Tag Archive for: Divorce Financial Planning

Divorce Financial Planning: Concentrated Stock Holdings During Divorce

/in , /by
financial planning, CDFA

Your Investments

We have many clients with significant wealth tied up in the stock of their employers. During Divorce Financial Planning it may become necessary to create liquidity to pay fees, facilitate an equalization payment or create diversification where there previously was none.

These stock holdings are through vehicles such as Employee Stock Purchase Plans, Stock Options and Restricted Stock. They may be vested, unvested or co-mingled, meaning they have different liquidity constraints. Each vehicle also has a different tax consequence at sale. Here is a quick review of some Divorce Financial Planning considerations to consider when seeking liquidity and diversification during during divorce proceedings.

Stock Holdings

For stock held outright we look at tax basis for guidance in our divorce financial planning. Shares with a low tax basis can be sold today to lock in tax rates and later repurchased if the client wishes to continue to hold the stock.

Restricted Stock

Restricted stock generally releases or distributes into a common brokerage account at vesting so it would be treated as normal stock holdings with divorce financial planning decisions based upon review of tax basis. The tax basis is based upon the stock price on the day of vesting and distribution.

Employee Stock Purchase Plans

Stock held in an Employee Stock Purchase plan has a complicated tax picture. The discount, typically 15%, given to the employee on the initial purchase price is taxed at ordinary income tax rates. The difference between the fair market value at purchase and the fair market value at sale is taxable at capital gains rates. ESPP assets often have low tax basis because employees buy and hold the stock  so this may be the first place to look for harvesting gains and resetting basis during your divorce financial planning.

Stock Options

Non-Qualified stock options carry a more complicated set of tax implications and divorce financial planning considerations. Options are taxed as ordinary income for the difference between the strike price and the price at exercise. Options can be exercised today in a same day exercise and sale transaction to lock in tax rates. If you wished to hold the stock you could still exercise the options and lock in the ordinary income tax rates for 2012 but you would have to come up with cash from another source to fund the option exercise. Stock options also become a complicated logistics issue post divorce as the non-employee spouse may not be able to hold the options. For this reason alone it is worth considering liquidation during your divorce financial planning.

Wellspring Divorce Advisors builds long term distribution schedules and detailed analysis of current versus future values including opportunity cost and present value of money to help clients decide how to manage concentrated stock positions during and immediately after divorce proceedings.

 

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.

 

 

 

 

 

 

How Does Spousal Support Affect My Social Security Retirement Benefits?

/in /by

From time to time we are involved in a divorce with an individual or couple who is already receiving Social Security benefits. It is important to consider the affect of spousal support payments on these benefits during your divorce financial planning.

  • Social Security Retirement benefits are entitlement based meaning you have to have paid into the system in order to be eligible for benefits. You are ENTITLED to a certain amount of funds in return based up on your contributions while working. These benefits are entitlement based  and not subject to reduction based on income from spousal support. Benefits may be reduced by income from earnings if the recipient is under the normal retirement age when they receive benefits. Benefits may also be reduced for taxes and or Medicare premiums. This can be determined by reviewing the participants pay-stub.
  • Supplemental Security Income (SSI), also a Social Security benefit, is a needs based program which means you must prove you NEED the funds because of limited resources. It is, to my knowledge, reserved for those who did not contribute enough into the system to be eligible for the entitlement based programs. Supplemental Security Income has income limits for eligibility because it is NEED based. A participants’s eligibility can be affected if they earn over a certain level of income or receive support payments so it is very important to recognize the difference in your divorce financial planning.

Here is the link to the Social Security Administration web site https://www.socialsecurity.gov/pubs/10069.html#a0=-1 . A Certified Divorce Financial Analyst can help you navigate the many complications of the Social Security programs.

5 Financial Negotiation Strategies for Divorce

/in , /by

“What are 5 things people who are somewhere in the divorce process should think about?”

  1. Avoid deciding financial issues piecemeal instead of understanding the big picture.
  2. Do not allow your former spouse to use financial data as a weapon against you. The cost of divorce proceedings can be directly correlated to the amount of time and effort it takes to level the information playing field “discovery”.
  3. Budget, Budget, Budget
  4. Do cost benefit and risk versus reward analysis with your CDFA and attorney
  5. Understand that not all lawyers are skilled in resolving disputes. They are always trained to create and escalate them. Dispute resolution is a whole different world.

3 Reasons You Need Financial Guidance During Divorce

/in , , /by

httpss://vimeo.com/81148746

1. If you don’t have kids or they have grown up; the ONLY thing there is to argue about in a divorce is money.

2. The financial decisions made during your divorce will very likely be the biggest and most difficult you will ever make set amid the most emotionally chaotic time of your life.

3. The decisions you make today will affect your financial safety and security for the rest of your life.

 

 

Is Alimony Payment Tax Deductible

/in , , /by

The general answer is yes but there are complications. Here is one of them.

Today a client asked if his Alimony (Spousal Support in California) payment was tax deductible for 2011 even if he is still technically married for tax purposes.

The answer is YES…..BUT.

Tax filing status is determined by marital status on December 31st of a given year so if he was still married on December 31st he generally (there are limited exceptions where it may be possible to claim Head of Household status) must file either Married Jointly or Married Separate. In order to deduct the alimony payments they must choose Married Separately. If the couple, now separated but not yet divorced, AGREE to both file Married Separately the alimony will be deductible to the payer and taxable to the payee. The BUT comes into play when you consider all of the other side effects of the Married Separate filing status. Consult your tax preparer for full details.