This is probably one of the most common mistakes in settlement agreements and even final judgments, since often times attorneys prepare the final judgment which the judge simply signs. It often erroneously states “retirement plan” without ever defining the type of plan(s) to be divided.
Retirement plans can be defined contribution plans, defined benefit plans or some type of hybrid. These plans are vastly different and have different implications when trying to divide them. In defined contribution plans, an employee and/or employer make contributions into an account maintained in the employee’s name. These plans have a known account balance at any given time, since the underlying account is nearly always invested in publicly traded securities. In a defined benefit plan, the employee accumulates credits towards their retirement based upon years of service to an employer, and often based on compensation earned.
Typically, when a settlement agreement says the parties will “divide a retirement plan” it can be interpreted that the non-employee is going to receive a lump sum amount. However, if the plan is a defined benefit plan, they may not be receiving any money until the working party retires. Further, they may never receive a lump sum – but rather a monthly benefit payment.
Knowing the plan type and the benefit that can be divided (a lump sum now, a lump sum later or a stream of income) can substantially affect how you may choose to negotiate a resolution.
* Include the plan type in your agreement if it is not part of the name of the plan.
* Describe in the agreement if the receiving party will get a lump sum now, a lump sum at a future date or payments over time and when those payments will begin and end.
EXAMPLE: The husband participates in the “ABC Company Pension Plan” which has a cash balance plan with a defined benefit component. If the parties desire to divide the cash balance equally and the defined benefit component based on the marital coverture, the language must be specific. In this case “divide the retirement plan equally” would not be an acceptable reference for the plan administrator to implement a QDRO.
While divorce rates hover around 50% for first time marriages (and higher than that for subsequent unions), the reasons for splitting up often center around finances. Disagreements over what to spend and how much to save are often blamed for the failure of a relationship.
But finances play another role in divorce, too, according to a recent report in Barron’s. A change in financial behavior might signal that divorce is on the horizon.
Things to look out for?
· Account statements, tax returns or other financial documents go missing.
· A spouse who has been hands’ off with finances suddenly taking an interest in household money management.
· One spouse suddenly acquiring new credit lines.
· Statements from unfamiliar financial institutions begin to arrive, or passwords to existing ones are suddenly changed.
· Changes in the contribution amounts to retirement accounts without explanation.
While these signs don’t always point to divorce on the horizon, they do at least merit a frank discussion between spouses.
Today you may not think twice about splitting military retirement benefits during a #divorce. But it wasn’t always that way. A 1981 U.S. Supreme Court decision, McCarty v. McCarty, actually precluded state courts from dividing military retired pay as an asset of the marriage. In response, Congress passed the Uniformed Services Former Spouses’ Protection Act (USFSPA in 1982. This legislation specifically gave a state court the authority to treat military retired pay as marital property and divide it between the spouses.
Of course, the actual process to divide these unique accounts is slightly different than standard retirement accounts. Rather than using a Qualified Domestic Relations Order (“QDRO”), military retirement accounts are divisible using a Military Retired Pay Division Order.
The Defense Finance and Accounting Service (“DFAS”) has very specific rules about how and when military retirement pay can be divided. For a division of retired pay as a property award to be enforceable under the USFSPA, the former spouse must have been married to the service member for at least 10 years, and during that time the service member must have performed at least 10 years of creditable service. This is referred to as the 10/10 requirement.
In addition, no more than 50% of retired pay can be awarded as marital property. Because the DFAS has very specific requirements relative to division of military retired pay, it is important that the parties understand these technical requirements early on. There are many ways that a former spouse can lose his or her right to division of retired military pay, so relying on an expert in this unique area is very important.
No matter your status…thinking about divorce, going through a divorce or moving on after a divorce, there will be work to be done on your part. Your own words, actions and thoughts undoubtedly play a role
If you’ve made the decision to divorce your first priority should be creating a process that is beneficial to all parties involved. According to the Journal of Health and Social Behavior, divorce is far and away the most stressful life event, other than loss of a loved one to death, that we can experience.
No matter your status…thinking about divorce, going through a divorce or moving on after a divorce, there will be work to be done on your part. Whether you end up in tears or with a satisfying post-divorce life depends on countless factors. Your own words, actions and thoughts undoubtedly play a role.
