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

When spouses own a business and they are getting divorced, the value of the business becomes a major focus of the division of property. Michelle O'Neil recently explained the concepts of valuation of a closely-held business entity that affect and even minimize the value of a closely-held business entity:

Valuing a business is a complex, and often expensive part of a divorce. A business consists not only of tangible assets like buildings, bank accounts, inventory, tools, fixtures, furniture and machinery; but also, intangible ones such as mortgages, leases, patents, trademarks, unlisted stock, skilled labor, accounts receivable and most notably, “goodwill.” A business is valued usually based on the fictional assumption of a sale between a willing buyer and willing seller.

The most common legal concept that affects the value of a closely-held business is the distinction between the personal goodwill and commercial goodwill of the business. The personal goodwill is that goodwill attributable to the person of the business owner. Take a small bookkeeping firm, for example, owned by a wife. Most of her clients do business with her company because they like her and trust her work. her business has no reputation separate from her. That value of the business attributable to her presence is personal goodwill. The value of a business attributable to personal goodwill is the spouse's separate property.

Commercial goodwill, on the other hand, is that goodwill that exists independent of the business owner. It is the independent reputation of the ABC Company that exists separate from the business owner. The value of a business attributable to the commercial goodwill is community property if the business would otherwise be community property.

Also diminishing the value of a business is the frequent occurance where a business remains subject to the control of multiple owners. This discounts the value to any one of the owners for lack of control. Another factor that decreases the value of a business involves marketability, which is defined as the ability to convert an investment into cash quickly at a known price and with minimal transaction costs. The more difficult a business would be to sell, the greater the discount for marketability.

Many businesses have "Buy/Sell Agreements". These cannot be relied upon to calculate a business' value. Such agreements typically protect the majority partner interests and rarely reflect actual value.
The best way to approach valuation of a business entity in a divorce is to hire an independent business appraiser—a CPA with an Accredited in Business Valuation (ABV) credential or a certified professional, like a Certified Business Appraiser (CBA) or someone recognized by the American Society of Appraisers (ASA).

Source:  "Minimizing Your Business Value in Divorce" by Michelle O'Neil, published at her Dallas Divorce Law Blog.

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If you are looking to find a financial expert for your Family Court case, consider the following sources:

• Talk to other litigators who try similar types of cases.
• Review reporting services that comment on verdicts, rulings and comment on testimony of the experts.
• Read opinions of reported cases and identify the experts that testified credibly.
• Talk to judges not affiliated with your case and find out who they respect.
• Visit internet blogs and do internet searches.
• Contact associations and organizations and ask for experts in that field.
• Interview at least three candidates and ask if you were the judge or a juror “does this person make sense?’
• Then, make your final assessment.

Source:  "How to Use Financial Experts More Effectively or How to Avoid CPA Rage" by Carlton R. Marcyan, JD/CPA/CFP, published in the AICPA Corner (membership required).

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If you intend to use a financial expert in your Family Court case, you should consider the following five most important aspects:

1. Find the best your case can afford.  Usually the cost differential between a pedestrian expert and a very good one is not that great; however, the quality the very good expert brings is far superior. Not only is such an expert more knowledgeable of the substantive area of the analysis but has the savvy and experience to anticipate issues and knows how to handle depositions, the courtroom and opposing counsel.
2. Make sure the person you choose really has the expertise in the area and issue addressed.  “Puffery” may be an acceptable salesperson’s practice but when used by a potential expert is a loud warning signal to move on to another candidate.  Litigation is too serious a business to bring in neophytes or charlatans who may have expertise of sorts in an area but not the exact area in which you need help.
3. Retain the expert as early as possible in the process. Let the expert “learn” the case with you and help you develop theories and approaches that make sense. This involvement gives your expert ample opportunity to have in-depth understanding of the case, its nuances, the opposing expert as well as the opposing counsel.
4. Use your expert to analyze the opposing expert’s findings.  Engage your expert to identify the other’s weaknesses such as inappropriate assumptions, faulty logic, irrelevant data, antiquated and obsolete approaches, failure to learn and understand new trends and techniques and the like.
5. If possible, hire another expert as a consultant to review your testifying expert’s work to try to make it as error free as possible.  With another set of trained “eyes” overlooking the work there is much greater likelihood that the testifying expert’s work will withstand the adversarial scrutiny. It is natural that the author of such a report will be more careful knowing that a peer is going to carefully check each calculation, assumption and word.

Source:  "How to Use Financial Experts More Effectively or How to Avoid CPA Rage" by Carlton R. Marcyan, JD/CPA/CFP, published in the AICPA Corner (membership required).

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If you are interested in hearing my interview from the South Carolina Business Review about the effect the economic downturn has on families, you can CLICK HERE. 

This interview was broacast on eight NPR radio stations across South Carolina on June 18, 2009.  Thanks again to Mike Switzer for having me as a guest on his show.

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Earlier this week, we examined the issue of who owns the engagement ring prior to marriage if an engagement is broken. In this second part, we look at the issue of who owns the engagement ring after marriage, if the marriage is later dissolved.

In South Carolina, “marital” property can be allocated or divided by the Family Court. “Non-marital” property cannot be allocated by the Family Court, and it therefore belongs to the spouse independent of the marital estate.

By statute, South Carolina has defined non-marital property as “property acquired by either party by inheritance, devise, bequest, or gift from a party other than the spouse.”  Thus, a gift from a third party is non-marital, but a gift from a spouse is marital. So where do engagement rings fall under this analysis?

As previously discussed, most courts appear to view an engagement ring as a conditional gift that becomes final when the marriage is consummated. This would appear to make the gift irrevocable exactly at the moment when a non-spouse is becoming a spouse.

In South Carolina, the courts have decided that an engagement ring, at least one given prior to the wedding ceremony, is a pre-marital gift, and therefore is non-marital property belonging to the recipient of the ring upon dissolution of the marriage.

For further reference, see S.C. Code 20-3-630(A)(1) and McClerin v. McClerin, 310 S.C. 99, 425 S.E.2d 476 (Ct. App. 1992).

"Who Owns the Engagement Ring? (Part Two)" by Paul C. MacPhail.

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Prior to marriage, an engagement ring is generally treated as a conditional gift, rather than an absolute gift. In other words, the ring was given conditioned upon the subsequent ceremonial marriage.  Under Roman Law, if the parties jointly decided to call off the engagement, the ring was to be returned to the donor.  If one of the parties unjustifiably called off the engagement, then that person forfeited any rights to the ring. 

This approach has been the prevailing one in the United States, and under this rationale, the donor is not entitled to the return of an engagement ring if he is at fault for calling off the engagement. However, there is a minority rule that utilizes a “no-fault” approach, whereby if the engagement is broken, the ring is returned to the donor – no matter who is at fault. This approach is intended to limit litigation.

Because of the (relatively) small amount of money at stake, however, these cases rarely make it to the highest court in the state. For example, in South Carolina there are no Supreme Court cases on point, so there is still a fair amount of confusion as to which approach to take at the trial level, and it is often difficult to predict the results.

For information about who owns the engagement ring after marriage, see “Who Owns the Engagement Ring? (Part Two)” – to be published later this week.

"Who Owns the Engagement Ring? (Part One)" by Paul C. MacPhail.

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As I've previously discussed, the downturn in the economy is impacting families, and the practice of family law.  I was recently interviewed by Mike Switzer of the South Carolina Business Review about this subject. 

You can listen to it tomorrow morning (June 18, 2009) at 7:52 a.m. on the following NPR radio stations in South Carolina:  WSCI 89.3 in Charleston; WEPR 90.1 in Greenville / Spartanburg; WLTR 91.3 in Columbia; WRJA 88.1 in Sumter / Columbia; WNSC 88.9 in Rock Hill / Charlotte; WLJK 89.1 in Aiken / Augusta; WJWJ 89.9 in Beaufort / Hilton Head; and WHMC 90.1 in Conway / Myrtle Beach.

The program description is listed below:

Thursday, June 18, 2009
Narrative: Do economic downturns affect family structures?
Description: Mike Switzer interviews Ben Stevens, a family law attorney with Stevens MacPhail in Spartanburg, SC. www.scfamilylaw.com

 

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Earlier this year, the United States Supreme Court issued an important decision that potentially affects family law cases all across the country. In Kennedy v. DuPont, the Court resolved a dispute between an ex-wife and the her ex-husband's daughter over the proceeds of a savings and investment plan (SIP) that was an Employee Retirement Income Security Act (ERISA) benefit plan.

The lesson to be learned from this case is that if you divorce, you must change your designated beneficiary forms under any pension and/or retirement plan covered by ERISA. You need to actually make the change yourself (in accordance with the rules set forth by your employer), and you cannot simply rely on a waiver of benefits in your Divorce Decree or Qualified Domestic Relations Order (QDRO). If you fail to change the beneficiary form, it could result in unintended consequences at your death - such as your former spouse getting your benefits!

Source: "U.S. Supreme Court Says Ex-Wife Gets Pension Benefits" by Robert Kisselburgh, published at his Mississippi Family Law Blog.

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Psychotherapist and parenting expert Jill Spivack has created a recession survival guide to help women develop coping strategies that include how to reduce costs, minimize stress and maintain healthy relationships. Her recommendations include the following tips:

• Increase physical activity to help relieve stress
• Maintain a positive attitude and remember you are not alone
• Communicate your feelings to your spouse
• Figure out solutions and work as a team
• Explain the situation to your children
• Spell out what you will (and won't) spend money on

There are many other good suggestions (and much more detail) in the article below, and I encourage my readers to click this link to learn more.

Source: "Recession Survival Guide for Stressed Moms" by Jill Spivack of Momlogic.com, published at Today.MSNBC.com

 

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Being in the midst of holiday season, I thought that the following article from child development expert Gary Direnfeld would be helpful to my readers.  He explains that the following family financial planning strategies can help reduce the risk of gift disappointment and overwhelming bills this Christmas season:

1. Be honest and forthright with teenaged children about your financial and employment concerns, without trying to instill fear. Let your children know of your plans to survive the economic meltdown including cutting back on the Christmas gift-giving budget. This may actually put them to ease despite their upset at the impact of the current economic situation too.
2. Inform your children of your budget and ask them for their gift preferences in line with the budget. When expectations are clear on both sides, there is less room for disappointment.
3. Involve your children in cost-cutting decisions and making plans for Christmas celebrations. It just may be that if included, they come up with some good ideas. Being part of the planning process, they will then likely enjoy what you mutually determine.
4. Pool resources. You may not be able to afford that one special gift yourself. However, if you go in on it with a few relatives, it may then be affordable. So the answer may not be how many gifts are given and received, but how many people contribute to that one special present.

Mr. Direnfield further explains

Children typically respond and adjust better to change when they are part of the process. The recession is real and discussing it with them can help them to cope better and you to feel better. Children may be initially disappointed and that would be normal and reasonable. However, they too must learn to live within their means and make the best of life and circumstances. A memorable Christmas may just be one where everyone comes together with a workable plan to enjoy the day.

Source:  "Happy Holiday Season Depends on Family Financial Planning" by Gary Direnfeld, MSW, RSW, published at the MacLean Family Law Group's British Columbia Family Law Blog.

 

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Divorce attorneys resolve financial issues when marriages end.  What if there were steps that you could take to protect yourself much earlier, perhaps even before you get married?  Consider the following suggestions from Alexis Martin Neely, who bills herself as "America's Personal Family Lawyer": 

1. Taxes  ::  Remember that your marital status for the whole year is determined by whether you are married on December 31st and plan accordingly.
2. Combining Finances  ::  Get used to working together financially before combining your finances, and consider keeping at least one separate account and separate credit cards.
3. Community v. Separate Property  ::  Consider the legal implications of where you place assets and how you title them.
4. Debt  ::  Exchange your asset and debt information prior to marriage and remember that debt incurred during the marriage is typically owed by both of you.
5. Estate Planning  ::  Be sure to understand what will happen to your finances after your death and have an estate plan to ensure your wishes are followed.

The items listed above are summaries of Alexis' suggestions.  You can read much more about each of these suggestions at her website by clicking HERE.

Source:  "Tying the Financial Knot. What to Know Before You Get Married" by Alexis Martin Neely, published at her Family Wealth Secrets blog.

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One of questions that family law attorneys are most frequently asked is some variation of "Can the other party be required to reimburse me for my attorney's fees and costs?" or "Will I be required to pay the other side's attorney's fees?" 

Many times, each party will pay his or her own attorney's fees ... but not always.  The cases in which one side will be required to pay the other's attorney's fees and costs typically fall into one of the following categories:

• Unequal Finances  ::  One spouse earns significantly more than the other, such as the husband earning $120k per year, whereas his wife's salary is only $40k per year.  This can also occur when one spouse has possession / control of significantly more assets than the other.  The Court usually tries to "level the playing field" as best it can.
• Clear Wins / Losses  ::  At the conclusion of a case, it is clear that the case was one-sided and the losing party had no realistic chance of prevailing.  For instance, the wife insists that she is entitled to receive alimony despite the fact that the parties' incomes are approximately equal and they have only been married for a very short period of time.
• Misconduct During Litigation  ::  One spouse engages in a pattern of conduct during the course of the case in order to increase his / her spouse's legal fees and costs.  This can happen when there has been excessive discovery in an otherwise simple case or where one attorney attempts to "drown" the other with correspondence and other unnecessary requests.
• Fault Ground Divorce  ::  If one spouse obtains a divorce on one of the fault grounds (adultery, physical cruelty, habitual drunkenness, etc.), it is not uncommon for the other party to be required to reimburse that spouse all or part of the attorney's fees, private investigator's fees, etc. incurred in obtaining the divorce.

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This past summer, Robert Kisselburgh published the following article on his Mississippi Family Law Blog:

When you divorced, did you modify your estate plan?

