My Spouse Wants a Divorce, Now What?

My Spouse Wants a Divorce, Now What?

Divorce can be incredibly overwhelming from many aspects and impacts our emotional, physical and financial well-being. There’s a lot of work that needs to be done when going through a divorce and many decisions that must be made. It can be challenging to know where to start, and there are numerous ways to get divorced these days. Some involve an amicable approach, using a mediator or an entire team to collaborate, while others are highly contentious, with lawyers acting as the go-betweens and sometimes involving courts. The process is often a time-consuming, emotional roller coaster. We’re here to try and help you simplify this process and let you know you’re not alone.

If you’ve ever heard the saying, “It takes a village,” it’s very true when it comes to divorce. Have a team in place to help you navigate a divorce is essential, regardless of the type of divorce you may find yourself in. Since divorce is a legal process it requires professional advice. You want a lawyer that you feel comfortable and confident in that will help advocate for your best interests. While your lawyer knows and understands the law, there are financial consequences of divorce that can be quite complex, depending on your situation. A Certified Financial Planner (CFP®) or Certified Public Accountant (CPA) can help you understand the short and long-term financial impacts of any proposed divorce settlements. They help provide information surrounding various financial issues from health care coverage, dividing pension plans, tax consequences, the family home, any businesses and much more. They can help your legal team make financial sense of any proposals and act as expert witnesses in trials and arbitrations. Having a financial professional in place can help provide you with peace of mind when it comes to your financial future. Lastly, divorce is emotionally taxing and can be scary. There are divorce coaches that provide advice outside the legal arena as well as counselling services throughout and after the divorce. They are there to be your champions throughout the entire process, and show you there is life and love during and after divorce. While hiring three different people might sound expensive, it’s generally considered more cost effective in the long run. By hiring an entire team, each professional can focus their time with you on their area of expertise, making their work more cost effective.

Putting a team in place won’t happen overnight as you’ll want to take some time hiring the right people. In the meantime, there are documents you’ll want to start compiling as your legal and financial team will need a lot of information to help you determine the best path forward. We’ve created a checklist you can download here of the documents you’ll need to gather (regardless of where you are in the process). It’s a lengthy list and the items required can seem overwhelming. Start with the easy stuff, and once you have a CFP® or CPA, they’ll often meet with you, to help ensure you get everything necessary. Having a team and tools to help you get started and organized are what you’ll need, to help get through such a significant life event.

If you have any questions or would like to speak to us in more detail about working with us, please don’t hesitate to reach out. We’re here to help, you’re not alone.

What is a CDFA®?

What is a CDFA®?

Anyone familiar with divorce knows how emotionally challenging it can be. On top of the emotional challenges, all the financial factors that need to be considered and evaluated add a lot of stress. After witnessing a few close friends go through this process, I decided to become a Certified Divorce Financial Analyst (CDFA®). With this credential and my financial planning background, I can better help alleviate some of the financial stress and uncertainty that comes with divorce.

So, what exactly is a CDFA®? It’s a professional who is trained to provide financial information and assistance to people going through a divorce by helping evaluate the following:

  • Tax implications
  • Property division
  • Short- and long-term financial impact of various settlement options for dividing marital assets
  • Settlement options for dividing pensions and qualified retirement plans
  • Settlement options for any jointly owned businesses
  • Child and spousal support payments

The CDFA® provides their client’s lawyer with data to help strengthen their case or works as the financial expert on a team in a collaborative divorce. My role as a CDFA® is to help people avoid common financial pitfalls of divorce, by offering valuable insight into the pros and cons of different settlement options.

My clients often ask why they’d need a CDFA® if they already have an attorney. It’s always beneficial to have an attorney involved in the divorce process to give legal guidance and advice, but why would you need a CDFA®? Attorneys specialize in law, not finance. While attorneys know what needs to be done from the legal perspective, they don’t necessarily have the background and training to understand tax implications and how to model the differences in the short- and long-term outcomes of various settlement options. Other experts, like CPAs, can provide some financial perspective, but CPAs tend to focus on short-term tax implications, neglecting longer-term outcomes. A CDFA® will make sure your interests are covered for both the short- and long-term.

How do you know if you need a CDFA®? There’s not a cut and dry answer to this question, but we recommend considering a CDFA® when the marital estate is over $2 million or when there are complex financial matters like a joint business or multiple properties. If you or someone you know could benefit from working with a CDFA®, please don’t hesitate to contact us.

Withdrawals from an Estate and Tax Planning Perspective

Withdrawals from an Estate and Tax Planning Perspective

Families often ask us how best to fund their obligations or monthly cash flow from their various account types. When making this decision, it’s best to revisit your goals and consider the tax and estate planning implications.

