California Divorce and Family Law

Divorce adds another wrinkle to retirement planning

Some older clients seek guidance as they end their marriages

As if baby boomer retirement and estate planning weren't enough, financial advisers are now grappling with another issue brought to the fore by boomers: late-in-life divorce. Advisers are reporting that more of their clients who are approaching retirement age are coming to them for financial guidance as they end their marriages.

“We're seeing people married for 30 years who are now getting di-vorced,” said Tom Norton, a certified public accountant and certified divorce financial analyst at Thomas Norton & Co. LLC of St. Louis. Longer life expectancies may mean that unhappy spouses are willing to change their situation if they are discontent with their marriages, he added.

The leading edge of baby boom-ers — those born between 1946 and 1955 — has the highest divorce rate among Americans. About 38% of men and 41% of women born in that decade were divorced by 2004, according to the U.S. Census Bureau.

In addition to the emotional turmoil involved, divorce later in life is complicated by the need to re-examine and shift retirement and estate plans, advisers say.

Now approaching retirement, boomers have accumulated hefty balances in their qualified savings plans and other accounts, all of which typically are split between the divorcing spouses. But advisers have recognized that divvying up cash and other financial assets often is one of the easier parts of divorce planning, as angst ridden as it may be.

The most difficult job often is dissuading a client from living a flashy and expensive lifestyle as a newly single retiree, some advisers say.

“This generation as a whole is looking to retire in better style,” said Howard Sontag, founder and principal of Sontag Advisory LLC in New York and Westport, Conn. “It's hard for someone in the midst of an un-pleasant experience to get intelligent about their money.”

Mr. Sontag spoke of a client who acknowledged that she could no longer afford the large apartment she had had prior to a divorce but insisted on keeping it anyway. In such cases, clients require advisers who can provide emotional and financial guidance.

“When you find people who have been hurt and are still holding that grudge, they can make a lot of bad financial decisions,” said Drew Tignanelli, president of The Financial Consulate, an advisory firm in Lutherville, Md.

“I'm not saying I'm a psychologist, but you should encourage them to seek help if they need it,” he added, observing that some troubled clients have turned their backs on their finances and “live like paupers.”

Clients should also be made aware that Social Security may not provide the windfall they could be anticipating. Those 62 and older are entitled to collect retirement benefits on an ex-spouse's Social Security record if the marriage lasted at least 10 years and if the ex is entitled to benefits, in which case the individual may receive the equivalent of half of what the ex-spouse receives.

In case of remarriage, those 62 and over can choose to get benefits based on their old spouse's or their new spouse's Social Security record. Those under 62 are entitled to benefits based only on their new spouse's Social Security record (though if they get divorced a second time, they are entitled to benefits based on either spouse's record).

Aside from helping clients create a budget, understand cash flow and seek retirement work opportunities, advisers also must untangle estate plans. This calls for a team of lawyers and accountants, especially when divorced individuals remarry.

“Estate planning is most complicated when there's a large disparity in assets, and the new husband and wife want to keep assets separate,” Mr. Tignanelli said. The situation becomes messier when stepchildren become involved.

The law regarding a “per stirpes” distribution, or the equal division of assets among descendants in an estate plan, can vary from one state to another and may not include stepchildren, Mr. Tignanelli added.

“When clients divorce and then die, you have to make sure that the stepparents will leave something to the children — that's the battlefield of estate administrations,” he said.

Read more at Investment News.

Money Moves For A Second Marriage

Remarriage is the triumph of hope over experience, wrote Samuel Johnson, the famous 18th century English essayist. People show the same optimism today.

"Still, a little advance planning can help you avoid problems," said attorney Marty Shenkman of Teaneck, N.J. Among the items to consider:

•   Prenuptial agreement. These documents can spell out who will be responsible for which expenses after a marriage. They also can declare where each spouse's assets will go, after death or divorce.

Your prenup might put a limit on what will go to your new spouse. Such a provision may protect some of your assets, for yourself and for children from a prior marriage.