For many couples going through divorce, the focus is on the divorce process and its aftermath. With the wave of emotions involved in the divorce, many forget about their estate plan. Ask yourself some simple questions which apply both during and after the divorce process.

• Do you want your soon-to-be ex-spouse making the decisions are to your medical care should you become disabled?
• Do you want your soon-to-be ex-spouse to get all your money should you die?
• Have you updated the beneficiary forms for your life insurance?
• Have you updated the beneficiary forms for your retirement plan?
• Have you updated your Will removing your spouse as a beneficiary?
• Have you updated your trusts removing your spouse as a beneficiary?

Most individuals forget about their estate plan during and after the divorce. Unfortunately, this might lead to unintended consequences, such as an ex-spouse receiving money you don't want them to have. That is why it is important to talk with an estate planning attorney during the divorce process, or at the very least, immediately following the divorce to ensure that your property is protected and passes to those you cherish most.

Note:  If you have questions about your estate plan, contact an experienced attorney (including my law partner, Paul MacPhail) to discuss your options further.

Source:  "Estate Planning and Divorce in Mississippi" by Robert Kisselburgh, published at his Mississippi Family Law Blog.

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Divorce can be a scary time, particularly for those that do not have a financial credit history.  For instance, consider the situation where one spouse has not worked in quite some time and all of the credit accounts have been listed in the other spouse's name.  During and after the divorce, the first spouse may encounter significant difficulties when trying to obtain credit.  People finding themselves facing such a situation should consider the following advice from certified public accountant, author, and financial consultant, Sally Herigstad:

• Remember existing joint credit that might already exist in your name.  If your name is listed on joint credit card account or a joint mortgage, then the activity on those accounts is reported on both of your credit reports.  For credit reporting purposes, it doesn't matter who applied for the credit or who made the payments, as any creditor who reports the credit history of a joint account must report it in both names.
• Also consider any accounts where you are listed as an authorized user.  If your spouse opened an individual account and added you as an authorized user, the creditor must still report the credit history of the account in your name as well as in your husband's.  However, some new credit scoring models exclude information from authorized user accounts.
• Acquire your own credit account.  If you have income, such as alimony, you can apply for an account in your name only -- even if you don't have your own earned income.  Steer clear of cards or loans with a very high interest rate -- especially if you might not be able to pay the balance off every month.
• Also consider other options.  If you have trouble getting your first credit card, consider getting a secured card. These cards require you to make a deposit with a bank or credit union and then gives you a credit limit equal to the amount you have on deposit.  You may be able to get a car loan without too much trouble, since it is secured by the car itself, which lowers the risk for the lender.
• Protect yourself on any open joint credit accounts.  Remember that both you and your spouse are liable for the total amount of debt on any joint account.  Therefore, you should consider all options available with regard to these accounts, including:  closing the account altogether; putting a freeze on the account until you both agree on who owes what; making minimum payments on the account; and/or changing the account from a joint account to an individual account.

Source:  "Establishing Credit After Divorce" by Sally Herigstad, published at CreditCards.com.

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Question:  I have been separated from my spouse for 4 months.  I would now like to start dating again. If I do so, can my spouse pursue a divorce from me based on adulery?  I am concerned because I don't want to lose my house.

Answer:  You have several issues referenced in your question.  If you are "legally separated" (meaning you have been issued a Decree of Separate Maintenance from the Family Court), then none of the financial issues addressed in that Order will be changed by any adultery at this point.  However, if you are only physically separated (meaning you are simply living apart from your spouse), then any adultery at this point will most liklely have an effect on how the financial issues in your case are decided.  Finally, if you are still married, your spouse can file for a divorce on the ground of adultery whether you are legally separated or not.

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Earlier this week, I published an article which explained ways to protect your finances before your divorce.  This post contains more excerpts from the article published Ask The Advisor which looks at the impact of divorce on credit, specifically with regard to your finances and your credit history.

When facing a divorce, it is easy for emotions to overwhelm you and prevent you from focusing on protecting your finances.  Some people do not adequately protect their financial interests during the divorce, but the following steps can help repair the damage done in these situations:

• Check Your Credit Score :: This is something you should do at least once a year, but it is especially important after major life events. By checking your credit score you can see if your credit has been adversely affected by your divorce. It will also show if there are any debts that you used to share with your spouse that are now being neglected. This will point you in the right direction when it comes time to cancel any joint accounts.
• Separate / Cancel All Joint Accounts :: Even if you ended your divorce on very bad terms, you simply must have a sit-down with your ex. Any and all accounts, debts and property that you still share should be separated, canceled or sold. In other words, you must separate your finances like you have separated your relationship. This can be most easily accomplished with your former spouse's help. If he/she won't help, it is time to call your lawyer. Either way, your financial ties must be severed.
• Notify Creditors of Your Divorce :: Once you have separated/canceled all of your joint accounts/debts, you are no longer legally bound to your former spouse's current debts. Call all of the creditors who have been bothering you and alert them to this fact. In a perfect world, they would apologize for the inconvenience and never call you again. However, it may take awhile before such calls cease entirely. In addition to notifying the proper collectors, you should right a letter to them as well. That will help them to expedite their file updates.

Source:  "How Will My Divorce Affect My Credit?" by Jimmy Atkinson, published at Ask The Advisor.

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Going through a divorce can be one of the most significant financial events that you will experience in your life.  Not only is a divorce the breakup of an interpersonal relationship, it is also the end of a financial relationship.  The excellent financial information blog Ask The Advisor published an article which takes a close look at the impact of divorce on credit, specifically with regard to your finances and your credit history.

As soon as you decide to separate from your spouse, you should begin to take steps to protect your credit, including the following:

• Assess Your Responsibilities :: You need to be aware of all the accounts you are responsible for, including bank accounts, mortgage loans, credit cards and utilities. Even if you and your spouse have decided who gets what property, you need to make sure that the right person is solely responsible for their respective belongings.
• Dissolve All Joint Accounts :: Rather than trying to divvy up what is owed on your joint accounts and asking your ex to honor their half, you should remove the right person's name from the accounts or cancel them completely. Make sure the both of you do the canceling together, legally. The first place to start is the bank, as most couples share checking and/or savings accounts when they are married. Also, if you are taking possession of one car with both of your names on the note, have your spouse's name removed. Make sure that your spouse does the same thing with any property they take. (If you are still paying for any of this property, then you may have to refinance to get the loan down to one name.) Any bills you paid together, such as your utilities, should be put in one name. As for credit cards, you can try to work with the credit card company and have them transfer half of the balance to two different accounts in anticipation of the divorce.
• Sell the House :: A common mistake that people make is giving their house to their spouse after the divorce. This may be due to abandonment or perhaps a well-intentioned arrangement because there are children involved. However, the best thing to do is to sell the house together and divide the profit. After all, no one can predict the future. Countless divorcees have found their credit ruined because their ex let their house go into foreclosure. Explaining to creditors that you are now divorced won't make you any less responsible for a mortgage with your name on it.
• Divide Any and All Shared Cash :: In the process of allocating debt, canceling accounts and selling property, you and your spouse will probably be left with some liquid assets. You should, perhaps with the assistance of your divorce lawyers, fairly divide that cash before you walk out of each other's lives. This is the legal, sensible and ethical thing to do.
• Document Everything :: Once the courts become involved and your divorce is finally underway, make sure that all of your financial arrangements and agreements are documented. That way, if there are any discrepancies down the road (such as a creditor bugging you about your ex's car payments), you can refer anyone to your official court records. While this may not be a surefire way to get a collector off of your back in a timely manner, you will have the law on your side and the means to protect or restore your credit.

Source:  "How Will My Divorce Affect My Credit?" by Jimmy Atkinson, published at Ask The Advisor.

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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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This is the third 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 3 - Make Photocopies of All the Financial Records:

Continuing our series on practical steps to take when it becomes obvious that divorce is imminent, we are now on to step 3.  Step 3 is simple, but important.  Step 3 is to make photocopies of all of the pertinent financial documents.

As you gather the important financial documents, you should make two copies of each of them.  One is for you and one if for your lawyer.  Keep your copy in your divorce notebook or file folder.  It is important to keep a list of what documents you have, what documents you still  need, and which of them you have given to your lawyer.

Each case and each lawyer may require a unique set of documents.  But, some of the common ones will include at least the following basic ones:

• Income tax returns for at least 3 years;
• Most recent pay stub showing year to date income;
• 12 months statements on every financial account (including retirement accounts);
• 12 months statements on every credit card or line of credit; and
• Deeds for all real estate owned by either party individually or jointly.

Source:  "Preparing for Divorce: Step 3 - Make Photocopies of All the Financial Records" by Michael Sherman, published at his Alabama Family Law Blog.

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This year, the deadline is April 17 for federal and state returns.

If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your 2006 federal income tax return.

Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.

Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.

Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is then considered alimony.

For more information, go to www.irs.gov.

Source:  "Tax tip | Divorce Can Impact Taxes" published at The State.  Thanks to Warren R. Shiell of the Los Angeles Divorce and Family Law blog for his post about this article.

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This is the last portion of the second 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 2C - Determine Income (Yours and Your Spouses):

Your lawyer will need documentation showing your income (if you work outside the home) and the income of your spouse. This is important for a number of reasons, but primarily for child and spousal support.

If your spouse is a salaried employee then your job is easy. Obtain a copy of the most recent pay stub and the most recent Income Tax Return. If you do not have access to either of these, you can obtain a copy of the Income Tax Return by requesting it from the IRS.

Complete Form 4506, Request for Copy of Tax Return and mail it to the IRS address in the instructions along with a $39 fee for each tax year requested. Copies are generally available for returns filed in the current and past 6 years. You can download the form at www.irs.gov.

If your spouse is self employed, then the job of determining their income becomes much more difficult. This is why discretion about your divorce plans is important. You may want to discreetly question your spouse (or if he has one, his business partner or his partner’s spouse) about income. You can attempt to get copies of bank account statements and financial statements of the business.

Another good way to prove income and assets of a self employed spouse is to obtain a copy of a loan application or net worth statement that they may have submitted to a bank or other lending institution for a loan.

Sometimes it is difficult to prove the actual income of a self employed spouse. At this point, gather the information you can. In the case of a self employed spouse, your lawyer will likely have to help you by using the discovery process to obtain and analyze additional information.

Source:  "Step 2C - Determine Income (Yours and Your Spouses)" by Michael Sherman, published at his Alabama Family Law Blog.

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Divorces can be complicated and messy, both from a personal and a financial standpoint.  Forbes  published an article a couple of years ago which listed financial mistakes that everyone should try to avoid.  Here is their list, with my comments about each point listed afterward:

• Having unrealistic expectations. Parties often forget that their living expenses typically double when they separate.  The same income(s) now must support not one, but two households, and it is not uncommon for things to get tight for a period of time.
• Not communicating.  It is extremely important that clients give their attorney all of the necessary information about their case, and not just the information that they think the attorney needs to know.  Those "little" things that the client thought that no one would ever find out or that really didn't seem that important can result in disasterous consequences for the clients if their attorney is blindsided with them at trial.
  
• Getting into an endless battle. Some divorcing spouses fight in Court because they want to fight.  Either they can't get past their own emotional hurt from the divorce itself, they want to make their spouse's life miserable, or they just enjoy turmoil, stress, and fighting.  Parties would be well served to fight only those issues which truly need to be fought and act reasonably throughout the process.
  
• Getting hung up on the numbers.  It is important for the marital estate to be divided fairly between the parties, which generally means an approximately equal distribution.  However, there will always be some assets which would be better going to one spouse than the other, and in some cases it makes sense to use a different distribution to accomplish other necessary goals.  For instance, one spouse may benefit from taking less of the marital estate in exchange for a larger amount of spousal support (alimony).
  
• Focusing on the present and not on the future.  The financial issues in a divorce affect both parties long after the divorce is over.  Parties should realize that when they are attempting to get as much as they can by way of assets that there are often debts and other expenses that accompany them.  It makes no sense to fight to get something that you truly can't afford to keep in the long run.
  
• Forgetting to assess tax.  Many issues in divorce cases have tax consequences, and many of those do not show up until after the fact.  Examples can include alimony payments,  dependency exemptions, and captial gains issues. Parties are well served by having an accountant available to discuss these issues before it's too late.
  
• Overlooking important information.  It is important to make sure that everything in your divorce case is addressed and thoroughly analyzed by your attorney.  For instance, are you sure that your spouse doesn't have a retirement account with his employer and/or are you sure that the balance is what he/she says it is?  Let your attorney obtain the necessary information directly from the source to verify it authenticity and accuracy.
  
• Failing to untangle all joint finances.  The sooner you can separate yourself financially from your spouse, the better off you will typically be.  If your spouse fails to make a timely payment on a joint debt, that stain can show up on your credit report.  Likewise, you may still be liable to the lender if your name is on that account and your spouse doesn't pay.
  
• Failing to take into account the amount of time you'll to get your career back on track.  In many marriages, one (or both) spouses have made career sacrifices -- either for each other or for their children.  In these situations, it takes time for that spouse to be in a position to earn an income comparable to the other spouse, if ever.  Keep this in mind when you are going through a divorce, because in most cases, the parties do not have an equaly financial standing at the outset.
  

Source:  "Top Financial Divorce Mistakes" by Leah Hoffmann, published at Forbes.com.

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Breaking with every other state that has considered the issue, the New Hampshire Supreme Court recently held that employer-provided housing, vehicle, and receipt of other in-kind benefits were not includable in "gross income" under its child support guidelines for purposes of calculating a child support obligation.  The Court found that since these benefits were not paid in money, they did not share one of the primary attributes of items listed as "gross income" in the guidelines. The receipt of such items may be considered as the special circumstances and be sufficient cause for deviation.  You can download a copy of In re Clark by clicking HERE.