Tax Perspective

Withdrawals from taxable and after-tax retirement accounts like a Roth IRA can be made tax-free, or by paying less tax than a withdrawal from a pre-tax retirement account taxed at your ordinary income tax rates. This leads to less tax owed now.

Inheritance Perspective

For a beneficiary, it’s most advantageous to inherit taxable and after-tax retirement accounts, such as a Roth IRA. Beneficiaries receive more after-tax dollars than if they inherited a pre-tax IRA because of the step-up in basis, which eliminates capital gains in the taxable account, and because withdrawals from the inherited Roth IRA are tax free. (more…)

Think Twice Before Moving Into Your Rental To Avoid Taxes

Think Twice Before Moving Into Your Rental To Avoid Taxes

Many families hold on to and rent out their former residences with the goal of moving back in the future. Some plan to move back into the rental full-time for at least two years prior to selling to take advantage of the gain exclusion of $500,000 ($250,000 if single), which can wipe out all or most of the gain on the property. This was allowed at one time, but that’s not quite the case anymore.

Depreciation Recapture

One of the benefits of having a rental is the ability to claim depreciation on the property, which allows you to offset rental income that would otherwise be taxed as ordinary income. The depreciation you take reduces your basis in the property, potentially resulting in more capital gains when you ultimately sell the property. If you sell the property for a gain, the amount up to the depreciation you took is taxed at the maximum recapture rate of 25%. Any remaining gains are taxed at the lower long-term capital gains rate.

When the Property Sells for a Loss

If you sell your home for a loss, whether it’s currently a rental or is now your primary residence, you aren’t subject to depreciation recapture or other gains taxes. Due to depreciation decreasing your cost basis in the property each year until it reaches zero, it’s more common that sales of former rental homes result in gains. (more…)

Not All CFPs Are Equal

Not All CFPs Are Equal

I recently met with a prospective client, looking to hire a financial planner. She saw a TV ad from the CFP Board about hiring a professional planner. She visited their website and realized she didn’t know how to differentiate between them all. She wanted to ensure that the planner would help her look at all aspects of her financial life, and she realized that just because someone was a CFP® it didn’t mean they all operated in the same fashion. Her search was proving to be more difficult than she had anticipated.

It’s true, not all CFP® professionals are created equal. This article discusses why you might want to seek out a CFP® and some common differences to help you in your search. It’s important to educate yourself on what financial planning really means and to ask a lot of questions before deciding who to hire.

When looking to hire a financial professional, one of the most desirable credentials is the Certified Financial Planner™, or CFP®, designation. The CFP® mark indicates the highest standard in financial planning because CFP® professionals must meet certain educational requirements, pass a lengthy examination and have at least 6,000 hours of work experience for the standard pathway to certification. They must also adhere to specific standards of ethics and practice as outlined by the CFP Board.

Sounds great, right? The problem is that many financial professionals who have the CFP® designation use it as a marketing tool. There’s been a big marketing push to hire those with a CFP® by the CFP Board, and consequently financial firms are encouraging more of their advisors to obtain the CFP®. While there’s an educational benefit to anyone with the CFP®, it doesn’t always carry over into the work they do for their clients. (more…)

Why We Now Incorporate Your Held-Away Accounts in Your Investment Plan

When creating and monitoring a retirement plan, and providing advice on how to best achieve your financial goals, we often run into a roadblock on implementation when a large portion of your wealth is tied up in an employer retirement plan. This isn’t to say that participating in your employer plan is a bad thing; it’s more an issue related to investment options, fees and how to best align that account with your overall investment plan. By incorporating your outside retirement plans into your overall allocation, we can now pick the best investment options available in your retirement plan and manage your wealth like it’s one portfolio, instead of viewing accounts separately.

The benefits of incorporating your outside retirement plan into your overall asset mix include the following.

  • Higher net-of-fee, risk-adjusted expected returns through:
    • Stronger small and value tilts
    • Greater diversification with more international exposure, larger exposure to specialized risk premiums (Reinsurance and Marketplace Lending) and reduction in concentrated stock positions
    • Closing the behavior gap (reduced performance chasing)
    • Lower expense ratios
    • Disciplined rebalancing
  • Increased tax efficiency and reduced trading costs
  • More comprehensive reporting of returns and portfolio history

We can enhance what we do for you by bringing your employer retirement plan onto our Merriman web portal. This allows us to monitor your total portfolio allocation on a daily basis. By using the best of what’s available in your retirement plan and augmenting it with the accounts Merriman manages, we can estimate a net-of-fee performance improvement annually that’s specific to your situation. In many cases, there may be just two to five funds utilized in your retirement plan.

If you have a taxable account, we can move the international holdings into it, so you may be able to deduct the foreign taxes that are withheld, and place the less tax-efficient investments, like REITs, Reinsurance and Marketplace Lending, in your IRAs.

We suggest speaking with your advisor about how to incorporate your employer retirement plans into your overall investment allocation.