"For a prenup to be valid, both spouses must have an attorney," Shenkman said. The lawyers should be independent of each other.

A prenup can be overturned if one spouse was not adequately represented. Or if assets weren't disclosed.

Undue pressure also might cause a prenup to be thrown out. That might occur if one spouse is asked to sign an agreement right before the wedding.

So a prenup should be negotiated at least several weeks in advance of the ceremony.

But asking your spouse-to-be to sign a prenup can be awkward. One strategy is to point out that you're acting on the advice of your attorney, accountant, or financial adviser.

Emphasize estate planning and consider including some provision to protect your new spouse at your death. Also, downplay talk of divorce before you're even married.

•   Principal residence. Among other assets, a prenuptial agreement can cover living arrangements. That's particularly important if both prospective spouses own valuable homes.

The prenup can spell out whether one spouse will move into the other's place. If the unused home is sold, will the sales proceeds be divided, held jointly or go to the current owner?

If one partner will move into a home now owned by the other, should that family home be held jointly or kept in one person's name? Such questions can be addressed in a prenup.

"If title is changed to joint ownership with right of survival, the surviving spouse automatically will inherit the home," Shenkman said. Then the original owner's children won't inherit what they might consider a family home.

•   QTIP trust. This stands for qualified terminable interest property. QTIP trusts can provide for your new spouse. After your death and your surviving spouse's demise, they can also help other beneficiaries, such as your children from a previous marriage.

Say you are older than your remarriage partner. You have substantial assets.

You might die first. At that point, preselected assets could go into a QTIP trust. Like all QTIPs, this trust will pay lifetime income to the surviving spouse, Shenkman says.

That could be interest and dividends from trust assets. Another way you could set up a QTIP is to pay a specified percentage of trust assets to the survivor.

If you wish, you can draft a trust to give the trustee discretionary power to pay some of the trust principal to the survivor, in case of need.

No one else can benefit from any QTIP trust while the survivor is alive.

The spouse who creates a QTIP can be the trustee. But only for a QTIP that takes effect during his or her lifetime. He will need another trustee to step in after his death.

In any case, people rarely name themselves as trustees.

At the death of the second spouse, remaining assets pass to other beneficiaries. Those beneficiaries are typically named by the trust creator.

Often, beneficiaries are the creator's children from a first marriage. That's one way to provide for your new spouse as well as your children.

There can be tax benefits, too. If the above conditions are met, assets you leave to a QTIP trust won't be included in your taxable estate. Any assets remaining in the trust won't be subject to estate tax until the survivor's death.

So estate tax can be deferred. The tax may be smaller, if the trust assets have been reduced.

•   Life insurance. A QTIP trust has advantages, as described. But there may be drawbacks, too.

Say a hypothetical John Smith remarries at age 50. His daughter Kelly is 22. Smith's second wife, Alice, is 40.

Suppose John dies at age 80 and leaves most of his assets to a QTIP trust. Alice, then 70, might get income from the trust for 15 years.

In this scenario, Kelly will have to wait 15 years, from age 52 to 67, to inherit her father's assets. There might not be much left for her, if the trust is depleted to pay medical expenses and nursing home bills.

To avoid such an outcome, John might buy insurance on his own life, payable to Kelly. If he buys this when he remarries, he will be relatively young and healthy.

Then Kelly can collect benefits at John's death. She won't have to wait until her stepmother's death, to see if anything is left in the trust.

•   Will. You also will need a new will after you remarry. Your old one may not reflect your wishes. You might want to change beneficiary designations, too, for your life insurance and retirement accounts.

Read it all at Investors Business Daily.

Divorce Finances

Five things every woman needs to know about divorce and making sure you're taken care of.

First, many states determine the value of retirement assets to be split based on the official date of separation, not divorce. So, if you separated in May 2006 but don't divorce until 2007, the courts may direct you to divide assets as of May 2006. So, if your husband is about to get a bonus you should wait to separate. Or if you're expecting a bonus, get out fast.

