Financial Crisis Still Causing Complications in Finances of Divorce

Four years later we are still encountering financial complications of our 2008-2009 financial crisis in divorce proceedings. Many bank and brokerage companies were forced to merge during the crisis. Morgan Stanley merged with Smith Barney. Bank of America merged with Merrill Lynch. Wells Fargo took over Wachovia and Lehman Brothers went out of business.  On top of the logistical problems; many people lost a lot of money. Here are three complications to watch out for.

1. During mergers many firms changed client account numbers. I have seen more than one occasion where a Marital Settlement Agreement was written with two different account numbers for the same account. Even worse, the two different account numbers might be treated differently. One awarded as separate property and the other to be divided.

2. During the crisis itself many investors lost large sums of money in their investment accounts. The S&P 500 lost 56% during the crisis and I have seen some situations where clients lost money then sold the assets locking in the losses. Now the spouse with no involvement in the investment management is wondering where all the money went. They may even be considering the possibility that they spouse responsible for managing the investments could have taken the funds and hidden them elsewhere in preparation for the divorce.

3. Some brokerage companies and banks did go out of business. It makes it difficult to track down account statements and verify funds when the custodian of the account no longer exists or has been consumed by another institution.

I suspect the effects of the Financial Crisis will continue to complicate the financial negotiations of divorces for a few more years maybe longer in situations where separate property claims must be traced back to 2008 and earlier.

We can help you and your attorney piece together the information that is available and make intelligent decisions about building your financial case.



Post-Election Income Tax Planning for Divorce and Beyond

We now have a bit more clarity about the future income tax landscape in the United States and the State of California specifically.

Here is what I know.

In 2013 the 0.9% Medicare surtax kicks in on taxable income over $200K for single filers and $250K for married filers.

In 2013 the 3.9% Medicare tax on unearned income such as dividends, interest and capital gains kicks in for single filers with taxable income over $200K for single filers and $250K for married filers.

President Obama wants the top rate on capital gains to rise to 20% for single filers with taxable income over $200K for single filers and $250K for married filers. He also wants the top tax rate to go higher from it’s current 35%.

What does this mean to you? It may be a good idea to sell appreciated assets in 2012. Taking gains in these assets in 2012 could save you the 0.9% Medicare surtax, the 3.9% Medicare tax on unearned income and 5% or more from the increase in capital gains tax rates.

For divorcing parties this might mean selling some appreciated assets such as stock positions or real estate in order to lock in the 15% capital gains rate and avoid the 3.9% additional Medicare tax rather than retaining them post divorce. It might mean exercising non-qualified stock options in 2012 to lock in the maximum 35% income tax bracket and avoid the additional 0.9% Medicare surtax.

California passed Proposition 30. Proposition 30 raises taxes on EVERYONE.

  • The income tax increases are RETROACTIVE to January 1st 2012
  • Sales tax rates  are increased by 3.45%
  • Three new high-income tax brackets are created raising rates from 9.3% to 10.3% for taxable income over $250K but below $300K (10.6% increase), from 9.3% to 11.3% for taxable income over $300K but below $500K (21.5% increase), from 9.3% to 12.3% for taxable income over $500K but below $1,000,000 (32.26% increase), and from 10.3% to 13.3% on taxable income over $1,000,000 (29.13% increase).

There is nothing to do about Proposition 30 at this point since the changes are all RETROACTIVE. It has amazed me how many people did not realize the measure was retroactive.