Who Should Move out When a Family Gets Divorced?

move out, Dr. Joyce Fine

The following blog was provided by Joyce Fine, PhD, Licensed Clinical Psychologist, Certified Divorce Coach, Collaborative Divorce Facilitator. Dr Fine specializes in psychotherapy with adults, couples, and families, provides psychological evaluations, and works as a coach with individuals and couples deciding whether or not to divorce or those going through divorce to help them make the best decisions possible for all family members. 

 

A Changing Family

I recently met with a couple who wanted recommendations for how to talk with their two young children about their upcoming separation, ideas about setting up their parenting schedule once they separated, and support in moving forward with their separation.

 

During our third meeting, the wife, whom I will call Katy (no real names are used herein) was very frustrated. She was ready to separate. Her husband, whom I will call Alex, was not. He had hoped they would be able to work out their marital differences. Alex needed more time to digest the reality that Katy had made up her mind and her decision was set.

 

Ultimately, they were both attached to their home. It represented the foundation of their family and the emotional stability it had offered them. Neither wanted to let it go in the face of the instability and colossal transition they were about to step into, or to be the one to set up a new place with their children, since they both thought that the children would like a new place less, that the children would be less comfortable in a new place, etc.

 

Many divorcing moms feel that it is their right as the mother of their children to stay in the marital home and a lot of divorcing dads agree to that precedent.  In Alex and Katy’s case, Katy was set on leaving the marriage and Alex did not want her to go. In asking him to leave their home, she was asking him to do something that he felt was completely against his own self-interest while their crumbling marriage was already shattering his identity, his hopes for their family’s future, and taking him in a direction that he deeply did not want to go.

 

Their options

We processed why Katy felt that Alex ought to be the one to move out.  The more we talked about it, and came up with “atypical” options, she was able to understand the benefits of her moving from the home:

 

  • She could set up a place free of their marital disappointments.
  • She would be leaving Alex’s imprint behind.
  • Moving out might enable her to start a new life more freely and fully.

 

Alex and Katy came in for their next appointment two weeks later.  By then, she had signed a lease for an apartment and was set to move in a few days.  While Alex was still heartbroken and angry, he was relieved that the discussion of him moving out was over and that he would be able to stay in their home.  Her moving out also appeared to enable him to negotiate future decisions with less agitation and sense of powerlessness.

 

Often, divorcing parties are driven by fear and anger in ways that obscure their ability to think openly, clearly, and flexibly, and they reach toward “common” ways that they have heard divorces are facilitated. This can keep them entrenched in defensive thinking that interferes with decision-making that is best for them and their family. Working with couples to come to the other side of defensive or frightened thinking is critical to their families’ well-being and opens pathways to collaborative movement forward.

 

 

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

 

Divorce & Finances: Can you afford your new life?

afford life, CDFA

As Certified Divorce Financial Analysts, Wellspring Divorce Advisors are experts in looking at the entire financial picture during the divorce process. From uncovering and dividing your assets to determining the best course of action moving forward, we help our clients with their finances until the final agreement is signed.

One of the most common questions we’re asked is this: Can I afford my life once my divorce is finalized? Will I be okay?

And there is no one answer for everyone.

 

A Change in Lifestyle

It does not matter if you’re male or female, working or not working, have lots of assets or very little…divorce often leads to a change in lifestyle. You will have two households as well as the upfront expense of setting up those homes with furniture and household necessities. Childcare expenses could change if the stay-at-home parent suddenly has to go back to work. Your retirement accounts will be affected which means that you might need to change how you save.

But before you panic, let’s take a look at the things you can take control of NOW in order to ensure better success down the road.

 

Understanding your Finances

One of the most important aspects of the divorce process is developing an accurate budget and understanding your finances. Here’s what you can do:

  1. If you don’t have a budget, begin by looking at the bank and credit card statements for the last 6 months.
  2. Get a feel for the recurring expenses like car, mortgage and utility payments. Then make estimates of discretionary expenses like dining out and entertainment by averaging your spending over the past several months.
  3. Account for annual expenses such as car registration, life insurance payments, etc.
  4. Once the budget is determined and you understand your expenses, look at earned income, alimony and any other income to see if there is enough to cover your expenses. If not, then the budget will likely have to be adjusted.