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Your income tax returns are not due for another four and a half months, but there are several things you can do this week to help minimize your tax exposure.  You may want to consider the following year end tax tips from Turbo Tax:

1. Defer Income - Income you don't receive until after midnight on New Year's Eve isn't taxed until the following year. Even if you'll be in the same tax bracket, you win by putting off the tax bill.
2. Exploit Last-Minute Deductions - Contributing to charity is a noble way to get a deduction. And you control the timing.
3. Beware of the Alternative Minimum Tax - Sometimes accelerating deductions can cost you money… if you're already the alternative minimum tax (AMT) or you inadvertently trigger it. Originally designed to make sure wealthy people could not use legal deductions and congressionally created loopholes to drive their tax bill to zero, or close to it, the AMT is now increasingly affecting the middle class.
4. Sell Loser Stocks to Offset Gains - Since it's up to you when to sell securities – and convert paper gains and losses to real ones – you can mix and match your trades to deliver the tax outcome you desire.
5. Do a Bond Swap - The point of this year-end maneuver is to lock in a tax loss by selling bonds that have fallen in value (usually because market interest rates have risen) and reinvesting the proceeds in other bonds. Done right, you can maintain the income stream from your bonds.
6. Don't Buy a Tax Bill - Mutual funds often pay out most of their capital gains and dividends in December. Don't think you're getting a windfall if you buy just before then. It's a tax mistake.
7. Contribute the Maximum to Retirement Accounts - Bump up your 401(k) contribution so that you are putting in the maximum amount of money allowed ($15,000 for 2006 and $15,500 for 2007, so start early). If you think you can't afford it, run the numbers.
8. Give Money Away - You can give away as much as $12,000 a year to any number of people without triggering the federal gift tax. The tax-free amount doubles to $24,000 if your spouse joins you in making the gift.
9. Check IRA Distributions - If you have reached age 70-1/2 (or if your parents have), remember that the law demands that payouts must be made from traditional IRAs after the owner reaches that age.
10. Check up on Your Flexible Spending Accounts - The catch is the notorious "use it or lose it" rule. You have to decide at the beginning of the year how much to contribute to the plan and if you don't use it all by the end of the year, you forfeit the excess.

The article at Turbo Tax discusses these issues in greater detail.  As always, you should consult your CPA or tax adviser to ensure that these tips are appropriate for your specific situation.

Source:  "10 Year-End Income Tax Tips" published at the Dumb Little Man blog.

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AskMen.com published an article which discussed the basics of child support.  This article was aimed at men, but the principles discussed are gender neutral and apply equally to mothers and fathers.  You can read the full article by clicking here, but I have listed the highlights below:

• A DNA test is your best bet
  Paternity should almost always be the first question when it comes to child support.  Failure to request a paternity test could result in you paying for a child that is not yours. 
  
• Men can get child support
  Generally, the parent that has the child most of the time receives the child support payments.  Most people assume that the mother always gets custody, but that is not the case.  In fact, in an ever-increasing number of cases, the father receives custody.
• Child support is determined by a formula
  The factors used in the formula vary from state to state, but they generally include the parents' incomes, healthcare expenses, and day care expenses.  Almost every situation is different, and when it comes to comparing child support, you’re talking about apples and oranges.  A good attorney will ensure that the correct factors are used and that your child support is calculated correctly.
• You can make a private agreement with your ex
  A child support agreement doesn’t have to be created by the court. In fact, courts in most states would prefer people to work it out themselves. But for the agreement to be considered legal, it needs to be put in writing, signed and approved by the court.
• The court doesn't control how the money is spent
  A common complaint is that the parents receiving the child support spends the money on themselves.  It is important to understand that the money paid doesn’t go directly to the child, nor does all of it need to be spent on the child.  Just think, married parents don't give their paychecks (or a percentage of it) directly to their children.  The courts are concerned that the child's needs are met and that the child is not in harm's way.
• You can modify child support agreements
  Child support obligations can be recalculated when there is a change in circumstances.  Generally, you will be required to petition the court to do so, but it can be done if you can legitimately prove why it is necessary.
  
• A lower salary won’t change your obligation
  Believe it or not, some parents actually lower their own salary intentionally, with the belief that they won’t have to pay child support anymore.  Fortunately, the Court will not allow such attempts to hurt the kids.  In cases where this occurs, income is typically calculated based on  that parent's potential income (or earning capacity).
  
• You are responsible even if it was a one-night stand
  Marriage isn’t necessary for child support; only a child is required.  From a child support perspective, a one-night stand is the same as having a wife or a girlfriend, and the only question is paternity. 
  
• Step-parents aren't legally responsible
  If it’s not your biological offspring, you don’t pay. However, if you adopt the kids in the marriage and later divorce, the child is legally your responsibility and the Court will treat you just as if you were the child's biological parent.
  
• You don't get a tax exemption
  According to the IRS, the custodial parent gets to claim the tax exemption for the child, and not the parent who pays child support.
  
• Deadbeat parents can face state sanctions
  Deadbeat parents cost states a lot of money in administration.  Many states suspend the licenses of parents who don’t pay child support, and the licenses can range from the simple driver’s license to a business or law license.
• Child support usually ends at 18
  At the age of 18, one is considered an adult in the eyes of the law. At that point, child support comes to an end, unless they are still enrolled in high school. However, the date at which child support terminates varies widely from state to state, and you should consult an attorrney to find out the particulars for your state.

Source:  "Paying Child Support 101" by Michael Estrin, published at AskMen.com.

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One of the questions that family law attorneys are frequently asked is under what circumstances can a non-custodial parent claim a child as a dependent on his/her income tax returns.  Fortunately, the  Family Law Taxation blog has published the following article, which addresses that very issue in great detail:

Non-Custodial Parent's Deduction for Dependents: Tax Court Denies Dependency Deduction for Non-Custodial Parent Because Taxpayer Did Not Include a Signed Form 8332 With His Return

The tax consequences of separations can impact a number of areas. One such area is the deduction for dependents.

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If you are concerned about the growing incidents of identity theft, I recommend the following post from Trent Wilcox of the Arizona Divorce & Family Law blog:

It’s beginning to look a lot like . . . well, like the winter holidays, with all the gift-giving and –receiving opportunities that abound. Gift lists grow ever-longer and more specific, and the giver’s thoughts turn to long hours and longer lines at the mall, fighting for this year’s version of the last Furby or Cabbage Patch Doll on the shelf. Wouldn’t it be easier to log onto the Web and shop in your jammies, humming along with your Christmas tapes? But what about identity theft? Could you unwittingly be handing over your life to some scammer?

It is possible—but not as likely as the hype may lead you to believe. In the report prepared for the Federal Trade Commission in 2003 by Synovate, approximately 4.6 percent of the population experienced some form of identity theft in 2002. In the same report, it was determined that in twenty-five percent of all identity thefts reported, the thief obtained the information through theft of a purse or wallet.

So your chances of experiencing any form of identity theft are one chance in twenty. And if you are one of the unlucky ones, you have a one in four chance of having been taken when someone lifted your wallet or purse.

How else does your information get captured? Do you shred your credit card statements, or do you just toss them in the garbage? If you leave them whole, that gives a thief your name, address, and account number. If you put them in a desk drawer, someone could remove them from that drawer. And do you know where the waiter goes with your credit card when he goes to swipe it? Are you sure he’s not making notes on a post-it, just in case he feels your tip is too small? There’s more to identity theft than the Internet.

What do you do when you realize that something’s gone wrong? For most people, the main concern is with misuse of an existing credit card account. With good reason too—according to Synovate’s 2003 report, misuse of an existing card accounts for over half the incidents of reported identity theft.

First and foremost, report the loss or theft of a credit card to the issuer immediately. This can limit your liability dramatically, often to a cap of $50.00 per card. Close any accounts you know were tampered with and open new accounts with new passwords. Don’t choose something obvious like a string of consecutive numbers, your mother’s maiden name, parts of your Social Security Number, or names of children or pets. Then file complaints with your local police and with the Federal Trade Commission. Finally, place a fraud alert on your credit report.

Speaking of credit reports, they are one of the best tools for making sure accounts are not being opened in your name without your knowledge. You are entitled to one free credit report every twelve months—just for asking. Peace of mind makes a nice holiday gift to yourself.

Source:  "Identity Theft" by Trent Wilcox and Beth Rees published at the Arizona Divorce & Family Law blog.

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Financial issues are present in virtually every Family Court case.  Those clients who have a handle on their financial status do their attorneys a great service, because they allow the lawyer to focus on what to do with those numbers from the very beginning. 

Think about it this way, would you rather have your attorney spend his time (and your money) tracking  down all of your financial information or thinking about how best to attain your desired outcome (such as preserving your assets, ensuring that the marital debts are fairly allocated, getting a reasonable alimony award, or making sure that child support is calculated correctly).

In South Carolina, all parties in Family Court are required by Rule 20 of the Family Court Rules to file a Financial Declaration at the earlier of (a) the first hearing or (b) 45 days after the Complaint is served.  The Financial Declaration lists the party's monthly income, monthly expenses, and assets.  You can download a blank Financial Declaration in either Word format or *.pdf format.

Another tool that litigants might find helpful is a monthly budget which shows their income, fixed expenses, and variable expenses.  A simple, but useful, spreadsheet can be downloaded here.  This spreadsheet can help a party identify areas in which he/she can make adjustments, if necessary, to handle unexpected expenses and/or pay down additional debt.

I give my clients specialized worksheets to get the necessary financial information to help me help them.  One such worksheet collects the income/expense information I need to prepare the Financial Declaration, and the other gives me information about their assets and debts. 

Thanks to Of Zen And Computing for its post providing the budget spreadsheet referenced above, and thanks to LifeHacker for its post referencing same.

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Michael Sherman of the Alabama Family Law Blog recently addressed the following question:

Are the fees I pay my divorce lawyer deductible?

Only those fees paid to your divorce lawyer that are directly attributable to tax advice and/or related to the production of taxable income (such as alimony) can be deducted.

You may want to ask your lawyer at the conclusion of the case if she can give you a breakdown of what portion of the fee you paid her, if any, was related to tax advice or the production of taxable income.  If the case does not involve alimony or other tax issues (for example, the sale of a house or stocks or the division of a retirement account), you may not be able to deduct any of the fee.

If you have specific quesitons related to this issue in your case, talk to your lawyer or tax advisor.

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In a decision issued earlier this week, the South Carolina Supreme Court made it clear that a bad faith motive is not required as a prerequisite to proof of voluntary underemployment for purposes of imputing income when calculating child support. 

The presence of bad faith is a factor in determining whether a parent is voluntarily underemployed, but the lack of such bad faith does not preclude a finding of voluntary underemployment.  You can read the full text of Arnal v. Arnal by clicking HERE.

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Credit card holders are often left confused about the true cost of transactions, according to a study by the Government Accountability Office. Their report shows customers of the six largest credit card issuers are unclear about penalties, variable interest rates, and other fees.

Sen. Carl M. Levin (D-Mich.) requested the study, said it shows not only that disclosures are inadequate, but that major credit card companies often engage in unfair and deceptive practices that need to be stopped.  The report is considered to be the most comprehensive study of credit card companies' fees and pricing practices. 

You can download a complete copy of the Government Accountability Office report by clicking HERE.

Source:  "Credit Cards' Hidden Costs" by Kathleen Day, published at The Washington Post.

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It should come as no surprise that divorces can lead to financial strains and difficulties.  Anytime you go from one household with two incomes to two households with two incomes, things can get very tight very quickly.  It can be helpful to know how to deal with creditors, and these are five of the most common mistakes to avoid from Families.com:

1. Avoiding the creditor. You should resist the natural tendency to want to avoid people to whom we owe money when we cannot pay them.  Refusing to talk to creditors can lead them to act more aggressively than if you cooperate.
   
2. Refusing to give details. When you speak with your creditors, chances are they are going to ask some probing questions about your employment, expenses, and personal circumstances. Explaining your situation may convince creditors to reduce interest rates, reduce minimum payments due, or in some cases settle debts.
   
3. Thinking of their creditor as an opponent. Try not to forget that you and the creditor both want to reach a successful resolution with regard to this debt.  Both of you would prefer that you not file bankruptcy and that you find a solution that will allow you to make payments you can afford while avoiding (further) delinquency and mistakes.
4. Playing tough. It is should be obvious that swearing, yelling, and name-calling are not productive. While you should be aware of the protections afforded to you by the Fair Debt Collection Practices Act, you should be careful alleging that the creditor is violating it unless you are certain that it is.  Finally, do not tell a collector to "just do what you have to do," as it may provoke further action sooner than is necessary.
   
5. Not following up with the agreements they make. If you are able to reach an agreement with your creditor to amicably resolve the debt, be sure to follow through on your end.  Failing to do so will likely be interpreted as a lack of good faith on your part.
   

Source:  "Five Common Mistakes People Make When Dealing with Creditors" by L Robbins, published at Families.com.  Thanks to Grant D. Griffiths of the Kansas Family Law Blog his post pointing out this article.

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The SC Court of Appeals recently issued a decision, LaFrance v. LaFrance, which contains a very thorough analysis of when and how income should be imputed, particularly with regard to child support calculation purposes.

In this case, the Family Court found that the husband was "either not employed or significantly underemployed" and that he "has the ability to earn in the lower range of the senior level salaries, or about $100,000.00 per year." 

The husband claimed that he was unable to earn that income because of a downturn in the telecommunications industry in which he previously worked; a lack of local job opportunities in his former field; and his numerous health problems. 

The Court pointed out that for calculation of child support under guidelines promulgated pursuant to section 43-5-580(b) of the South Carolina Code, income is defined as “actual gross income of the parent, if employed to full capacity, or potential income if unemployed or underemployed.” 27 S.C. Code Ann. Regs. 114-4720(A)(1) (Supp. 2005). 

