- Keep an eye on the mail-box. Every financial document that hits your mailbox in the month of January is worth your time. You should gather Bank and Brokerage account statements showing year end balances and the year end spending summary sent out by most Credit Card companies. You may also start to see tax documents being sent. If you aren’t sure whether the document is pertinent to your Divorce in 2014, keep a copy anyway just in case. Financial knowledge will equal power for your Divorce in 2014. The more you can get now the more prepared you will be to advocate for yourself and obtain the most financially advantageous settlement possible.
- Make copies of all financial files in your home including 5 years of tax returns, any Brokerage and Bank account Read more
A recent Rand Corp. study has found a direct correlation between frequency and duration of deployments and the likelihood of a military marriage ending in divorce. Read more at Marine Corps Times web site.
The overall military divorce rate in 2013, as reported by the Department of Defense, through September 30th was 3.4%. Compared to 8% in 2011. The DOD also reports the military divorce rate among enlisted men and women at 3.8% compared to 1.9% for officers.
The slowdown of the Iraq and Afghanistan missions is largely to Read more
Divorce mediation is a process that requires transparency, equality and a level playing field in order to facilitate a successful resolution.
Balance of Power
It is common for one party to hold all the cards when it comes to financial knowledge and power in a marriage. We have the economic theory of comparative advantage to thank for this reality.
Comparative advantage at its simplest says the person most suited for a task should be the one to perform it or risk wasting valuable economic resources. In a marriage this means the spouse most skilled in financial management, most interested in financial issues or most concerned about their financial future will take over management of the family finances. Sometimes, especially in the marriages of two busy professionals, it comes down to simply giving the tasks to the spouse who has the time. Trust is abundant during happy marriages and the non-managing spouse will often not be a part of the day-to-day budget and investing decisions, instead choosing to trust their spouse has it all under control.
Like it or not, this kind of decision-making creates a power imbalance unless the couple regularly works together to keep one another in the loop. Unfortunately we know from experience this rarely occurs. We also know from experience and research that financial disagreements are the most common disagreement leading to divorce. We have to keep in mind all of the emotional undertones of money. Money means power, safety and security and allows American families to buy, borrow and save for the things they believe will make their lives and the lives of their children more comfortable such as nice homes, iPads, automobiles and organic food.
When a power imbalance begins to develop, these emotions start to come to a head. A woman anxious about her family’s financial security may start to remedy the power imbalance later in life by asking the questions she never cared to ask before.
- How much is in our retirement savings accounts?
- How are the funds invested?
- Are we on track?
- Do we have a financial adviser we trust?
A man anxious about how the family bills are paid may want to engage in tasks previously left to his wife.
- Can I look at our budget?
- How much credit card debt do we have?
- How much do we spend every month?
Marriages end when these questions begin to come up because many couples lack the tools to navigate the difficult conversations, especially when one person’s expectations are not met when they get answers.
Divorce Mediator’s Job
When one party in a divorce holds all the financial data and knowledge it creates a major power imbalance. A divorce mediator’s job is to level the playing field for the couple. What may have been acceptable during marriage when trust was prevalent doesn’t pass muster in divorce financial planning. In order for a couple to successfully navigate a divorce mediation they must have the same information from which to make decisions. Transparency must be mandated by the divorce mediator and the mediator must help to create this transparency where necessary. This may mean
- assisting in the gathering of financial data and documents,
- facilitating conversations between the parties,
- engaging other financial professionals to assist in educating clients to level the playing field
If a mediator is unable to provide this balance of power and create a level playing field for clients to operate from in a divorce mediation the parties may struggle to meet minds on the financial picture. You may even start to distrust the other’s intentions and leave the divorce mediation process seeking an advocate who will level the playing field through formal financial discovery such as depositions and subpoenas.
Wellspring Divorce Advisors Can Help
If you are navigating mediation and feel at a disadvantage when discussing financial issues, Wellspring Divorce Advisors can act as a consultant to the divorce mediation process and help to level the playing field so you can negotiate the most financially advantageous settlement possible. We also have trained mediators who can work as a financial issue specific mediator during your divorce mediation.
Our Divorce Financial Planning business offers an interesting insight into the real estate markets of our communities. We see more homes bought and sold by our clients than all but the top 2% of realtors. In most cases we are also actively engaged in helping our clients make decisions about if or when to buy and sell. In doing so it is important to keep our finger on the pulse of prices and the factors that affect them.