One thing that will give you an advantage when it comes to divorce is soaking up all the wisdom you can from those who are experts in the divorce field. That’s why DivorcedMoms.com has taken the time to distil it down to the very best 22 experts and what they’ve learned and think you should know about divorce. We hope their words help you uncover the key to navigating divorce and creating a fantastic post-divorce life.
22 Divorce Tips from Divorce Experts
1. There is a Light at the End of the Tunnel.
You move on socially and romantically while your kids become more independent. You have two weekends a month to do what YOU want to do. Just remember, divorce only hurts for a little while and you have complete control over how much someone can hurt you.
2. Civil Communication Between Parents is Imperative
The best thing any family facing divorce is to assure open communication about the children. It is essential to make sure that both parents have equal access to both the schedule as well as to information. I used the iCal app and created a schedule that would allow my ex-husband to subscribe. Google Calendar works just as well. This allowed us all to be connected without having unnecessary conversations. It also allows invitations to be accepted or declined. You didn’t get my invitation? Well, here is proof that it was sent. This leaves the obligation on the receiving party to always check their email. My favorite method of sharing and saving information has been through Evernote. It is a free application, and you can create shared notebooks to exchange and store information.
The one piece of advice that I always return to, and that I feel puts my situation into perspective time and time again is this: co-parent like business partners instead of like exes. When you parent as business partners, parents shift their focus on what is most important; the kids. So, if parenting is a business, the children are the product of the enterprise. The goal, then, is to produce happy, healthy, and well-adjusted “products”, which requires pooling resources in the most effective way possible and letting go of the petty things that get in the way of success.
It is not uncommon for divorcing parents to switch their focus from being a conscious parent to becoming a distracted one. So, remember to remain sensitive to your children’s needs as well as your own as they are also learning to cope with your divorce too!
~ Reiki Rita, Spiritual Life Coach and Parent Educator
5. Prioritize Finances
One way to prepare for your divorce is to create a list of all your assets and debts before you contact any financial or legal expert. Preparation can save you time and money. Make a list of all debts, and their interest rates. Know the equity of the home (appraisal if needed). Know what is marital property, premarital property, and second properties. List all retirement accounts and any undisclosed monies. Prioritize what is important to you. Do as much work on your own as you can prior to meeting with your legal counsel or going to any of your network of experts.
Be certain it is a divorce you want or are you feeling unloved and unappreciated? Over time behaviors become automatic consequently the response to a situation also becomes automatic, i.e. anger and frustration.
Do you find yourself arguing, and saying things, that are repetitive such as “you never listen.” “Why do I bother, you are never happy with what I do.”
Instead of continuing with the same behavior, make a conscious decision to change how you react in doing so you can change your relationship for the better.
~ Karen Bashford, Inner Child Connector and Guide, Hypnotherapist, Money Mindset and Abundance Coach, Financial Educator.
7. Focus on Building the Life You Want
Divorce your spouse, not your life: if you are at the point of divorcing, there was a part of you, hidden or not, that new it was the next step for the life you wanted to create. Focus on building your life even when you are in the process of divorcing, it will give you the headspace to make choices that work for you instead of choices that are a result of your divorce.
With divorce comes loneliness. You may feel that the only cure for loneliness is either get back the life you lost (which you can’t) or find a replacement (which won’t work). But there is a different way and one that does work. It starts with understanding that loneliness is within you, and that means that you have the power to heal it, just like you have the power to feel loved, appreciated and supported again. It’s a journey and it starts with two essential steps: self-care and reaching out for support.
Don’t run out and hire an attorney, mediate! Attorneys only make the divorce process last longer than it should. I am over three years into a divorce and at our court appointed date we will play “let’s make a deal” with my life, listening to an offer from my almost ex. All the time and money and pounds of paperwork and it comes down to something as simple as this. If someone had warned me that it would end up this way I would have insisted on mediation.
Get curious about why your ex is saying what he is saying or doing what he is doing. So often we only see things through our own lens, especially when we’re hurting. So, ask, try to see if from their perspective. Ask questions without anger or judgment about what it is they want, or why they are doing something, or how they want to do it or have it done. Then the most important thing is to keep quiet for at least 30 seconds, giving them a chance to think, pause, and respond. Then repeat. Ask if there is anything they want to add. Then wait 30 seconds more while they think, pause and respond. RESIST the urge to interrupt. I have been amazed at how this type of communication is transforming my relationship with my ex. Maybe if I had done this years ago, things would be different now. Who knows? Try it.