Regarding the imputation of income, the guidelines provide:

If the court finds that a parent is voluntarily unemployed or underemployed, it should calculate child support based on a determination of potential income which would otherwise ordinarily be available to the parent . . . .

(b) In order to impute income to a parent who is unemployed or underemployed, the court should determine the employment potential and probable earnings level of the parent based on that parent’s recent work history, occupational qualifications, and prevailing job opportunities and earning levels in the community.

The Court of Appeals then anaylzed many decisions both from SC and other states dealing with the issue of imputation of income.  In the end, it reversed the amount of imputation of income and remanded the case for a calculation of imputed income consistent with its opinion. 

Other issues discussed in this opinion are (1) the parties’ contributions to the marriage; (2) the invasion of Husband’s assets for temporary support; (3) the award of the marital home to Wife; (4) Husband’s share of children’s private school tuition; (5) Husband’s share in future profits from the sale of the marital home; (6) the classification of Wife’s jewelry as marital property; and (7) the award of guardian fees in the Supplemental Order.

You can read the full text of LaFrance v. LaFrance by clicking HERE.

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William Donaldson, CFP, CDFA and Adam Westphalen, CFP, CDFA wrote an article, "Divorce and Your Finances - The 7 Most Costly Mistakes," for WomansDivorce.com which outlines some major areas to consider in your divorce settlement.  They listed these seven mistakes as:

1. Not Knowing the Liquidity of Assets
2. Failure to Consider the Impact of Taxes
3. Not Understanding the Rules of Retirement Accounts
4. Overlooking Debt and Credit Rating Issues
5. Not Maintaining Control Over Insurance Policies
6. Failure to Budget
7. Failure to Identify Hidden Assets

You can read the full text of their article by clicking HERE. 

Thanks to Janet Langjahr of the Florida Divorce Law blog for her post on this article.

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You can receive benefits on your ex-husband's Social Security record if he is receiving Social Security benefits (or is deceased) and:

• your marriage lasted 10 years or longer;
• you are presently unmarried;
• you are age 62 or older (if he is deceased, you can collect benefits at age 60 or age 50 if you become disabled); and
• you are not entitled to an increased benefit on your own record which exceeds one-    half of your ex-husband's unreduced benefits.

If your ex-husband has not applied for benefits, but can qualify for them and is age 62 or older, you can receive benefits on his record if you have been divorced from him for at least two years and meet the requirements listed above.

If your ex-husband is deceased, you can receive benefits on his record even though you were not married to him for 10 years --

• if you are caring for his child who also is your natural or legally adopted child and is under age 16 or disabled;
• you are unmarried; and
• you are not entitled to an equal or higher amount on your own record.

Your benefits will continue until the child reaches age 16 or the child's disability ceases.  The amount of benefits you receive as a divorced spouse does not affect the amount of benefits another spouse receives on your ex-husband's record.

Many women get a higher benefit based on their ex-husband's work record than they get on their own record, especially if he is deceased. If you've never asked Social Security about receiving benefits on your ex-husband's record, you should do so. When you apply, you'll need to give his Social Security number. If you don't know his number, you'll need to provide his date and place of birth and his parents' names.

Note:  The same conditions apply to a divorced husband whose eligibility for benefits is based on his ex-wife's Social Security record.

Source:  "Social Security - Divorced Woman's Guide" by Grant Griffiths at the Kansas Family & Divorce Lawyer blog, citing an article at DivorceNet.

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The S.C. Court of Appeals issued a decision earlier this week which addressed several important financial concepts in divorce cases:

• The Court affirmed the equitable distribution award, holding that, generally, in South Carolina marital property subject to equitable distribution is valued on the date marital litigation is commenced. Therefore, the Family Court did not err by failing to consider the IRA’s increase after the final hearing nor by failing to reconsider the valuation of the family’s house, which sold after the family court issued the divorce decree.

• The Court reversed and remanded the award of alimony because the Court relied only on Wife’s need and Husband’s ability to pay alimony in making its determination and it did not consider Wife’s non-marital assets.

• The Court reversed the award of expert fees to Wife, holding that she failed to produce evidence to support the award.  In this case, the expert did not testify and the Wife did not affirmatively establish what services he performed.

You can read the full text of Fuller v. Fuller by clicking HERE.

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The South Carolina Court of Appeals has issued two opinions in the last six weeks which analyze what is (and what is not) a proper division of marital assets and debts in divorce. Since virtually every divorce involves the distribution of assets and debts, I believe that it is important to take a closer look at this issue.

The division of marital property is in the family court’s discretion and will not be disturbed absent an abuse of that discretion. South Carolina Code Section 20-7-472 provides fifteen factors for the family court to consider in apportioning marital property, and it is within the family court’s discretion to determine how much weight to give each of these factors. On appeal, even if the appellate court might have weighed specific factors differently, the Family Court's apportionment will be affirmed so long as it is fair overall. Even if the Family Court commits error in distributing marital property, that error will be deemed harmless if the overall distribution is fair

In these two recent cases, the Court of Appeals noted that while there is certainly no recognized presumption in favor of a fifty-fifty division of the marital estate, an equal division is an appropriate starting point for a Family Court judge attempting to divide an estate of a long-term marriage. However, the equal division of marital assets can, of course, be altered in favor of one spouse depending on the circumstances of each case.

In Doe v. Doe, the Family Court distributed 70 percent of the marital property to husband and only 30 percent to wife. The appellate court noted that the Wife’s adultery caused the breakup of the marriage, and it was therefore appropriate to consider that factor for equitable apportionment. However, our case law is clear that fault does not justify a severe penalty. Accordingly, the Court of Appeals found that the Wife’s adultery alone did not justify a forty percent differential between her portion of the marital estate and Husband’s portion and that such a lopsided division could only be sustainable if our equitable division laws sanctioned the consideration of fault as a permissible punitive factor, which ours do not.

In Avery v. Avery, the Family Court had awarded 62.5 percent of the marital estate to the husband and 37.5 percent to the wife. However, the Court of Appeals could not discern any special circumstances tilting the equitable division scale in favor of one spouse over the other. The Court noted that this was a lengthy marriage wherein the parties agreed to a traditional "breadwinner/homemaker" arrangement. With such an arrangement, both parties made significant, albeit different, contributions to the acquisition, preservation, depreciation, and appreciation in value of their marital property. Neither party was at fault for the separation, nor does either party earn a significant income. When considering those circumstances, the Court of Appeals found that the Family Court abused its discretion by awarding twenty-five percent more of the marital estate to husband, and it remanded the case so that the marital estate could be divided equally between the spouses.

That is not to say that all long term marriages ending in divorce will necessarily have estates that are divided equally. The Court of Appeals reminded us that the Family Court is charged with looking at all fifteen factors of Section 20-7-472 and that it may give one party a larger portion of the estate based on the circumstances of each particular case.

You can read the full text of Doe v. Doe by clicking HERE and the full text of Avery v. Avery by clicking HERE.

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When you separate or divorce, one of the most important decisions that must be made is what to do with the house. Do you want it? Does your spouse want it? Can either of you afford it? What should you do with it?

The answer depends on your particular situation, and no two situations are alike. Making the wrong decision on this issue can have serious, far-reaching implications -- custody, financial security, or financial ruin.

The following issues (at a minimum) should be considered in your analysis:

• Dealing with the mortgage

  Can you afford to make the mortgage payments? What if your spouse is required to provide financial assistance to you (as alimony, debt contribution, or child support)? Will your credit history allow you to refinance the mortgage?
  
  

• Factor in upkeep costs

  In addition to the mortgage, you should also consider the other "normal" expenses that accompany home ownership: utilities, maintenance, and repairs. It makes no sense to only focus on the mortgage without those other items that are inevitable if you own a home.

• Consider tax implications

  Tax issues come in many different forms. Of course, there are property taxes, which can (and typically do) increase over time as the property appreciates in value. If you have a mortgage, you will need to factor in the (positive) impact of the mortgage interest deduction, the head of household deduction, and the capital-gains tax exclusion.

• Trading assets

  Depending on the amount of equity in the home, you may have to give up something else in order to receive the house. Many times, the husband will keep his retirement account and the wife will receive the house to equalize the value. However, it is extremely important to have an accurate value of the house. Most times, having an appraisal performed is a fantastic investment because the house can be worth considerably more or less than your estimate.

• Consider downsizing

  In some cases, it makes sense to downsize immediately to a smaller house, especially if the expenses involved in keeping the house are more than you can afford. Some people associate the house with their failed marriage and are anxious to start fresh somewhere else.

  On the other hand, in some areas of the country, rents and housing prices are so high that even a smaller house or condo may be out of your price range. Also, it may not be possible to find an affordable house in the same or another high-quality school district.

• The long term

  Consider now only the "right now" or the "what feels good." Think about what you want and where you want to be in five years, ten years, or more. Resist the temptation to get caught up in the battle and try to "win" at any cost. Get the advice of a good, qualified family law attorney and other financial professionals, if need be. This decision is too important for you not to do so.

Source: "Should you keep the house in a divorce?" by Amy Crane published at MSN Money.

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"Divorce and Dissipation: Hidden Assets and Spending" by Suzanne Griffiths, published in Colorado Biz, contains an excellent discussion on the topic of dissipation. She states, "marital asset dissipation occurs when one spouse has previously consumed, given away or otherwise transferred, mismanaged, converted, or otherwise adversely affected property that, had it been before the court, would have been subject to equitable distribution. This commonly takes the form of spending marital funds for the benefit of paramours or wasting marital property."

This article points out that when making a dissipation claim, a spouse needs only to prove that the expenditure was made at or during the time of the marriage breakdown or was spent for a non-marital purpose, (such as significant gifts, hotel rooms, air tickets etc for a mistress,) during the marriage. Once this has been established, it is the burden of the other spouse to prove the funds were spent on a legitimate purpose. If the court finds that dissipation has occurred, it will appropriately adjust its division of property to offset the dissipation.

Ms. Griffiths recommends considering the following points in analyzing a potential claim for marital asset dissipation:

• Your attorney should be your first resource in making a dissipation claim. Through interrogatories, requests for production of documents, financial releases and depositions, she or he can trace just about any of your spouse's expenditures during the time of the marriage and can use documents turned up to file a dissipation claim.

• By the same token, be aware that any expenditure you make -- be it with credit cards, checking accounts, cash withdrawals or rewards and mileage accounts -- are subject to review by your spouses' attorney through the normal course of divorce proceedings and can be used against you in a dissipation claim.

• It's not size that matters: The fact that you or your spouse dissipated items of little monetary value will not stop the court from adjusting its allocation of resources, although you personally might determine that the costs of pursuing the dissipation claim exceeds the benefits of having it remedied.

• Ease up on the vice: Excessive expenditures on gambling, drinking, or indiscriminate spending are considered grounds for a marital asset dissipation claim. In addition bad behavior that is seen as economic fault can significantly influence the judge's discretion in making an equitable division of marital assets.

• Trim down the transfers: If you or your spouse transfer assets to a family member, lover, or third party, one of you may be allocated another asset to make up for the loss caused by the transfer.

• Play down the paramour: Spending marital property on gifts for a significant other is a prime example of asset dissipation and very likely to result in a court-ordered adjustment of property division. It also infuriates the spouse who discovers the dissipation, and may substantially reduce any prospect of reaching an amicable settlement out of court.

• Business is business: Business expenses, are not usually considered dissipation when they are within the range of day-to-day operations and comparable salaries.

• Your word is your bond: If you or your spouse agreed to an expenditure during or after the breakdown of the marriage then there are no grounds for a claim of asset dissipation.

• Hobbling hobbies: Expenditures on recreational activities or hobbies that both parties enjoyed, or approved of, during the marriage are not usually considered examples of dissipation.

• Assessing the damage: The court values dissipated marital assets as at the date that they were dissipated. This is particularly important as it pertains to investment or retirement accounts, as if one spouse cashes out, the court will value the investments based upon on the date they were sold, not based upon what they might have turned into had they remained invested.

Source: Thanks to The Art of Divorce blog for its post on this article.

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Sound Money Tips recommends that parents teach their children the following seven lessons about money and finances:

1. Money can be exchanged for goods or services.
2. One should be careful with money.
3. Money has to be earned.
4. Encourage one-third savings, one-third donations, one-third spending.
5. Avoid borrowing money wherever possible.
6. Money isn't your best friend so don't let it control your life.
7. Show them how to budget & live within their means.

Source: "Tips For Teaching Kids About Money" posted at Sound Money Tips.

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Jeffrey Lalloway of the California Divorce and Family Law recently posted the following article:

Well, it is that time of year -- we all have to file our taxes. The following from the Oklahoman is helpful tax information for those of us who are divorced. The article also includes some rules relating to alimony (spousal support) and deductibility of tax advice for your divorce.

For starters, many people who receive alimony from their ex-spouses often have no idea -- until it's time to file their tax returns -- that they have to pay taxes on the alimony.

"It's the biggest pitfall in divorce cases," Oklahoma City tax attorney Ken Klingenberg said. Even if divorcees are told alimony is taxable, it often doesn't register, he said. "Maybe because of the emotional stress they're under, people ignore it," Klingenberg said. Consequently, they forget to set aside roughly 30 percent of their alimony for the taxes due.

In general, spousal support ordered under divorce decrees is taxable to receivers and tax-deductible for payers. The Social Security numbers of recipients must be included on payer's tax return.

Meanwhile, child support and property settlements carry no tax consequences.

Still, the widespread tax implications of divorce can be complicated. Issues range from what's the proper filing status to who gets to claim the children as a dependent.

Whether a divorce decree is signed July 15 or Dec. 31, taxpayers are considered divorced for that tax year, said David Stell, Oklahoma spokesman for the IRS.

If a divorce is pending, most experts recommend couples file joint returns if possible. That's because married taxpayers who file separately usually owe more tax, Stell said.

