Tag Archive for: Financial Life After Divorce

Spousal Support IS Modifiable

/in , , , /by
spousal support

Can Spousal Support be Changed?

YES! The amount and duration of Spousal Support may be modifiable. You can go to court and ask the judge to increase, decrease, or stop spousal support any time during the period when court has jurisdiction unless you agree otherwise in your settlement.

In most states the court will retain jurisdiction over spousal support for different periods of time based on factors in the case. The main factors include:

  • Length of marriage
  • Age of the parties
  • Each party’s ability to support themselves by earning a living and or living off of the assets they own after the divorce.

Here’s an example.

A couple in their mid 50’s who has been married for 25 years with one party having been a full time parent would likely see the court retain jurisdiction over modification of spousal support forever in California. The length of marriage and ages of the parties would likely classify the example as a long-term marriage.

The working and paying spouse would be allowed to retire at normal retirement age, 65 or 67 depending on who you ask, at which point the amount of support could be modified to reflect the decreased income of the payer. If the payer continues to work past their normal retirement age they may be required to continue paying support at the same level. This has become more common as many baby boomers work past normal retirement age. Laws vary from state to state so be sure to consult experts in your home state.

During the court’s jurisdiction either party may petition the court for a modification based on a change of circumstances. A change of circumstances may include:

  • job loss by no fault of the worker
  • disability
  • decrease in earnings of a small business owner due to economic circumstances
  • retirement at an appropriate retirement age
  • many other factors.

What other life changes apply?

It can also go the other direction where a payer has a large increase in income, a one time financial windfall through bonus or stock compensation. In this case the payee could seek to modify the support amount upwards. We often work with the payee spouse to determine whether they should seek an upwards modification of support. In order to do so we may ask for the payer to provide annual income disclosures so we can be aware of any factors suggesting an upwards modification may be appropriate.

In some cases it makes sense for the parties to agree to a non-modifiable spousal support order. This so called non-modifiable spousal support can stipulate duration of the payment and or dollar amount or both. Non-modifiable spousal support comes with risks and rewards for both the payer and the recipient but can make sense for both parties in the right circumstances.

Some cases build modifications into the original agreement corresponding with the recipient reentering the work force or some change in financial circumstances in the future. These are often called step down orders.

 

Dependency Exemption Non-Custodial Parents

/in , /by

The Internal Revenue Service released a memorandum in 2009, clarifying the rules governing non-custodial parent’s ability to claim a dependency exemption for their child.

Previously, the Service allowed a non-custodial parent to claim an exemption for a child if the custodial parent signed a written declaration releasing claim to the exemption and the non-custodial parent attached that declaration to their return. IRS Form 8332 is available to document this release.  In Publication 501, Exemptions, Standard Deduction, and Filing Information, the Service has stated that a non-custodial parent may attach certain pages of a divorce decree or separation agreement, instead of Form 8332, if the attached pages include the information required on the form. Click here for more information from the IRS.

The Problem

A problem arose in the ambiguous language of the actual code.  It stated the release of a claim must be on Form 8332 or, if not on such form, must “conform to the substance of such form.” The ambiguity begat creativity and family law attorneys began drafting the declarations into settlement agreements. Taxpayers would then simply need to attach a copy of their divorce decree. This eliminated the need for Form 8332 and therefore, the need to speak to your ex-spouse every year requesting a signature.

The recent memorandum was directed specifically at the question whether it was allowable for a non-custodial parent to prove their right to the exemption by submitting proof of satisfaction of a condition in a divorce decree. The condition was that the non-custodial parent may only claim the exemption if current in his or her support obligation. This raises the problem of substantiation.

In the 2009 memo, the Service concluded the release must be on Form 8332 or must be a document conforming to the substance of Form 8332 and has as its only purpose the release of a claim to exemption. A divorce decree, separation agreement or parenting plan allowing a non-custodial parent to claim an exemption for a child, only if a condition is met, does not conform to the substance of Form 8332.  For tax years beginning after July 2, 2008, a settlement agreement, decree or judgment may not be used by a non-custodial parent to substantiate a dependency exemption for a child.

These regulations reflect the Service’s concern about substantiating a claim to a dependency exemption for a child and are intended to avoid problems of proof, minimize controversy, and minimize costs to parents.  The change does not preclude a non-custodial parent from claiming the exemption; it simply requires more care be made to make sure this is accomplished.

It may be helpful to include language stipulating the custodial parent will execute Form 8332 on a yearly basis. This follow up challenge can be alleviated by insuring the newly single parents consult a financial advisor with specific experience in the field of divorce financial planning. Two parents claiming an exemption for the same child will end in IRS audits for both and possibly bring a settled case back into the courtroom.

10 Questions to Ask a Potential Financial Advisor After Divorce

/in , , /by
financial advisor

What do you do now? Your divorce is finalized and the financial settlement is clear(ish). How do you take control of your new found financial independence? The first item on our Post Divorce Financial Checklist is  “Interview and retain the services of a financial planner.” You may have never done so in your married life so here are the most important questions to ask when looking for a new financial advisor after divorce.