Second, if you leave your husband the house, make sure he refinances immediately and takes your name off the mortgage. If your name is on it and he defaults, it will affect your credit.

Third, make copies of all your recent financial statements so there's an accurate record of all money to be split.

Fourth, make sure you know about all the credit cards taken out during your marriage. If you have any cards with balances on them, pay them off and close the accounts.

Fifth, if you've been married for at least ten years you qualify to receive half the amount of your husband's benefits when you reach full retirement age. And, even after divorce, if your ex-husband dies you're entitled to survivor's benefits starting at age 60.

Read more at WLWT.com.
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Are Two Homes Better than One? - The True Cost of Divorce

Let’s face it, divorce is expensive. Attorney bills can run in the tens, if not hundred of thousands of dollars. And even if you settle out of court, there’s still the dividing up of assets and possessions that leaves you with somewhere near half of what you started with initially.

But there is another group of expenses that often exceeds those losses, one that couples rarely consider, and that is ongoing living expenses. Only after the divorce is finalized and the parents settle into their new lives, do they begin to see how much their overall standard of living has changed as a result of the divorce.

The math is simple: If the monthly income(s) that previously supported one household must be divided in two, some sacrifices will have to be made—two can no longer live as cheaply as one if they must each maintain separate households. And household expenses, it should be remembered, are much greater than the monthly sums paid for the dwellings. Consider the following:

When couples separate, furniture, utilities, newspaper subscriptions, phone, cable TV and Internet services are all doubled, while car and health insurance, food and wireless services that were cheaper when bundled, go up significantly. New court battles will place additional demands on these dwindling resources. And if one or both spouses remarry, new financial burdens will be added, particularly if the remarriage produces children. And should the second marriage fail, and the likelihood of that happening is greater than for the first, even more demands will be placed o the available money.

To this must be added duplicate items for the children: when the bicycle goes to one house, a second one will have to be purchased for the other house because neither parent will want to be seen as less generous and caring than the other, and this is true for all items, essential and non-essential alike; clothing, beds, towels, doll houses, video games, school supplies, and so on, plus the time and money required to replace, repair and upgrade these items. Certain expenses, such as daycare costs and doctor visits, may be divided more or less equally (assuming both parents are willing and able to pay, which is oftentimes not the case), but for daily living expenses, a safe rule of thumb might be to count the number of kids you have and multiply by two—then add the costs of a second home.

And if, for example, the parents live an hour apart and transfer their children back and forth thrice weekly, that adds up to another thirty hours of driving time per month, plus gas, and related expenses, not counting delays, schedule changes, forgotten items, extra pick-ups and drop-offs, and extracurricular activities that were previously managed through some sort of division of labor, but must now be done separately. In varying degrees, this holds true for most other household activities—efficiency is lost when spouses must function without the support of each other—and as the old saying goes, time is money.

This change in our financial picture, however, does not stop at the home front, but reaches into the workplace as well: the U.S. government reports that half of all single mothers receive public assistance, while divorced men earn between 10% and 40% less than their married counterparts having similar educations and backgrounds. It should come as no surprise then that at the age of retirement, divorced couples have a significantly lower net worth than those who remained married. After divorce, the yellow brick road quickly loses its luster, and life is rarely easier.

Of course, here we’re just talking about money matters, and as we all know, divorce involves a lot more than financial losses. Divorcés also experience significantly higher numbers of early death of almost all the major diseases, as well as higher rates of in and out-patient psychiatric care, suicide, physical abuse, accidental injury, and drug and alcohol use. But those are other issues. Here we’re focusing only on dollars and cents. One hurdle at a time.

In summary, although divorce leaves us in a highly emotional state, we should be careful not to let those emotions rule our thinking, particularly those that blind and bind us to the grim consequences of such decisions. Before making that call to an attorney, or presenting your spouse with your decision to leave, make sure that you’ve taken the time to ask yourself if divorce is really worth the financial price you will pay. If it is, then fine, you can move on to the other matters mentioned above. But do you homework first—and make sure that your pencil is sharp.