Separated spouses should be aware they can file as head of household, if they paid more than half the cost of keeping up a home for the entire year, their spouses didn't live in the house the last six months of the year and they have dependent children.

The election recently helped one of his clients go from owing taxes to having a refund, said Pete Terranova, Oklahoma City certified public accountant.

A head of household's standard deduction alone is $2,300 greater than for "married filing separately," he said. In addition, there are $4,400 in potential earned income tax credits, which aren't available to taxpayers who are married filing separately. The credit can erase taxes owed or give a refund.

In acrimonious marital situations, the IRS regularly sees parents attempt to claim the $3,200 exemption, $1,000 child tax credit and deductions for child care expenses for the same children, Stell said. Generally, the custodial parent, or parent with whom the child lives, receives the tax incentives, he said.

Divorce decrees can grant exemptions to noncustodial parents. But custodial parents must sign declarations that they won't claim the exemption, Stell said. The declaration -- IRS form 8332 -- must be attached to the return.

Ideally, the form -- which can be signed for a yearly or indefinite basis -- is completed when a divorce is finalized, Klingenberg said.

In joint custody cases, the question of which parent can claim the exemption comes to down to who has the child in their home the most number of days, he said. If time shares is the same, the parent with the higher adjusted gross income (AGI) can claim the incentives.

"There are a lot of issues that nonworking spouses should be on the lookout for," said Trish Goodman, an Edmond certified financial planner and one of a handful of certified divorce financial analysts in the state.

For example, there may be an advantage in receiving a share of an ex-spouse's retirement and/or pension assets versus accepting the equity in a home, Goodman said. Or a greater property settlement may be more advantageous than taxable alimony payments.

What at first seems fair, may not be, Goodman said. For example, homes, she said, come with tax implications -- from annual real estate taxes to capital gains taxes owed, if and when they're sold.

"My role is to quantify what each settlement option will look like and make 'what if' adjustments to help divorce attorneys reach an equitable division for their respective clients," Goodman said. "If I do my job right, the case should never have the expense of going to court over financial issues."

In general, women worry too much about keeping their "nests" for their children and not enough about their retirement, said Rebecca Hadler, a registered financial consultant with Access Financial Resources.

"They learn to manage through the alimony time frame," Hadler said, "but many are dangerously close to bankruptcy between the end of alimony and the time they can access retirement income."

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With the tax due date coming up fast, what do you do if you have a tax bill that you can't afford to pay? Your credit card may be your first thought, or possibly not filing at all (highly not recommended), but your best option if you don't think you'll be able to afford to pay the taxes you owe this year may be from a source that you never considered: the IRS. According to Smart Money:

First off, you should still file your 2005 return by April 17. Be sure to include Form 9465 (the Installment Agreement Request) with your return. On that form, you can suggest your own easy payment plan to the IRS. Assuming you owe less than $10,000 and are proposing to pay the total over 36 months or less, it's virtually automatic the IRS will accept.

Borrowing from the IRS will require:

• A one time set up fee of $43
• Interest on your deferred payments (currently 7%)
• A monthly 0.25% "failure to pay" penalty

When combined, that adds up to approximately a 10% interest rate plus the $43 fee -- which is likely a much better rate than you'll get from your credit card, especially when the IRS credit card convenience fee is added in. Even though it will cost you some money to go this route, it's far better than the fees you'll incur for not filing your taxes at all if you find yourself in the position of not knowing where to get the money to pay for the taxes you owe.

Source: "Tip For Paying Taxes With An IRS Loan" by Jeffrey Strain posted at Sound Money Tips

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Question: My divorce decree says that my wife gets custody of the kids and that I get to claim them as dependents on my taxes. If my ex-wife signs the form each year that lets me claim the kids as dependents, can I also file as head of household? Are there any other tax benefits I can get by claiming the kids as dependents?

Answer: As a noncustodial parent, you can't file as head of household, even if you can claim your kids as dependents. You can't get the earned income tax credit, either. But if your ex-spouse lets you claim the kids as dependents, you can claim the child tax credit, which could reduce your taxes by up to $1,000 per child.

The custodial parent is ordinarily entitled to claim the kids they care for as dependents for tax purposes. Each dependent is an exemption that reduces the tax filer's income by $3,300. That income reduction translates into a tax reduction of $330 to $1,155 per dependent.

The custodial parent can waive the right to claim the kids as dependents and let the noncustodial parent claim them. The best way to do that is with an IRS Form 8332. It has a line where the custodial parent can sign and date the statement, "I agree not to claim an exemption for _____ for the tax year 2005."

The custodial parent can waive the dependent exemption each year, or for a number of years. The noncustodial parent files the 8332 Form with his or her taxes, and is thereby entitled to claim the children as dependents. That does not, however, entitle the noncustodial parent to file his or her taxes as a head of household.

The requirement that heads of households care for their kids at least six months out of the year cannot be waived. Because only heads of households can get the earned income tax credit, and noncustodial parents can't be heads of households, noncustodial parents can't get the earned income tax credit.

While being able to claim kids as dependents doesn't entitle a noncustodial parent to file as head of household, it does entitle him or her to claim the child tax credit. That credit runs with the dependent child, so whoever claims the kid as a dependent gets it.

Source: "Q & A: The Law" by John Roska published in the St. Louis Post-Dispatch. Thanks to Jeffrey Lalloway of the California Divorce and Family Law blog for finding this article.

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If you were legally married on December 31, 2005, whether living with your spouse or separate, you only have two options for your filing status on your tax returns: married filing jointly or married filing separately. Prior to filing, you should determine your options under both scenarios, with the help of a certified public account, enrolled agent, or tax attorney.

Although you are more likely to minimize your tax bill or increase your refund by filing jointly, there are a few reasons you might want to file separately, such as:

• You don't trust your ex. When you sign a joint return, you are equally liable for all taxes, penalties, and interest owed. So if your ex won't pony up, the IRS can hit you up for the whole amount. There are ways around that liability - such as applying for 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 - but that can delay the process considerably.

• 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's debts.

• One of you has a low income but very high deductions (e.g., major medical expenses). In this case, it may make more financial sense to file separately.

However, if you file separately you forfeit some key credits and deductions, such as:

• 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

Also, if you're collecting Social Security benefits, all of them will be taxable if you file separately. By contrast, if you file jointly, only a portion is taxed if your joint income exceeds $32,000.

Source: "Recently split? Avoid costly tax mistakes" by Jeanne Sahadi posted at CNNMoney.com. Thanks to Grant D. Griffiths of the Kansas Family & Divorce Lawyer blog for finding this article.

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In the absence of any written agreement stating otherwise, the custodial parent - that is, the parent with whom the child lives - normally takes the $3,200 dependency exemption when you file separately.

But if you're the noncustodial parent and you earned the most income it may make more financial sense for you to take the exemption. In that case, the custodial parent will need to sign a formal release giving you the exemption and you must attach that form to your tax return.

If such a release is granted, the custodial parent may not take the child tax credit on his or her return.

And if you think you can split the dependency exemption because your children live with each of you for half the year, think again. Only one parent can claim the exemption.

Lastly, 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.

Source: "Recently split? Avoid costly tax mistakes" by Jeanne Sahadi posted at CNNMoney.com. Thanks to Grant D. Griffiths of the Kansas Family & Divorce Lawyer blog for finding this article.

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If you've recently divorced or separated from your spouse, here are a few things you should know for the upcoming tax season:

1. What is my filing status? (Married, Single, Head of Household)

   Marital standing at year end determines your filing status for the entire year. If you have a decree of divorce or separate maintenance, signed by a judge, you should file as single. Regardless of whether you have a signed decree you may be able to file as head of household. Filing as head of household may reduce your income tax obligation, but to qualify the following conditions must be met:

   • You paid more than ½ the cost of keeping up your home for the tax year,
   • Your home was the main home for your child for more than ½ the year,
   • Your spouse hasn't been a member of the household for 6 months.

   If you can't file as single or head of household, then you must either file as married filing joint or married filing separate.

2. Should my spouse and I file as married, filing separate or married, filing joint?

   Filing joint may provide some tax benefits over filing separate. However, by filing separate the IRS can't hold you responsible for any unpaid taxes caused by your spouse's actions or omissions. The "innocent spouse" rule provides relief from this responsibility in some cases.

3. Are my divorce costs deductible?

   In general legal fees are considered personal expenses so they aren't deductible. However legal fees paid to get alimony and legal fees regarding the tax effects of divorce are deductible. The attorney must allocate fees paid for deductible and non-deductible services otherwise the deduction may be disallowed. The allowed deduction is a miscellaneous itemized deduction which is deductible only to the extent that, in the aggregate, the miscellaneous deductions exceed 2% of the taxpayer's adjusted gross income. Some are your legal fees may be deductible, such as fees for securing income.

4. Is child support taxable?

   No. Child support is neither taxable to the recipient nor deductible to the payor. If the payor owes both alimony and child support but pays less than the total amount owed, the payments apply first to child support and then to alimony. If the separation agreement doesn't delineate separate alimony and child support payments, general "family support" payments are treated as child support for tax purposes, unless the alimony qualifications are met.

5. Are there any tax benefits if I am paying alimony?

   If you are paying alimony, you can use your payments to reduce your gross income.

6. Is alimony taxable?

   In general, alimony is taxable to the recipient (line 11 of the 2004 Form 1040) and deductible to the payor (line 34a of the 2004 Form 1040). However, some couples stipulate in their separation agreement that the alimony won't be deductible to the payor, or taxable to the recipient. Alimony is deductible on page 1 of the 1040 form so you don't need to itemize your deductions to take it as a deduction. If you don't have any other income you can still make IRA contributions. Alimony is considered earned income. Anyone receiving alimony, especially without wages,
   may need to make estimated tax payments throughout the year in order to avoid penalties when they file.

7. Who claims the Child Tax credit and the Household and Dependent Care credit?

   Only the parent who claims the exemption for the child may claim the Child Tax credit for that child. Unlike the exemption, it can't be traded. If you are the custodial parent, you can claim the Household and Dependent Care credit for the child even if you cannot claim the child's exemption. If you are the non-custodial parent, you cannot claim the Household and Dependent Care credit for the child even if you can claim the child's exemption.

8. Who gets the mortgage interest deduction and other itemized deductions?

   If the marital home is owned by one spouse alone, only that spouse may claim a mortgage interest deduction. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. In general, deductible expenses paid out of joint funds are split 50/50 between the spouses, including mortgage interest. Mortgage interest for property titled by the entireties can be claimed by whichever spouse actually paid the expense.

9. Who gets to claim the dependency exemption for the children?

   In general, as long as the parents combined contribute at least ½ of the support of the child, the custodial parent gets the dependency exemption for the child. If custody is split or undeterminable, the parent who had physical custody for the greater part of the year gets the dependency exemption. Custodial parents can waive their right to the dependency exemption.

10. My spouse and I are using the married, filing separate filing status. Can I use the standard deduction if my spouse itemizes?

    No. If spouses are using the married, filing separate filing status and one spouse itemizes their deductions, the other spouse must itemize as well. You must coordinate this with you spouse because if you file first and take a standard deduction and your spouse itemizes, you may have to file an amended tax return.

Source: "10 Useful Tax Tips When Filing Your Return" by Jessie Danninger, Rosen Law Firm.

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Noted private investigator Bill Mitchell recently answered the following, timely question on his blog: "With the tax season deadline approaching, what election will you use to file your 2005 tax return -- married filing jointly or married with money grubbing cheating spouse?"

With the tax filing date quickly approaching, you must prepare your taxes again, and on time. This time of year, finances are always a priority for us, 'but did the thought ever occur to you that cheating spouses are spending money without telling you?' asks Mitchell.

'Once a cheat always a cheat' as the old adage goes. 'If they will cheat on you, count on it - Uncle Sam is next,' adds Mitchell. 'And this means possible IRS problems,' Mitchell warns. The problem for most victims of infidelity is denial. Coping with powerful feelings of trust and mistrust keep many in the dark.

Cheating spouses account for millions of dollars each year in travel, gifts, phone charges, and more as they philander. 'Taking an assessment of your income and expenses columns, especially in the 'miscellaneous category,' will unearth cheating spouses' wrongdoings,' offers Mitchell.

Tax season can also serve as time for damage control. Start by investigating credit card and bank statements and phone bills - especially cell accounts. Next, turn your attention toward any disappearing acts or business trips during the past year. Make certain you don't overlook holidays such as Valentine's Day and Christmas and your spouse's birthday. These events are just a few important dates to include as you audit your finances.

Each case depends upon the nature of the income, methods of payment, how and where assets are hidden. For example, does the potential exist for your spouse to hide assets through the assistance of a family member, business partner, or out-of-state relative? If your answer to any of these questions is yes, you might consider using spyware and a device called the Phone Accountant to track call data and trace email transactions. In some cases, computers may need to be forensically analyzed for erased data on the hard drive.

'Another safeguard for anyone suspecting an affair is to check your credit report,' says Mitchell. Obtaining your credit report may provide information and evidence such as hidden credit history, accounts, or debts. This approach can be used to identify transactions your spouse made without you. Look for banking and routing information revealing any trails to hidden assets or financial surprises.

Use this tax season to secure your financial future, avoid debts, and verify the facts. A troubled relationship brings more than pain. It normally brings debt! You shouldn't be the last one to know if your spouse is cheating on the government and you."

Source: "Debt and Denial - During the Tax Season" by Bill Mitchell, the Seven-Day Detective and author of The More You Know.

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U.S.News & World Report suggests that you consider the following new tax rules for this year:

• The standard deduction for married households filing jointly this year rises to $10,300, up from $10,000 in 2005, while the deduction for singles increases from $5,000 to $5,150.

• The personal exemption -- the amount taxpayers can automatically deduct from their taxable income -- rises from $3,200 to $3,300.