  1. What CREDENTIALS do you have? CFP (CERTIFIED FINANCIAL PLANNER), CPA (Certified Public Accountant), CFA (Chartered Financial Analyst) are the most rigorous to obtain but there are hundreds of alphabet soup credentials available in the financial advice world. Some represent specific specialties like the CDFA (Certified Divorce Financial Analyst) designation while some, such as the AIF (Accredited Investment Fiduciary) merely represent the advisors commitment to acting as a fiduciary in client relationships. Keep two things in mind,
    • simply having professional designations does not necessarily make a good advisor
    • licenses are not credentials, most all advisors will have Series 7, 24, 51, 63, 65, 66 and insurance licenses
  2. Are you a FIDUCIARY? Your advisor should act as a Fiduciary for clients meaning, in simple terms, they would never do something with your money they would not do with their own and they will always put your interests ahead of their own. Here is the Wikipedia definition of Fiduciary.
    • Do you have any disciplinary records? Check out the Securities Exchange Commission website to check up on them just in case.
    • How are my assets safeguarded?
  3. How often will we meet and what will we talk about? Your advisor should be proactive in communicating with you and scheduling meetings to review financial planning goals and investment performance. They should also have a structured process for providing their services. A typical financial planning relationship has the following steps at minimum. You will notice WellSpring Divorce Advisors follows this same process.
    • Establishing and defining the client planner relationship
    • Gathering client data
    • Analyzing and evaluating the client’s financial status
    • Developing and presenting the financial planning recommendations
    • Implementing the financial planning recommendations
    • Monitoring
  4. How long have you worked at the current firm? Where were you previously? Why did you leave? Advisors move from firm to firm on a pretty regular basis for a number of reasons. Some for altruistic reasons seeking to provide better client service, others move for a pay-day. An advisor who leaves Wells Fargo and moves to Merrill Lynch as an example could be paid millions of dollars for doing so. If you check the background of an advisor and they move every 5 to 10 years they are likely chasing the pay day each time. Be wary of them as they will probably do it again.
  5. HOW DO YOU GET PAID for investments you recommend and other services you provide? The financial advisory world is full of complicated compensation structures. An advisor could be paid commissions by their employer as well as outside entities such as insurance companies and mutual funds for selling you a product. In general you should avoid any advisor who accepts commissions for investment decisions. Look for an advisor who charges a percentage of the assets they manage for you. Industry standard these days is around 1%.
  6. What SERVICES do you offer outside of investment management? Do you provide financial planning services? If so, what does this include? Paying 1% a year from your portfolio for just investment advice is an old and antiquated service platform. Your advisor should offer Comprehensive Wealth Management services which include financial planning assistance with cash flow management, retirement planning, estate planning, tax planning and dependent care planning. if you need an investment advisor you also need financial planning. Most of our clients at Wellspring Divorce Advisors need a financial planner more than an investment advisor.
  7. Can I speak to a client of yours about their experience working with you? Speaking to a current client about the prospective advisor is absolutely mandatory. Feel free to ask them some of these questions as well.
  8. What happens to my account if something happens to you? Do you have a SUCCESSION PLAN? Advisors are notoriously bad at succession planning for their own businesses. A good succession plan takes proactive steps to protect clients and their money if an important decision maker and advisor becomes ill, dies or simply retires. Your advisor should be able to tell you what happens in the case of each event. It may be a current business partner would step in, a younger advisor is being mentored to step in, an entire new firm would take over or the worst case, they have no plan at all. Do not work with an advisor who has no succession plans as you leave your financial security up to chance if something should happen to them.
  9. Who is your IDEAL CLIENT? Most advisors will struggle to explain their ideal client outside of telling you the minimum assets they require to work with you. It is important to understadn this ideal client make up because it can inform you how likely the advisor is to be able to handle your individual needs. If you are a newly divorced woman who has never managed her own money; the advisor specializing in executives at tech companies is not your best bet. Wellspring Divorce Advisors recommends you find an advisor who specializes in working with individuals after divorce. You have very specific needs from a financial planning perspective and need an advisor who will educate you along the way.
  10. What is your INVESTMENT PHILOSOPHY, in simple terms? How frequently will my portfolio change and who makes decisions as to when and how to change it? You will be surprised how many advisors don’t actually manage the investment themselves. They outsource the responsibility to others. There is nothing wrong with this. Your advisors job is to work with you to meet your financial goals, manage your lifestyle and help you make financial decisions. Outsourcing investment management allows the advisor to concentrate on you the client. BUT, if they cant explain how the portfolio is managed, why it is managed that way and who is ultimately responsible for decision making they are doing more than outsourcing, they are abrogating their fiduciary responsibility to you. They still need to oversee the outside investment managers and make strategic decisions about risk profile.

Let us know if you need a referral to a competent and credentialed Advisor who specializes in working with individuals after divorce. We know all the best nationwide.

 

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.

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.

Are More Women Paying Child Support and Spousal Support?

/in , , /by

The quick and easy answer is yes. Both in statistics as well as our experience.

The American Academy of Matrimonial Lawyers (AAML) released a statement with a rather catchy opening sentence. “This Mother’s Day, it appears that an increasing number of mom’s will be setting aside time to sign child support and alimony checks.”

The key to note is that they are signing the front of the check, not the back. 56% of the AAML fellow attorneys said they have seen an increase in mothers who pay child support and women in general paying spousal support.

As our society progresses the social norms are changing and stay-at-home fathers are becoming more common. I personally support the family’s right to choose what is best for them and whoever is more inclined to be in the work force should be. It is encouraging to also see income in-equality becoming less of a concern as well.

I have seen an increase in women writing the support checks in my practice too and I am here to report the female support check writer is every bit as troubled about writing the child support or spousal support check every month as her male counterpart. In fact I might say even more troubled by having to write that check every month. Maybe this piece of the social norm shift hasn’t caught up yet. The stigma on men receiving spousal support or child support payments seems to be alive and well.