 

After your divorce is final, it will be important to review your budget periodically and make sure you are living within your means.

And remember that you’re not alone in the process; Wellspring Divorce Advisors is experienced in creating budgets and available to assist clients in developing a budget for their Divorce and post-divorce life.

Divorce is a stepping stone into a new life. It is important for people to have a game plan so that they can transition into their new independent financial life with success. Let’s make sure you get started on the right foot.

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

Protecting your Assets: How the TCJA will affect the Denver Housing Market

Denver housing market

With so much uncertainty surrounding the Tax Cuts and Jobs Act, it can be hard to know how these changes will affect you, personally. Yes, there have been changes to alimony and standard deductions in general…but what about how it might affect the Denver housing market?

 

In many cases, the property you own is one of your greatest assets and is a major factor in divorce proceedings. So, knowing how these changes might affect the Denver housing market is crucial when planning your future.

 

To get more information about these possible changes, Sandi Gumeson of Wellspring Divorce Advisors Denver turned to real estate expert AK Cotton of Coldwell Banker.

Will the change in tax laws discourage people from buying homes?

The short answer is no, I don’t think it’s going to slow down the market or affect housing prices. The demand in Denver is too high and inventory is too low. At the end of the day, people still want to buy a house and with rental prices, it still makes economic sense. BUT – there are a lot of factors involved in this.

 

Is there something you would tell a prospective buyer when they’re thinking of purchasing a home, now that the tax laws are changing?

I still think the most important thing is education. Even before this tax reform bill, most homeowners didn’t really understand the financial impact of tax law and how that could affect what they can afford.

Here’s a good article outlining some of the changes and how it relates to the real estate market. (click here)

What else do you think people should know when it comes to the new tax laws and the Denver housing market?

The original tax bills proposed some pretty major changes that might have had more of an impact on the real estate market conditions. But, during negotiations, the final bill that was voted on protects a lot of our tax benefits as homeowners.

 

For example:

  • Keeping the capital gains exclusion (living in your home 2 out of 5 years as opposed to the proposed 5 of 8 years).
  • Mortgage Interest Deduction decreased, but not as much as proposed and won’t affect the majority of homeowners (loan limits from $1m to $750,000).
  • 1031 exchanges for real property stay the same.

 

Thank you, AK Cotton, for your insight and information! For more information about how you can connect with AK, click here.

 

Sandi Gumeson

 

Sandi Gumeson is a Certified Divorce Financial Analyst® in the Denver area.  She is also a CPA (CA License), a member of the AICPA, and a member and on the Board of Directors for the Institute of Divorce Financial Analysts.  Sandi’s extensive experience in finance, analysis, operations, budgeting, and forecasting enables her to provide a high level of expertise in understanding the overall financial picture for her clients.  To contact Sandi for assistance, call 303-378-9323 or email sgumeson@wellspringdivorce.com.

 

 

 

 

 

The Final Version of the TCJA: Here’s what you need to know

TCJA

On Friday, December 15th, 2017 the final version of the legislative text involving the Tax Cuts and Jobs Act (TCJA) was released. This was accompanied by the supporting Conference Committee notes. Here is a summary of how this might affect you in 2018:

Executive Summary

Income tax brackets

  • Seven total brackets.
  • Top bracket down from 39.6% to 37%.
  • Most brackets have been trimmed slightly.
  • Subject to sunset.
  • Effective January 1st 2018.

Alimony

  • No change for 2018.
  • For agreements entered into on 1/1/19 or later, alimony is NOT tax deductible for the payor and the recipient will not be taxed.

Capital gains and dividend rates

  • Unchanged from current law.

Standard deduction

  • Increased from $6,350 to $12,000 for single filer.
  • Increased $9,350 to $18,000 for head of household
  • Increased $12,700 to $24,000 for Married filing jointly.
  • Effective January 1, 2018.

Suspension of personal exemption

  • Will require change to standard practice of claiming withholdings on W-4 for all employees.
  • There is no guidance yet on how this will be done.
  • Effective 1/1/2018.