• If you're considering renovating your home, you may receive a new tax credit for making energy-saving improvements, such as the installation of new insulation, new windows, and energy-efficient heating and cooling systems. However, the credit is available only for improvements made from the beginning of 2006 to the end of 2007.

• The annual federal limit for 401(k) contributions increased from $14,000 to $15,000. Also, the so-called catch-up provision -- the additional amount that the federal government allows workers 50 and older to stuff into their accounts -- increases from $4,000 to $5,000.

• While the federal cap on contributions to an individual retirement account (either traditional or Roth) holds steady at $4,000 this year, the annual catch-up for older workers rises from $500 to $1,000.

• Last year, the phaseout for IRA deductions for employees who are married, file jointly, and are covered by a retirement plan started at $70,000, and those earning $80,000 or more could not deduct any of their contributions. This year, the phaseout starts with incomes of $75,000 or more. No deduction is permitted for those earning $85,000 or more. For singles, the phaseout rules remain the same as in 2005. They start at $50,000 in income and end at $60,000.

Source: "Personal Finance: Tax Tips for 2006" by Paul J. Lim. Thanks to Grant D. Griffiths of the Kansas Family Law Blog for finding this article.

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The Spartanburg Herald-Journal published an article yesterday which strongly recommends that those planning to marry ask themselves and their future spouses certain questions before marriage -- whether it's their first marriage or not. Yes, these questions are intrusive, difficult, and uncomfortable, but considering them prior to marriage may be the best thing you can do for yourself (and your marriage).

"In their rush down the aisle, couples often think that love will overcome any disagreements about saving and spending. It doesn't. And so even among the most compatible couples, the prewedding vow of personal-finance silence eventually leads to frustration, fights and power struggles." The author's suggested questions are:

1. What are your financial assets and liabilities?
2. How do you use debt?
3. What is your money history?
4. Do we need a prenup?
5. What are your financial aspirations?
6. What are your career expectations?
7. How do you propose we divide financial duties?
8. Will we operate from one checkbook or three?
9. Do you have a basic understanding of money?

Source: "Love & Money" by Jeff D. Opdyke at the Wall Street Journal online.

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In making an equitable distribution of marital property, the Family Court must:

1. Identify the marital property, both real and personal, to be divided between the parties;
   
2. Determine the fair market value of the identified property;
   
3. Apportion the marital estate according to the contributions, both direct and indirect, of each party to the acquisition of the property during the marriage, their respective assets and incomes, and any special equities they may have in marital assets; and
   
4. Provide for an equitable division of the marital estate, including the manner in which the distribution is to take place.
   Johnson v. Johnson, 296 S.C. 289 (Ct. App. 1988).

In general, marital property subject to equitable distribution is valued as of the date the marital litigation is filed or commenced. Fields v. Fields, 342 S.C. 182 (Ct. App. 2001). However, the parties may be entitled to share in any appreciation or depreciation in marital assets occurring after separation but before divorce. See Dixon v. Dixon, 334 S.C. 222 (Ct. App. 1999) (stating that because our Family Courts handle a large number of cases, there often is a substantial delay between the commencement of an action and its ultimate resolution. Thus, it is not unusual for the value of marital assets to change between the time the action was commenced and its final resolution.)

In the recent case, Gardner v. Gardner, Mr. Gardner argued that the Family Court erred in the valuation of several marital assets, specifically his retirement account. While this case was pending, he died. As a result of his death, the retirement account ceased to exist, and other assets awarded to both Mr. and Mrs. Gardner also declined in value during the litigation. The Court noted that Mr. Gardner failed to offer any evidence of appropriate values for the marital property at the Family Court (trial) level and did not offer any suggestion of their value in his appellate brief.

As a result, the Supreme Court held that the date of the filing of the litigation should be used as the date of valuation for purposes of equitably dividing the marital estate. In addition, the Court held that a court reviewing a property distribution must look at the appreciation or depreciation of marital assets with regard to the entire martial estate and not the assets individually.

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If you are considering filing a joint income tax return, you should consider the following information posted by Michael Sherman of the Alabama Family Law Blog:

A March 15, 2006, Wall Street Journal article points out the difficulty that spouses and former spouses are having in seeking Innocent Spouse Relief from the IRS. When you sign a joint income tax return with your spouse, you and your spouse are jointly responsible for the taxes, interest or penalties on those returns unless you qualify for innocent spouse relief. That means that under most circumstances, the IRS can collect the entire amount owed from either party.

When you claim the "innocent spouse" defense, you argue that you did not know and had no reason to know about any under reporting of income or other wrongdoing associated with the filing of the return and that therefore you should not be held responsible for paying any additional taxes, penalties or interest due.

According to the article the IRS has taken a renewed interest in enforcement, due in part to growing concern of the budget deficit. The article sites a recent report that states that of the nearly 50,000 innocent spouse claims received by the IRS in 2005, only 21% were allowed in full and another 8% were partially allowed.

The moral to the story: if you have even a hint of impropriety, do not sign a joint return. As a divorce lawyer, I would also add that if a divorce is imminent then before signing a joint return, talk to your lawyer about the implications first.

Note: I would link to the Wall Street Journal story but it is not available on wsj.com without a subscription. If you are a subscriber and have acces to the Journal online, you can go to the above link and do an article search for "Innocence in Tax Fraud" and it will pull up the article.

Also, you can download the IRS publication describing and explaining Innocent Spouse Relief here.

Jeffrey Lalloway's California Divorce and Family Law blog contains the text of the Wall Street Journal story which you can read here.

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When it comes to filing income tax returns, everyone basically has the same two goals: (1) Don't pay any more to Uncle Sam than is absolutely necessary, and (2) Don't do anything to trigger an audit. I have posted several items recently to help make sure your return is accurate (here, here and here). Today, I bring you AskMen.com's 8 IRS Red Flags You Should Avoid:

1. Your income doesn't match your lifestyle or zip code.

   One of the fastest ways to red flag a return is for the IRS computers to reference your reported income against your zip code. In about the same amount of time, the IRS will also compare your declared income for the year against your return from last year (a sizeable drop could mean that you're hiding money), and look for a huge difference between your expenses (e.g. a huge mortgage -- assuming you deducted the interest) and your income.

   While there is no way to avoid this kind of scrutiny, you should take comfort in the fact that the IRS isn't looking for minor variances. However, guys who insist that they support a family of five and own a home in a posh neighborhood, all on $20,000 a year, will have some explaining to do.

2. You employ family members.

   Hiring family members isn't illegal. But employing more than your immediate family could raise the red flag at the IRS. Why? Well, for every legitimate family business, there are plenty of guys who make their family members "employees" as a way to distribute money to loved ones while lowering their own tax liability. If you run a family business, don't be tempted to pay relatives who don't work for you (although you can give them a gift, if you like) and be sure to keep accurate payroll records.

3. You have little or no tax liability because of a trust.

   Trusts that minimize tax liability are perfectly legal. But some guys raise red flags at the IRS when they lower their tax liability down to zero. Usually, trust schemes that promise little or no tax liability aren't legitimate trusts at all. The IRS calls them sham trusts because, unlike a real trust, the beneficiary retains control of the money. In other words, these are elaborate schemes sold by crooked CPAs and lawyers that, in the end, aren't much different from a checking account. Such "trusts" fall under the category of too good to be true and are best avoided.

4. You earn a lot of your money in cash.

   It may not be fair, but the IRS assumes that if you are in a profession that is regularly paid in cash, you are going to cheat. In truth, the IRS assumes we all cheat, but for those on payroll, there is a record. If you work in a cash industry, know that every return you file could raise a red flag, especially if you're a high-income cash earner. Keep good records and remember that if you declare home-office deductions, you'll be in for extra scrutiny. Accordingly, high-income cash earners should seek professional tax preparation advice.

5. Your alimony payments don't add up.

   IRS computers easily cross-reference alimony payments. If you're receiving alimony, you'll need to report it as income. If you're paying alimony, you should check with your tax advisor about when and if you can take a deduction on that money. But remember: If both returns don't match up, you and your ex could both raise red flags, so make sure the both of you are on the same page. True, she may not be your favorite person, but neither one of you wants an audit.

6. Your deductions far exceed your income.

   For a lot of guys, their primary goal in April is to declare all the deductions they can get away with. And while that's often sound advice, you can go too far -- especially if you're trying to avoid raising a red flag. While there are no hard numbers on deductions versus income, it's best to use common sense. Look at your return and ask yourself if it looks extreme. If the answer is yes, you'll likely raise a red flag.

   And watch out for deductions on your business vehicle. This is a common area where self-employed men get into trouble by making aggressive deductions. Keep a log of your business driving and only deduct the mileage, and don't even think about calling your son's car a business expense if you're already pushing the deduction envelope.

7. You have high schedule C losses for a part-time business.

   It's okay to lose money, and there's no rule on how many years you can stay in the red without raising a red flag (although more than a few years could raise some eyebrows). What will attract unwanted attention are high losses on your schedule C that make you look like you're living the good life without any real income at the end of the year.

   If that's you, you run the risk of the IRS reclassifying your business into a hobby (and of having to pay taxes at the higher rate). To keep this from happening, you'll need to show that you expect to make a profit in the future, that you have the skills/training to make it happen, that the money and time you spend is with the intent to make the business work, and that you generally carry out your business affairs in a professional manner.

8. You have income from abroad.

   Some guys make the mistake of thinking that because they work overseas, either for a foreign or American firm, they are not subject to U.S. taxes. In fact, unless they have met the appropriate non-residency qualifications, all U.S. citizens are taxed based on income earned worldwide. However, earning a sizeable chunk of your money abroad can raise red flags because there is often no way for the IRS to determine the total amount or source of the money.

Source: 8 IRS Red Flags You Should Avoid published by Michael Estrin at AskMen.com.

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Couples Encouraged to Have Well-Organized Finances

First comes love, then comes marriage. Then comes ... the division of investment property? It's not a very romantic consideration, but a very real one for spouses whose trip to divorce court first must include a stop at the financial planner. Divorcing baby boomers, in particular, are likely to have accumulated investments during their marriage that must be divided.

Couples can use several strategies when planning their investments that will ensure a secure financial future, even if "happily ever after" winds up being not so permanent. One is recognizing the interconnectedness of emotions and finances. Dr. Rob Ronin, a Greenville financial psychologist, began his career as a financial planner and became a licensed clinical psychologist four years ago.

Today, he works closely with couples to help them reduce the negative thoughts and feelings that lead to money mistakes such as overspending, failing to save, or accumulating excessive debt, and coaching them on the skills needed for improving communication and reducing conflicts when making joint financial decisions. "I chose financial psychology specifically because I had observed in my clients how often emotional issues influenced financial issues, and how often financial issues affected their emotions," Ronin says. Such issues often manifested themselves as depression and anxiety.

Ronin advises clients to take an approach to financial planning that focuses not on who gets what if a marriage dissolves, but on creating a secure financial foundation for the marriage from day one. "By doing premarital family counseling, a couple can sit with a financial planner and a family therapist and talk about what their concerns are going into the relationship," Ronin says.

"Some people are spenders; some people are savers. Some people are organized; some people are more scattered. Then they can each develop an individual financial plan or a mutual financial plan satisfying those needs." In addition, couples that both have a 401(k) or other retirement account should choose investments that ensure a similar amount of risk. "Even if the couple doesn't divorce, there still needs to be the same asset allocation," Ronin says, noting that women often tend to choose more conservative investments than men.

Both Ronin and financial expert Lynn Faust note the benefits of each spouse maintaining a financial identity. "There's no difference in what women and men need to do," says Faust, senior vice president of investments at The Faust Group with Raymond James & Associates. "Specifically, it's important to continue to have liquid assets in your own name. In the event one spouse dies, what's in your name is yours. "In a divorce, there has to be an agreement," Faust continues. "I encourage (married) clients to each have checking, savings or money market accounts, and have a credit card in his or her own name so both have established credit."

Faust advises married clients to schedule monthly discussions to review their financial circumstances, noting that both spouses need to be up to date on what is being earned and spent. "A family financial situation is just that," Faust says. "Both parties need a will. Both parties need to be aware of all savings and debt. They should review their tax returns together."

Such involvement can eliminate instances where one spouse is confronted with negative financial surprises. Once the marriage hits the rocks, however, it's up to the courts to determine who gets what. And the presence of a prenuptial agreement doesn't necessarily guarantee divorcing spouses won't be subjected to the will of the court. "Non-marital property is property that parties agree to exclude by written contract," such as a prenuptial agreement, says Greenville attorney Linda C. Hayes. "A couple can agree to exclude investment property or any property" going into a marriage. What the couple acquires after the wedding is another story."

"S.C. code defines marital property as any real or personal property which has been acquired during a marriage or is owned at the time of filing (for divorce), regardless of how title is held," says Hayes. "The court has jurisdiction to divide (that) property." The court considers 17 factors, including duration of marriage, marital misconduct and support obligations when making its decision. Thus, communication might be spouses' most valuable tool in eliminating potential financial minefields. "It's critical to address areas of potential financial conflict," Ronin says. "This significantly reduces the amount of financial stress, strain and worry."

Source: "Modern Investing Complicates Divorces -- Couples Encouraged to Have Well-Organized Finances" by Amy G. Taylor, February 20, 2006 edition of GSABusiness.

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Here are some tips from Michael Estrin at AskMen.com to help keep you from drawing unwanted attention to your return and thus minimizing the chances you will be audited:

• File on time.

  The goal is to file right when everyone else does -- not late, but not early. Ideally, you'll be lost in the masses.

• Show the IRS that you know the rules.

  Sometimes you have a financial year that is more likely to trigger an audit. In that case, you could attach copies of supporting documents to your return. It means a hand review, but it also shows the IRS that you're not trying to pull a fast one.

• Submit a neat return.

  A sloppy return filled with errors will be rejected by the IRS computers, which means a human will have to inspect it.