Read it all at the Health News Digest.

The Secret to Divorce-Proof Finances

Do you trust your significant other with the family checkbook?

Half of those in a committed relationship answered "yes" to that loaded question -- posed in a Harris Interactive survey sponsored by Redbook and Lawyers.com -- and back up their conviction by commingling all of their bank accounts with their better halves.

So, how does your financial union stack up?

Secret shoppers

Even in the best of times, money can be a conversational third rail in a relationship. Most couples, whether married, engaged, or cohabitating, cop to having an occasional tiff about the family finances.

Lots of couples butt heads over their spending priorities. I've been the on-call referee for my coupled pals in many such spats -- I hear things like "You will never guess what he bought!" and "Can you believe what she paid for that?!"

Want to keep the peace about spending? Simply stay mum. At least that's how three out of 10 adults say they deal with this point of contention. (One in 10 admits that a secret retail-therapy excursion exceeded $1,000.)

Oh, but you want your union (financial and otherwise) to last, right? Then it's time to come clean. Your money lies may actually be the most dangerous ones you tell: One-quarter of respondents to the Harris survey said that financial fidelity is more important to them than romantic fidelity. (Me? I insist on "all of the above.")

If your money tete-a-tetes typically result in one of you sleeping on the couch, rest easy. A few simple strategies can strengthen your financial union, starting today.

The most powerful relationship rule of thumb

Want the best result ever for your next money fight? Skip straight to the make-up part -- you know, when tempers have softened and you're committed to coming to a resolution -- before the bad vibes even start brewing.

This pre-emptive "just-in-case" conversation is one of the best ways to divorce-proof your finances. You're calm, cool, rational, and looking really cute to your Sig. O. Scheduling your discussion about a sensitive money issue before it's fodder for a fight allows you to plan a nice meal (and line up a babysitter and a dog-walker). Even better, it sets up you two lovebirds to be partners, not adversaries -- and, another bonus, it will save you many sleepless nights on the couch.

You don't have to take my word for it. This relationship rule of thumb is supported by one of the foremost negotiation experts -- Daniel Shapiro, co-author of Beyond Reason -- with whom I recently talked about handling conflict in ways that will actually improve your relationship.

He and Roger Fisher, of Getting to Yes fame, have found that emotions can be a powerful negotiation tool. Pre-empting conflicts while addressing key emotional triggers is one of the most effective ways to come to more fruitful resolutions. This tactic works not just with politicians, CEOs, and hostage negotiators, but also with everyday folks hashing out money conflicts over dinner.

Pre-fight prep

Not every money issue needs to turn into a formal financial summit. Instead, focus your next money powwow on a few of your biggest and most sensitive financial concerns.

After that, establish some "rules" to prevent everyday money matters from turning into nonstop opportunities for bickering. For example, pick a dollar amount you can both blow each week without having to run your purchases by one another. Set up decision-making buckets in which you agree to consult with each other and come to a spending or saving decision before making a move.

When in doubt, Shapiro advises using "ACBD" as your automatic default. It stands for "Always Consult Before Deciding." (It's not to be confused with the "Act now; apologize later" decision-making approach that may fly a few times but is statistically unlikely to lead to make-up nookie.) And it may be the single rule of thumb that helps keep the peace in your household.

Read more about divorce and financial topics at The Motley Fool.

After divorce: moving onward and upward

The fallout from divorce comes in many forms: emotional, practical, familial, all of them potentially devastating. But when it comes to your financial future, you can move on positively toward security and success.

After you've extricated yourself from any loans, bank accounts and credit cards you may have shared with your ex, you can turn your attention to building up your assets and financial security. Here are three ways to prepare yourself for a fearless, confident future:

1.Build an emergency fund. OK, so you're still feeling raw and maybe a little scared to go solo. Focus on giving yourself a security blanket. Figure out how much you would need to live on for eight months, and then sock that amount away in a savings account. Once you have those savings, you'll be taken care of no matter what happens — a layoff, a loved one's illness, etc. If you received a payout in the divorce, you may have your peace-of-mind fund already. If not, don't stress. Just set up a monthly direct deposit — have the money transferred from your checking account into a savings account.

