spouse earns in income is equally important when divorcing. You need to know all sources of income from: bonuses, cash under the table, exercised stock options, what they are deferring into retirement accounts, etc. Previous years tax returns and W-2's will have this information.

5. Choose the right type of financial professional that can give you expert advice:

When selecting a financial professional, be certain they have an area of expertise in divorce financial analysis and divorce financial counseling. Some financial professionals hold themselves out as divorce planners, but have ulterior motives such as booking new clients for asset management or tax preparation purposes. Look for the CDFA, CDP and/or CDS credentials. These credentials assure you that your financial professional is credible and competent to deal with the financial aspects of your divorce. These designation's mean that your financial professional has taken the necessary tests and acquired the education to hold themselves out as a divorce financial planner.

There are many advantages in retaining a divorce financial professional, some of these benefits are: financial analysis conducted early in the divorce process can save time and money, it can also help you avoid long-term financial pitfalls pertaining to divorce agreements, they can assist you in developing detailed household budgets and help avoid post-divorce financial struggles. Most importantly, they can reduce the amount of apprehension and misunderstanding about the financial aspects of the divorce process.

Certified Divorce Financial Analysts also provide other valuable information such as: tax consequences, division of retirement plans, continued health care coverage, stock option elections, debt reduction and much more. They can work with you individually or by collaborating with your attorney to help make financial sense of proposed settlements.

In my succeeding article I will focus on the different types of divorce, and the pro's and con's of each process. That article will explain the unique differences and help you to decide which type is of divorce process right for you.

Source:  "Top Five Ways to Financially Prepare for Divorce" by Garrick G. Zielinski, CFP, CDFA, Divorce Financial Solutions, LLC, published at Military.com.

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The Institute for Divorce Financial Analysts reports that about $50 billion a year is spent in North America as a direct result of divorce.  Divorces can range from simple to complex, but saving money largely revolves around two strategies: (1) paying less to your lawyer and (2) paying less to Uncle Sam.

The following suggestions can help you avoid wasting money as you go through the divorce process:

• Cooperate.  This is far easier said than done because feelings of bitterness and distrust are common, but most wasted money stems from emotional decisions and contentious divorces.  Your divorce will be very expensive if you need lawyers to help determine who gets the big-screen TV and flatware.
• Trim the lawyer bills. It's reasonable that price be one factor in choosing a lawyer, especially if the divorce is unlikely to end up in a court battle.  Once you hire a lawyer, use him or her sparingly. An attorney should handle court paperwork and lay out your legal rights, duties and options.
• Be prepared. Write down questions for your attorney meetings to make efficient use of your time. Remember, any drawn-out conversations will be billed at the hourly rate of maybe $250 an hour or more. When minor developments happen, don't call your lawyer each time. Instead, keep a journal and update your lawyer periodically.
• Use other professionals. Your lawyer is for legal stuff. If you need a therapist, get one. If you need a financial planner, get one. Either will be far better at giving you what you need and far cheaper than billable attorney time.
• Use free resources. Library shelves are full of books on divorce, and the Internet has a slew of Web sites. A helpful one is operated by Lee Borden at www.divorceinfo.com.  A new inexpensive book is "The IDFA Divorce Survival Guide," written by two leaders of the Institute for Divorce Financial Analysts.
• Tax considerations. The old joke is there are three parties to a divorce: the husband, the wife and the Internal Revenue Service. Cooperating spouses can structure a divorce to pay as little tax as possible, but you might need help from a tax pro.  The way you split up stocks that have appreciated by different amounts could have big capital gains tax consequence. It may not be an easy decision on who receives the child tax deduction and head-of-household tax filing status. You even may try to time your divorce to happen late in the calendar year or early in the next year, depending on the tax impact of filing jointly or as singles. And it's important to know that structuring payments as child support or alimony can have a big tax impact.
• Don't rebound. People who have been in a stagnant marriage sometimes go wild with money, dating every night and spending money frivolously.

Source:  "Keeping Divorce Civil Holds Down Cost of Breakup" by Gregory Karp, published in the Chicago Tribune.

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This is the fourth installment in the series of posts by Michael Sherman of the Alabama Family Law Blog on the steps to take when it becomes apparent that a divorce may be imminent.  His series takes an honest, practical approach in showing people how to protect their interests and make prudent preparations in such a situation.  Here is Step 4 - Prepare a Budget (or Two):

The next step in preparing for divorce is to make two budgets (one that shows the situation in the house before the divorce filing, and one that is your estimated budget for after the divorce).

Most folks don't like to prepare one monthly budget, so I know I'm asking a lot to suggest that it is helpful two prepare two of them.  There is a method to the madness though.  It is important to know what it costs to run your household currently.  Equally important is to have an understanding of what your costs of living will be after the divorce. Let’s take each in turn.

A. Know your current monthly budget

Knowing the monthly budget is important for the following:

1. In an alimony case, it is critical to show the standard of living and the financial need.
2. It is helpful in assessing specific needs of the children that may not be covered in basic child support (e.g. particular medical needs or private school expenses).
3. It will help you in planning your post-divorce budget.
4. If your spouse is self employed and under reporting his income, showing that monthly expenses exceed what they claim they make can show they are attempting to hide their true income.
5. A judge may utilize this information to determine temporary support while the case is pending.
6. You should know this stuff in order to properly manage your finances whether you are getting a divorce or not!

B.  Make an estimated budget of post-divorce expenses.

This is important for your personal planning and will likley influence your objectives in the divorce negotiations. You need to know what you will need financially in order to evaluate your settlement options or what you will ask the judge for in a trial.

This will undoubtedly take some estimating on your part. But, that is why it is called an estimated budget. It will be a work in progress. The point is to give some forethought to what your living expenses will be as you start the new chapter in your life.

C.  How to make your monthly budgets.

If you already maintain your checking account records on a software program like Quicken then the process is easy. You can simply print out a monthly budget report. If you don’t then you will need to sit down and look through your check register and/or your spouse’s check register for the past three months. This will reveal the expenses you may monthly and quarterly (divide the quarterly expenses by three and enter them in the budget as a monthly expense).

You will then want to think about any annual or semi-annual expenses you may have such as for life insurance, homeowner’s insurance, etc. and convert those to a monthly figure and enter it on the budgets also.

In setting out your budget, try to be as realistic as possible. You should be conservative in your budget (meaning don’t understate the expenses and end up stating a budget that doesn’t realistically meet your needs) without grossly overstating the budget (which a judge would frown on should the case go to court). It is admittedly a fine line. The best advice is to base it on as real numbers as possible.

Source:  "Preparing for Divorce: Step 4 - Prepare a Budget (or Two)" by Michael Sherman, published at his Alabama Family Law Blog.

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