Source: 8 IRS Red Flags You Should Avoid by Michael Estrin published at AskMen.com.

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April 15th is rapidly approaching. Everyone needs to understand as much as they can about income taxes, including his/her proper filing status. Chicago attorney, Alan Pearlman wrote the following article:

Taxes, Filing Returns and Married Couples!

For federal income tax purposes, there are five tax "statuses:" single; head of household; married filing jointly; married filing separately; and qualifying widow(er) with dependent child. Status affects tax credits and deductions, and therefore also affects the amount of taxes owed. This article focuses on married persons filing jointly or separately.

Married Status and Consequent Options

Consistent with federal law, for tax purposes, marriage is defined as a legal union between a man and a woman, as husband and wife. Taxpayers who are considered to be validly married have the option of choosing to file a tax return as:




• Married filing a joint return;
  
• Married filing a separate return; or
  
• Head of household, under certain circumstances.

Those considered married include:

• Those in divorce proceedings, but without a final decree by the last day of the year.
• Those unmarried and living together as husband and wife.
• A taxpayer whose spouse died that year, unless remarried before the end of the year.
• Those living together in "common law marriages," if such a marriage is recognized in the state of current residence or the state where such marriage began.
• Those married and living apart, but not legally separated.
• Those separated under an interlocutory decree of divorce (i.e., a divorce decree which is not yet final).

Those who obtain an annulment are treated as if the marriage never happened, and will be considered unmarried even if they previously filed joint returns for earlier tax years. A taxpayer is deemed unmarried for "head of household" purposes if the spouse was a nonresident alien at any time during the year, under certain circumstances.

Joint Income Tax Returns

Married taxpayers have the option of filing a joint tax return, even when one spouse had no income or exemptions, but both spouses must agree to file a joint return. If filing jointly, the taxpayers must include all of their income, exemptions, deductions, and credits on the one return. At least one spouse must be a U.S. citizen or resident at the end of the tax year. Both spouses must sign the joint return, and both are liable, jointly and individually, for any tax and penalties arising from the return.

This joint liability may be a major drawback to filing a joint return. If one spouse fails to report income, the other spouse may be held responsible for resulting delinquent taxes, penalties, and interest. Tax law allows a spouse to avoid this liability, if relief is sought within two years and under certain circumstances, including:

• Where one spouse is "innocent," i.e., there was an understatement of income, of which one spouse was completely unaware, therefore it would be unfair to hold the innocent spouse liable.
• When spouses are divorced, legally separated, have been living apart for 12 months, or one spouse has died, an innocent spouse may be able to elect to be liable only for the portion of the liability attributable to that spouse, as if separate returns had been filed.
• When, under all the facts and circumstances, it would be inequitable to hold the innocent spouse liable, as long as the liability is unpaid when the relief is requested, no "disqualified" assets were transferred to the innocent spouse, and the joint return was not filed with fraudulent intent.

Separate Income Tax Returns
Married taxpayers may also choose to file separately; each taxpayer will be responsible only for their own taxes and filing. If the spouses do not agree to file a joint return, they may have to file separately. Filing separately generally leads to higher taxes, because it affects tax rates, standard and itemized deductions, and tax credits. Tax returns for married taxpayers filing separately have special rules and restrictions, including:

• The exemption amount for calculating alternative minimum tax is half the amount allowed for a joint filer.
• The credit for child and dependent care cannot be taken in most cases and the amount excludable for employer dependent care assistance may be halved.
• The earned income credit is not available.
• In most cases the credit or exclusion for adoption expenses is unavailable. Education credits and deductions for student loan interest and tuition and fees cannot be taken; other deductions and credits are reduced by half.
• The capital loss deductions may be halved.
• If the spouse chooses to itemize deductions, the taxpayer must do so also and cannot claim the standard deduction (even if such a deduction is available, it may be half that for joint returns).
• The taxpayer may not be able to claim a credit for the elderly or the disabled, if the taxpayer lived with the spouse at any time during the year.
• Roll over from a traditional IRA into a Roth IRA may not be permitted.

The status listed on a return may be changed from separate to joint anytime within three years of the due date of the separate return. However, the status of a joint return cannot be changed to separate, except where there has been an annulment.

Head of Household Tax Return

A taxpayer may be able to file as head of household if:

• Unmarried or considered unmarried (under several tests) on the last day of the year;
• Paid more than half the costs of keeping up a home for the year; and
• A "qualifying person" lived with them for more than half the year, except for temporary absences, such as for school ("qualified persons" include various blood, in-law, and step relatives, and adopted and foster children, provided they can be claimed as an exemption by the taxpayer).

Source: Taxes, Filing Returns and Married Couples! by Alan Pearlman published on the Chicago Family Law Blog.

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April 15th is rapidly approaching, and the IRS will be expecting to hear from all of us. For those who have become separated or divorced since they filed their returns last year, I recommend reading Recently Separated or Divorced? 10 Useful Tax Tips When Filing Your Return by Jessie Danninger of the Rosen Law Firm.

In this article, Ms. Danninger answers the following questions:

1. What is my filing status?
2. Should my spouse and I file as married, filing separate or married, filing joint?
3. Are my divorce costs deductible?
4. Is child support taxable?
5. Are there any tax benefits if I am paying alimony?
6. Is alimony taxable?
7. Who claims the Child Tax credit and the Household and Dependent Care credit?
8. Who gets the mortgage interest deduction and other itemized deductions?
9. Who gets to claim the dependency exemption for the children?
10. My spouse and I are using the married, filing separate filing status. Can I use the standard deduction if my spouse itemizes?

If you want to know the answers, click here. Thanks to Ms. Danninger for this excellent resource. Thanks also to Jeffrey Lalloway of the California Divorce and Family Law for his recent post on this article.

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In Simmons v. Simmons, the South Carolina Court of Appeals was faced with the issue of whether the Family Court may divide Social Security benefits in property distributions. The parties in this case reached an agreement which provided in part that the wife would receive a portion of the husband's Social Security benefits in the future.

The Social Security Act (42 U.S.C. Sec. 407(a)) (1998) provides that Social Security benefits "shall not be transferable or assignable." The U.S. Supreme Court found that section 407(a) imposed a "broad bar against the use of legal process to reach all social security benefits." Philpott v. Essex County Welfare Bd., 409 U.S. 413 (1973).

Because the Social Security Act preempts state law, the Family Court lacked subject matter jurisdiction to divide husband's Social Security benefits in a property distribution. Inasmuch as the trial court did not have subject matter jurisdiction over Husband's Social Security benefits, it could not approve the settlement agreement dividing such benefits. The full opinion can be found here.

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I am catching up on relevant appellate court decisions made over the past few months. In Browning v. Browning, the South Carolina Court of Appeals was faced with the question of whether the family court could require a man to submit to a medical examination to help enable his ex-spouse obtain a life insurance policy on his life. The Court found that because the ex-wife's right to alimony had ended and all of the parties' property claims had been settled, she no longer had an insurable interest in his life and the acquisition of any new insurance policy must be with his consent. The full text of this opinion is available here.

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Most people find themselves short of funds, often at the least opportune times. When family problems arise, the need for money becomes even more important. You may need to find a place to live, hire a private investigator, and of course hire an attorney to protect yourself. With these items in mind, I present the following excerpts from an article containing numerous tips on things to remember when borrowing money:

Whether you choose to use your line of credit or take advantage of some equity in your home, you'll want to know what you're getting yourself into before you sign the deal. Here are some things to consider.

1. Shop for the best interest rate.

   The main thing that you'll be comparing when you're looking for a loan is the best interest rate, which is essentially the price of the money. It's easy to fall for a good sales pitch, but a prudent borrower does his homework. Ask several banks for quotes and then do the same with brokers. You'll get an idea of the price range, but don't be afraid to tell the lowest-priced broker that you think he can do better, especially if other quotes are close. Of course, you need to make sure that you're comparing apples to apples, so be certain that your loan quotes reflect the same amount and time period, and be sure to account for fees.

2. Consolidate your loan.

   Loan consolidation can have two advantages: (a) It's easier to manage one bill at the end of the month instead of three or more; and (b) You can lock in a low interest rate. Of course, you take a risk; if interest rates continue to drop, you may not be able to reconsolidate, which means you'll be paying more for your money. But if they rise, you'll be sitting pretty.

3. Use equity.

   Your home equity is actually your money, and sometimes it pays to use it. You can take equity out (essentially, get a check from the bank equal to some or all of your equity), or you can open a line of credit against your equity (essentially using your home as security for the loan). Because this is a secured loan, you should get a better interest rate than a credit card, but on the downside, if you default, you could lose your home. If you take out a home equity loan, make sure you do so to finance a worthwhile project.

4. Utilize your line of credit.

   If you don't own a home or don't want to use your home equity, you can use your line of credit. Essentially we're talking about a credit card. While charging it is almost never the foundation of solid financial planning, a credit card has its merits. First, they're great in an emergency. Second, you won't have to justify your plan to anyone before you charge, which means that you have ample flexibility. On the downside, you're going to pay higher rates. However, you should always try to negotiate a lower rate with your credit card company. Remember, credit cards are a competitive business and it never hurts to ask for a deal.

5. Check the fine print.

   Whenever you sign a loan document, you'll need to check the details. Two big issues to keep in mind are default and early repayment. Default means that you did not pay on time, and you'll want to know when you're technically in default (30, 60, or 90 days), and what that means (does the whole balance become due; can they seize your assets?). On the other hand, you'll want to know about early repayment. It may sound odd, but some lenders charge a penalty for repaying early. After all, the sooner you pay, the less interest they make. So you'll want to know if you can do that without a penalty.

6. Avoid payday loans.

   Companies that advertise cash loans with no credit check and no collateral make their money by doing volume business and charging outrageously high rates (upwards of 300%) and penalties. Those companies prey on the desperate guys out there, and they should be avoided at all costs.

7. Maximize your credit score before you borrow.

   The price you pay for the loan will depend greatly on your credit, so if you're planning to borrow in the immediate future (six months out), check your score and see what you can do to improve it. If you've missed payments on credit cards and utilities, make sure that you make timely payments for the next six months. And take that time to clear up any mistakes or outstanding issues on your credit report.

Source: "7 Things To Remember When Borrowing Money" by Michael Estrin, published at AskMen.com.

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I have previously posted here, here, here, and here about the importance of credit reports. With the beginning of the new year, it is a good time to remind everyone that you are entitled to one free credit report per year. There are many sites from which you can obtain your free report, including AnnualCreditReport.com. However, since each of the three major credit reporting agencies often list different (and possibly conflicting or inaccurate) information, it is wise to verify their accuracy with each one: Equifax, Experian, and TransUnion.

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When financial issues are before the Court, parties in South Carolina are required by Family Court Rule 20 to file a document called a Financial Declaration. This document contains sensitive financial information, including: name, address, Social Security Number, name of employer, monthly income, detailed expenses and debts, and listing of all assets. Were this information to fall into the wrong hands, it could be used for sinister purposes, including identity theft.

Many states have passed laws attempting to limit access to such information, but these laws are regularly being struck down. Most recently, the New Hampshire Supreme Court ruled last week that financial information disclosed in divorce cases is not entitled to privacy protection. In The Associated Press v. New Hampshire, the Court unanimously held that a "generalized concern for personal privacy is insufficient to meet the state's burden of demonstrating the existence of a sufficiently compelling reason to prevent public access." It said openness in court cases, including divorces, promotes accountability and public confidence in the courts.

You can read more about the New Hampshire decision in the Associated Press article, "N.H. High Court Limits Law Shielding Divorce Records". I also recommend the excellent post, "Private Finances and Corporate Records: Should They Go Public in Divorce?", by Janet Langjahr of the Florida Divorce Law Blog for additional information on this topic. Finally, you can find out more about the sealing of divorce records in general in The National Law Journal article, "Sealing Divorce Records for the Sake of ... Corporations", which includes an analysis of the motivations of corporations in asking Courts to seal such records.

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Many spouses begin, build, and own businesses together. Doing so enables them to experience the joys that such an endeavor can bring. However, if those spouses divorce, they must deal with the pain that can be involved in deciding what to do with such a business. "Business Can Feel Like a Child in Divorce" published in yesterday's The Ledger-Enquirer (Columbus, GA) gives a unique, first-hand account from someone who has been through such a breakup. The author, Susan Miller, states that their business "is like a child I lost whom I can no longer contact, much less share in the joy of its success -- even though I was an equal partner in its creation." The full text of this article can be read here.

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The Internal Revenue Service (IRS) has issued Revenue Procedure 2005-31 (Rev. Proc. 2005-31) which addresses a number of issues, including determining the finality of an adoption of a foreign-born child for federal income tax purposes, and the treatment of re-adoption expenses. The FamilyLawTaxation blog has an excellent, in-depth discussion of this issue, which can be read by clicking here.

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I recently discovered a great new blog, the Ottawa Divorce Blog, published by Jeffrey Behrendt. One of the first posts on this blog was on the subject of legal fees in divorce cases. In response to a comment from one of his readers, Mr. Behrendt suggested that the following points be considered with regard to attorney's fees in family law cases:

• Family law gets more and more complex all the time. Nowadays a lawyer has to specialize in this area to even begin to attain a degree of competency. This drives divorce legal fees higher.

• Social norms change. For instance, a generation ago, men generally didn't get custody. Now, in many cases, they demand to be equal parents. The additional conflicts this causes drive divorce legal fees higher.

• The law can be very grey and the financial stakes huge. For instance, the value of a pension may vary by several hundred thousand dollars, depending on what age a person retires. This drives legal fees higher.

• Justice can be uneven. The results you'll get before one judge may differ greatly than what you'd get before another judge. This makes it difficult to settle cases, which drives legal fees higher.

• There's no end to creativity of couples as to how nasty and complicated they want to make each other's lives. The conflict drives legal fees higher.