2. Get the match. If you work for a company that offers a 401(k) or 403(b) retirement plan and kicks in a matching contribution, you must join and contribute enough to get the match. I've said it before: That matching contribution is no different from a bonus. If you find your plan's menu of fund choices intimidating, see if it offers an all-in-one fund (it's typically called a life-stage fund). This is geared toward your age and will have a mix of stocks and bonds appropriate for you. If there's no such fund, look for an index fund that mimics the performance of a large basket of stocks, such as the S&P 500 or the Wilshire 5000.

3. Fund a Roth. If your income is below $95,000 a year, you're eligible to fully fund a Roth IRA (this year you can put in $4,000 if you're under 50 and $4,500 if you're 50 and over). Assuming you have at least 10 years until you retire, a no-load index mutual fund, such as the Vanguard Total Stock Market Index fund, is a great choice. You don't get a tax break when you invest in a Roth, but when you retire and pull the money out, there will be no tax on your contributions or your earnings. So think of your Roth as a standby emergency fund.

Read more at the Ventura County Star.

Divorce's financial ramifications

Divorce is not a pleasant topic to contemplate. It can be a time of emotional turmoil. It can be a time of financial turmoil as well. Should you find yourself contemplating divorce, along with everything else be aware of the financial planning implications, too.

There are a number of tax ramifications related to divorce. For instance, alimony is considered taxable income to the recipient and is deductible by the spouse who pays it. On the other hand, child support and property settlements are not considered income nor are they deductible. In establishing a financial settlement, it is important to keep such things in mind. The nature and amount of the various payments can be an item of negotiation, especially, if after divorce, one party will be in a higher tax bracket than the other.

Other aspects of tax planning include who should receive the dependent exemption for any children. It doesn't necessarily have to be the parent with physical custody. These issues can be negotiated as part of the divorce settlement. The exemption may be more valuable to one spouse than the other. However, the spouse who relinquishes the exemption should require compensation elsewhere in the terms of the divorce settlement.

Alimony and child support payments can continue for many years. If the spouse who is obligated to make those payments should die, what happens then? A well crafted divorce settlement should require that life insurance be obtained for that spouse so that should a premature death occur, the future payments are covered. In these cases the recipient spouse should own the policy or be an irrevocable beneficiary. Disability insurance to protect future alimony and child support payments is another important topic that should be addressed in a divorce agreement.

Outside of any insurance required to maintain alimony or child support, divorcing spouses should review the beneficiaries of their insurance or pension plans. Chances are that following a divorce, the ex-spouse will not be the preferred recipient of these assets. A divorced spouse may, for instance, now want the proceeds to go to surviving children. If they are minors, or sometimes even if they are not, some sort of trust arrangement may be appropriate.

Health insurance may be another issue that arises in a divorce. If a couple is both insured by one of their employer's health plan, coverage for the non-employee spouse may eventually end. Planning for health insurance coverage should be one of the considerations in a divorce situation.

Social security is one aspect of divorce planning that is sometimes overlooked. A divorced person can be entitled to social security benefits based on his or her ex-spouses entitlement. Other than the other standard eligibility requirements such as age and covered earnings history, the major requirement is that the marriage have lasted for at least ten years before the divorce became final. If so, a divorced person can collect a spouse's benefit, even if their former spouse has died. Naturally, a person in this situation would compare his or her own benefit based on his or her personal earnings record against the amount of the spousal benefit and take the larger. Remarriage will also affect the calculation.

There are a lot of financial issues to consider during a divorce. I've just touched on a few of them. Should you find yourself in such a situation, it will usually be helpful to consult your financial advisor to make sure all of the bases are covered.

This article from the Hampton Union.