Phaseout for Child Tax Credits

  • This increased dramatically. This will affect support calculations by allowing more high-income individuals to take advantage of the credits.
  • The phaseout is increased from $75,000 to $200,000 for individuals.
  • These are valuable credits as they work as a dollar for dollar offset against taxation rather than a deduction from income.

$10,000 cap on state and local income and property tax deductions.

  • This is a combined total.
  • This provision will affect our clients drastically: Consider the average California family with a $1,000,000 home and $10,000 property tax bill that comes along with it. The property tax alone will eat up the entire deduction. Now, assume that family earns $400,000 per year with two wage earners. Their combined state income taxes easily exceed $30,000 which will no longer be deductible on their federal return.

Mortgage interest deduction

  • Limited to $750,000 loan effective for all purchases going forward.
  • All homes purchased before 12/15/2017 grandfathered to $1,000,000.
  • Home equity interest is not deductible and no grandfathering.

Repeal of miscellaneous itemized deductions

  • Under current law, it is possible for a client to deduct a portion of their legal fees during divorce as miscellaneous itemized deductions; specifically, those legal fees incurred in seeking or defending oneself from alimony. In highly litigated high-income cases this number can rise to six figures and provide much needed tax benefits during dissolution. The new law suspends all miscellaneous itemized deductions.

 Bill does not amend or repeal Capital Gains exemption for principal residence despite revisions proposed.

  • Both houses had included repeal or phase out of exemption but did not end up in final bill.

Doubled the estate tax exemption

  • $11,200,000 for singles.
  • $22,400,000 for married couples.

 

Many of the reforms sunset in 2025.

 

Commentary

With limitations on deductions for state and local taxes and mortgage interest, far fewer clients will end up itemizing in the coming years.

What does this mean?

This means our process for entering data into Dissomaster (California support calculator) will change. It will be extra important to be sure you do not enter full mortgage interest amounts if the indebtedness is over the $750,000 limit. In the interim you can use the tax settings in Dissomaster to prepare hypotheticals showing support guidelines with non-taxable and non-deductible alimony by doing the following:

  1. Go to the tax settings.
  2. Toggle the settings under the general tax settings section.

We ran a hypothetical guideline calculation with the father earning $20,000 per month and mother earning $3,000 and the combined net disposable income decreases by $600 per month.

There are provisions in the bill that keep taxpayers from accelerating state and local taxes or deductions payments for future years into their 2017 return. So, there is no way to game this change as we may have in the past by accelerating said deductions into higher income years.

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

Life After Divorce: Determining Your Beneficiary Designations

beneficiary designation

A Little Backstory

In January 2009, the U.S. Supreme Court ruled (Kennedy v. DuPont Plan Administrator) against a woman suing her late father’s pension plan for money her mother received. This occurred even though the mother had forfeited her rights to the pension in their 1994 divorce. The Supreme Court determined the beneficiary designation form and the procedures set under the plan were sole determinants of benefit distribution.

Employers are required to pay benefits as stated in the original beneficiary designation form, in spite of a divorce decree.

Have You Changed all Your Beneficiary Designations?

It is important for all divorcing individuals to revisit their estate planning, including beneficiary designations, wills and trusts.  Changes must be made to retirement plans in accordance with the rules set forth by respective employers.  Otherwise, children and/or new spouses may not be eligible to receive benefits.

Remember the following points:

  1. Wills have no precedence/jurisdiction over the beneficiary designations of IRAs, 401(k)s, insurance policies and annuities.
  2. It is always important to designate a contingent beneficiary for these accounts. Otherwise, if a  primary beneficiary predeceases the owner, the account will need to be probated.
  3. Naming a minor as a beneficiary sends estates straight to probate.  Probate courts must supervise distributions left to minors.  Establishing trusts in the children’s name will bypass probate.
  4. Changing beneficiaries can often be done online or with the assistance of a financial advisor.

If you do not have a financial advisor with expertise in divorce, please consider obtaining one. Divorce is likely to be the most difficult financial transition you will ever experience.In fact, in an article on Forbes.com, contributing author Robert Laura said, “I would even go as far as saying some people actually come to us (financial planners) before going to a therapist, pastor, or other source.”

The Bottom Line.

Professional guidance and support during and after this emotionally charged time will prove invaluable.

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

 

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Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.