• Although a lawyer may make things look easy it actually is a lot of work even if you just want to do well in negotiations. To do well in court requires even more lengthy and detailed preparation. This drives legal fees higher.

• Flat fees work well when you can predict the amount of work involved. In a divorce, this is generally not possible. It's always possible to raise more issues, if you or your spouse is thus inclined. It's always possible for one or both spouses to be unreasonable (surprise - that's one reason why you left them). As well, until the case has developed, it may not be possible to know what all the issues are in more than the most general sense.

• The suggestion that one should not to be afraid to haggle is somewhat troubling. It shows that price is a major factor in your decision to retain a lawyer, which it shouldn't be in something as important as your divorce. There are good ways to keep your legal fees down, but haggling is not one of them.

• One of the reasons why people get bad legal representation is that they try *too hard* to save legal fees. They try to get free consultations, shop around for the lowest priced lawyer, complain to their lawyer about every bill and try to get it reduced, and so forth. Granted, it's good to save money. But saving a few dollars in legal fees may cost you a lot in your final divorce settlement.

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If you are interested in reading about the absurd, out-of-control egos in Hollywood and the divorces which inevitably ensue, check out the article posted today on FoxNews.com. This article discusses some of the crazy things that celebrities have included in their prenuptial agreements, such as limiting the wife's weight to 120 pounds or she must relinquish $100,000 of her separate property; allowing a spouse to perform random drug tests, with financial penalties for positive results; and requiring a husband to pay $10,000 each time he is rude to his wife's parents. Reading articles like that make me glad that I am not a celebrity.

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Question: Is there a stepped-up basis on a property after a divorce? My former husband and I built in 1972. We divorced in 1984 and I got his quit claim deed for the home. I would like to sell. The home has appreciated so much I am hoping the stepped-up basis rule applies.

Answer: Sorry, the stepped-up basis rule only applies to inherited property. It does not apply to a property title transferred as part of a divorce.

Source: The Charlotte Observer.

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The more you know about your and your spouse's financial situation, the better off you are. Period. There is no reason to not educate yourself in this area. With that in mind, I commend Jenny McKinney's article 5 Questions to Ask Yourself About Your Retirement Plan from About.com for your review:

Do you know the answers to these questions?

No matter what your age, sex, or marital status, you need to know a few things about your and/or your spouse's retirement plan. When setting your retirement goals, you shouldn't leave anything to chance and getting the answers to these questions can eliminate future surprises.

1. Do you have a pension or retirement plan at your place of employment and are you eligible?

Some companies do not offer retirement or pension plans and some jobs within companies are not eligible for these plans even if they are offered.

2. How much will your pension or retirement plan be worth when you retire?

This information is necessary so you can decide if you need additional savings such as an IRA to supplement your retirement benefits when you decide to retire.

3. If your employer provides a retirement plan, what happens to it if you change jobs?

Your employer can tell you if your retirement plan can be rolled over into an IRA, cashed in, or left with the company if you should leave the company. You will need to decide which is best for you to do.

4. If you retire early, what happens to your retirement plan with your employer?

Your employer can tell you when you are vested with the company and what you can expect to receive in the way of retirement benefits when you decide to retire.

5. Will pension benefits be reduced by Social Security?

In some instances, your benefits could be reduced by the amount of Social Security you draw. Discuss this with your employer to see if this happens with your pension.

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In many divorce cases, life insurance is used to secure payments of alimony, child support, or other financial obligations in case of the payor's death. Disability insurance can be (and often is) used for this purpose as well.

What happens if the payor fails or refuses to obtain or maintain this insurance? The excellent Flying Solo series answered this very question in an article in The News-Sentinel (Ft. Wayne, Indiana), which included the following suggestions:

• Pursue any non-compliance as soon as you become aware of it.

• Make sure that the document mandating the insurance is specific and includes language that mandates and guarantees performance.

• Consider taking ownership of the policy so that you will have unlimited access to all information about the policy.

• Ask your lawyer how life insurance can make a difference to you, and how to make sure your award is secure.

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Dividing retirement accounts in a divorce can be a very complicated process. Parties must understand the different types of retirement benefits, and attorneys must know how to identify, value, and divide these accounts. Those attorneys who do not have an emphasis on family law issues often do not understand all of the intricacies involved in this area, and their clients often suffer as a result.

Retirement plans come in many different varieties, such as 401(k), 403(b), SEP, pension, IRA, Keogh, and ESOP, to name a few. Qualified plans, like 401(k) plans, must be allocated via a QDRO, whereas non-qualified plans, like IRAs can be divided much easier (although the exact process may vary from state to state).

Jenny McKinney wrote an article for About.com, Divorce and Retirement Benefits, in which she suggests everyone ask these questions when going through a divorce:

Continue Reading...

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The South Carolina Court of Appeals recently addressed the novel issue of whether the Family Court may divide Social Security benefits in a property distribution. In Simmons v. Simmons, the Court found that pursuant to 42 U.S.C. ? 407(b), Social Security benefits cannot be divided in an equitable division award whether by agreement or otherwise. The full text of this opinion is available here.

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Don Taylor, Ph.D., CFA recently answered a wife's question as to how best keep her house through a divorce and what issues to consider in relation to this issue. His column, which is written for Bankrate.com can be found here.

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CNN/Money's "Ask the Expert" received the following question:

I'm 54 and have no retirement plan at work. In fact, because of a divorce and other issues, I have nothing to rely on except Social Security and $110,000 I recently received from selling my home. I know nothing about investing, but there must be something I can do.

Read Walter Updegrave's response, which includes several good catch-up strategies, in his article.

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The 2005 Bankruptcy Abuse Prevention and Consumer Act makes several very important changes with regard to the effect of bankruptcy on divorce litigation. Both attorneys and parties to Family Court actions should be aware of these drastic changes.

The most significant change is that payment obligations under a property settlement agreement or divorce judgment are no longer dischargable in bankruptcy. Previously, the Bankruptcy Court had to determine whether payments made pursuant to equitable distribution or property settlement payments were "in the nature of support" or purely property settlement obligations. The determination of that issue led to delays in the payment of property settlement obligations and a great deal of costly litigation to determine the "true nature" of such obligations.

The new Act also elevates alimony and child support obligations to a number one priority level in a bankruptcy proceeding. They are now given a priority raising them above even tax claims. The Act also prevents a debtor from obtaining any bankruptcy relief unless all past due alimony or child support claims are paid in full.

Thanks to Robert Durst of the New Jersey Law Blog for his excellent post on this topic.

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In the United States today, 37 million of our fellow citizens live in poverty, including nearly 13 million children (which is 17.6 percent of all children in America). John Edwards, former Senator from North Carolina and candidate for Vice President, has focused his considerable talent and energy toward ending poverty in America. Sen. Edwards has called poverty "one of the great moral issues of our time," stating that "in a country of our wealth and prosperity to have so many Americans living in poverty is wrong."

I had the great pleasure of meeting and talking with John back in 1998 when he was campaigning for his first political office, the Senate. John is one of those amazing people, who genuinely believes that a better America is possible for everyone. John's latest project is forming an organization, Opportunity Rocks, whose goal is to get young people more involved in community service and to get them to advocate policies that expand opportunity for people living in poverty.

Now, you may be wondering what poverty has to do with family law? A quick review of these amazing facts about poverty will quickly and clearly illustrate the relationship between poverty and families. For instance, did you know:

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As most people know, the Bankruptcy Abuse Prevention and Consumer Protection Act goes into effect as of today (October 17, 2005). This new law makes it more difficult for people to file for bankruptcy. Since its passage, it has generated a great deal of discussion, as many experts believe the new law is too harsh. They also believe that it hurts those who are facing real problems, such as divorce, a job loss, or family illness -- in other words, those who are not filing bankruptcy just to try to escape debt.

Divorce experts say bankruptcy and divorce often go hand and hand -- divorce causes bankruptcy and bankruptcy causes divorce. Studies have shown that bankruptcies were on the rise before the new law went into effect, and divorce rates have been rising for years. Nolo.com has an excellent article about The New Bankruptcy Law, which discusses some of the most important changes.

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The end of a marriage is like the death of a loved one. It is the death of a relationship, in fact the most intimate of relationships. As with reacting to a death, people going through divorce pass through two phases: emotional and financial. Fortunately, once you are able to deal with the emotional aspect of this death, it increasingly becomes more and more like a business transaction.

Jay McDonald published an article on msn.com, 10 Steps to a Money-Smart Divorce, which contains excellent advice for individuals facing a divorce. In this article, Mr. McDonald correctly says "When your marriage breaks up, the last thing you feel like doing is crunching numbers. You're hurt, perhaps angry, and possibly overwhelmed with anxiety, fear and despair. You're focused on the past and present, not the future. But as many divorced couples learn the hard way, this is precisely the time you need to get a grip and pay close attention to your assets and your financial future, lest both slip away in the flood of emotion."

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Colorado domestic attorney Stephen J. Harhai has made his Colorado Divorce Handbook available at his website. While most of his handbook is specific to Colorado law, it does contain an excellent section on important tax consequences to consider in a divorce action:

• Alimony/Maintenance. Usually deductible to the payor and taxed as income to the payee, if the IRS requirements are met. See IRC
  Tags: Divorce, Financial Issues
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You are now divorced, and you think that there is nothing else your former spouse can do to cause you grief. As Lee Corso says, "Not so fast my friend." The Family Court will determine who should pay the debts incurred during the marriage. It is very common for the Court to require one of the parties to pay a debt that is listed in both names (jointly). What if your former spouse is required to pay this joint debt and he/she doesn't pay it on time or at all?

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Couples who remarry naturally bring all sorts of marriage with them into the new marriage. Some, such as prior mistreatment by a spouse, is unavoidable and somewhat understandable. However, many times, the new spouses bring financial "baggage" with them as well. Dayana Yochim wrote an article on Fool.com, For Richer or Poorer...Again, which gives five good suggestions to couples who are once again "taking the plunge." These tips are:

• Disclose your true financial situations to each other.

• Complete a prenuptial or postnuptial agreement to identify the assets each of you brings into the marriage and to designate who gets what if / when the marriage ends.

• Set up a new family budget and determine how you will pay your joint expenses.

• Decide how to title your joint assets.

• Develop a new estate plan, including new wills, durable powers of attorney, living wills, health-care proxies, and trusts.

• Adjust your dependency exemption on your tax withholding to reflect your new marital status.

• Review your insurance coverages to make sure you have the proper life, healthy, and disability coverage in place.

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So much has said and written about the negative financial implications of marriage (i.e. the income tax "marriage penalty"). However, the financial news for spouses is not all bad. In fact, Fool.com published an article, Five Ways to Save Money Through Marriage, some time ago on this very topic. Their tips (and my comments) are:

1. Exploit Your Boss. Employers (and the benefits they provide) can be a great source of savings for savvy spouses. Spouses should closely analyze and compare their respective benefit plans for areas of duplication and savings. Which spouse can obtain the best health insurance coverage at the lowest cost. If your spouse covers you, can you choose other options (such as a cafeteria plan, additional vacation time, supplemental life insurance, or dental coverage) instead of the cost the employer would have paid for your health insurance? Also, when it comes to retirement plans (such as 401(k) plans), perhaps one spouse's employer provides more matching funds. If so, you may want to max out that spouse's contributions first. Finally, many employers offer charitable giving, matching, or other benefits for donation. Since some of these benefits can change from year to year (particularly in the area of health insurance coverage), spouses should conduct their analysis on an ongoing basis.

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Two people meet, fall in love, and marry. Sounds like an ideal situation, but unfortunately, life is neither simple nor easy. Too many couples rush into relationships without considering the financial implications, which can be a recipe for disaster. Starting a new life together as husband and wife is somewhat stressful in and of itself, so how do finances come into play?

Married couples have to face many issues that single individuals do not. "Me" now becomes "we", and spending decisions, budgets, and all other financial issues take on an added complexity as a result. For instance, people's financial habits can range widely, from frugal savers to impulse buyers and everything in between. The older the individuals are, the more set in their ways they are likely to be when it comes to finances.

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Whether divorcing parties realize it or not, taxes are almost always an issue. Unfortunately, this issue is one that is often overlooked by parties, many times until it is too late.

Here is a list of important tax considerations in divorce cases:

? Consult a tax professional. Most domestic lawyers are not tax professionals and are hesitant to give tax advice. In fact, my retainer agreement specifically states that I am not a tax attorney and I do not give any tax advice. Taxation is a certified legal speciality in South Carolina, with good reason, and tax attorneys or CPA's monitor the constantly changing tax laws and are therefore far more qualified to give tax advice than Family Court attorneys.

? Child support is not taxable to the recipient or deductible by the payor. However, in many situations, the amount paid for work-related child care is a deductible expense. The South Carolina Child Support Guidelines take this deduction into account when calculating the payor's child support obligation.

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Personal credit reports can provide a wealth of information. Too many times, this information proves to be surprising. In today's "quick credit here" world, it is far too easy for a spouse to obtain credit that is tied to his/her spouse. For instance, who among us has not received a "you're pre-approved" credit card offer? It would certainly be easy for a spouse to list his/her spouse as a co-cardholder without the spouse's prior knowledge.

Therefore, it is generally a good idea for a separating/divorcing spouse to obtain a copy of his/her credit report both, to verify its accuracy and to prevent any unfortunate surprises after receiving a divorce. Obtaining a copy of your credit report can be done quickly, easily, and inexpensively. The Orlando Sentinel recently printed an excellent article explaining in detail how to do so. If you'd rather skip the article, you can go directly to AnnualCreditReport.com.

As Ben Franklin said, "An ounce of prevention is worth a pound of cure." If you find out before your case is resolved that there are incorrect or even fraudulent entries on your credit report, you can definately do something about it. If you find out after you're divorced, maybe you can and maybe you can't. Why take the risk?

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