In 2012 real estate prices in Southern California were stable seeing minimal growth in valuations. The market was slow and listing versus selling price spreads were negative meaning most property was selling at or below list prices. The higher the price the bigger the spread and the longer it took to sell. In early 2013 mortgage interest rates sank to such low levels that buyers began to realize they could be missing an opportunity to lock in low rates. At the same time the inventory of homes for sale was anemic thanks to the perception in the sellers market that prices were stagnant and it was not a good time to sell.
I believe the combination of low inventory of homes for sale and buyers starting to come into the market has created a bubble. I started to notice this in full swing during the Spring when homes first began universally selling above list prices and getting multiple bids. The low inventory of homes meant multiple buyers were competing and forced to offer continually higher purchase offers in order to risk getting out bid. The neighbors started to see homes selling at 10% premiums to their list price and realized they could now sell their own home and break even when two years ago they would have done a short sale. Here comes the bubble.
Buyers are worried the competitive offer environment will price them out of the homes they wish to purchase so they make progressively higher bids. Sellers start flooding the market with listings. The competitive purchase offer environment drys up thanks to increased inventory and rising interest rates. I expect prices may fall back to their 2012 levels while interest rates continue to rise over the next six months.
This bubble has made it difficult for many divorcing couples and individuals to make a decision about how to handle their family residence. As part of our Divorce Financial Planning conversation we are making sure clients understand that our current outlook on real estate prices may mean they need to consider alternative methods for valuing the home or mean they need to abandon the idea of keeping the residence thanks to the inflated price level. If you believe prices will fall you may not want to appraise a home today and buy it from your spouse. I am also advising clients that now may not be the best time to buy as I expect prices will be lower by next year.
The Supreme Court has found the Federal Defense of Marriage Act (DOMA) to be unconstitutional in all states where the state allows same-sex marriage. Same-sex couples now have equal rights to those of opposite-sex marriages including
- File joint tax returns as their marriage is not recognized for this purpose. This may result in larger tax bills for same sex couples compared to a marriage of a man and woman which enjoys the right to file Married Jointly. Under DOMA same-sex couples did not have the option.
- Take advantage of unlimited asset transfers between spouses. Section 1041 of the internal revenue code allows married couples to transfer an unlimited amount of assets back and forth during marriage and as part of a marital dissolution proceeding. A same sex couple did not have the same rights under DOMA and instead was often required to make other plans for tax efficiently passing assets via complicated and costly estate planning and trusts. Property settlements upon the dissolution of an opposite-sex marriage would not trigger income taxes. However, under DOMA a property settlement in the divorce of same-sex couples resulted in appreciated assets being deemed to have been sold for the value of the obligation being extinguished (the property settlement). This could trigger a gain or loss for tax purposes and have possible tax implications.
- Collect Social Security benefits on their spouses record. Under DOMA Same sex couples did not have the right to spousal or survivor benefits under the Social Security system. This kept a same sex couple from adopting a family model with a stay at home parent and had major negative consequences if a major bread-winner passes away.
- Have a spouse covered under an employer provided benefit program such as medical insurance. Under DOMA a same-sex couple was not afforded the same rights to cover their spouse on employer provided medical and other benefits. The resulting accommodation had become some corporations adopting eligibility requirements allowing a same sex couple to have coverage but DOMA made the benefit a taxable income to the employee when a man and woman couple would avoid such taxation.
- Deduct alimony payments to their spouse on a tax return. Under DOMA alimony payable from a member of a same sex couple to their spouse is not tax deductible as it would be when payments are made between a man and woman couple. This arrangement generally had the effect of transferring income between ex-spouses tax efficiently by reducing income of the taxpayer in the higher marginal tax bracket and transferring it to the ex-spouse in the lower marginal tax bracket. Under DOMA alimony payments from same-sex divorces are not deductible for federal income tax purposes and may in fact be considered a gift, further reducing the lifetime limit or even triggering taxable gifts.
The Supreme Court has found the Proposition 8 supporters in California lack standing for appealing the voter decision making same-sex marriage legal in California and remanded the case to a lower court. Ultimately this means same-sex marriage in California will resume.
The combination of Defense of Marriage Act strike down and Proposition 8 decision means same-sex couples in California will have the same rights under the law as their opposite-sex counterparts.
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