If you are planning on getting divorced, preparation is everything. Don’t run to the courthouse to file a Complaint for Divorce. Make copies of tax returns, bank statements, credit card statements. Make a list of all your joint and individual assets/debts. Create a “divorce” file and stay organized. If you prepare now, the process will be smoother later.
Don’t play the role of victim and begin to make decisions that reflect your strengths. The first step is to examine your divorce experience and self-defeating messages derived from it. Develop a mindset that relationships are our teachers. Divorce can be viewed as a catalyst for personal growth. Counseling, blogging, and reading can aid you in this process. It’s important to develop a healthy response to mistakes and failing. Give yourself permission to “think big” and want more. It’s an exciting time with all sorts of possibilities.
Get legal advice. Before you file for a divorce, whether or not you want a full representation and to hire a lawyer for the final process, you still need legal advice. If you have to pay for a consultation, do it. It’s wise to talk to a lawyer before you attempt to handle the divorce yourself without much knowledge. Laws change constantly and there may be new laws passed that you are not aware of. Sometimes the internet doesn’t have all the answers because YOUR case is YOURS and no other person has had the same exact situation.
The best advice I have for women going through a divorce is to separate your emotions from the process. It’s tempting for both parties to use divorce for revenge, which can lead to costly legal bills and aggravation over who gets the flat-screen or a statue in the yard. Alternatively, many women approach divorce through fear of conflict which hands over the control to your husband. Divorce is a business negotiation and it’s best to handle it as such.
~ Beth Cone Kramer is a journalist and co-founder of Divorce.ly, a seven-step program to help women develop skills and knowledge for a successful divorce and life after.
15. Do a Bit of Advanced Financial Planning
Before leaving the marital home or announcing your intention to divorce, ensure you have your own bank account set up. Deposit some of the joint account funds into your new account but don’t take more than half. Also, investigate your financial status as a married couple so you don’t face big surprises during the divorce process.
Uncover all assets, your spouse annual income, any debt and liquid cash before announcing to your husband that you intend to leave him. This bit of advance planning will get you set up for independence with much needed financial knowledge.”
Most “non-financial” spouses often find themselves out in the cold, as the advisor, they intended to lean on was retained by their ex-spouse. Because of this very common dilemma, The Wall Street Journal suggests divorcing your pre-divorce financial advisor as the best way to achieve post-divorce financial success.
Just as you smartly obtained a competent legal advocate, you should now align in similar fashion with a financial advocate. Specifically, a board Certified Financial Planner. From properly structuring your settlement so it last as long as you do to selecting the correct social security option, knowledge in this instance is power.
The thing that will hold you back from telling your spouse you want a divorce or calling an attorney is the overwhelming fear that you can’t do this. You can. Millions of other women have managed it, and so will you. It won’t be easy at first, but if you can take the first leap of faith (in yourself), the next one will be easier. You don’t have to stay in a miserable marriage. You can have a better life – on your terms. You deserve better and you’re worth it. There will come a day when you won’t question that.
19. Don’t Treat Divorce as a Failure, But as an Experience
You should stop thinking of a divorce as a failure—period.
Women who struggle with low self-esteem often blame themselves for the end of their marriage and treat it as kind of a failure in their lives.
Divorce is the end of your marriage, not the end of your life. It should be perceived as another experience on our path; a closure of one thing to make a space for another one. Many new wonderful experiences will come, as soon as you genuinely open your heart for them!
If you find yourself at divorce’s door, do not assume that your divorce settlement will protect your rights to your portion of your ex-spouse’s retirement account. This is especially important if you are a mom and have spent time away from a career taking care of your family while your spouse has earned all or a majority of the income. Be sure to work with your attorney to enact a QDRO. A QDRO is a “Qualified Domestic Relations Order,” which provides a legal mechanism for dividing the retirement benefits of private pension and/or 401K plans earned by your spouse during the years of your marriage.
21. Never Fight Around the Children or Badmouth Their Other Parent
Studies show that conflict creates the most pain and turmoil for children of divorce. Keep parental battles away from your kids – even when you’re on the phone or in another room. They deserve the peace of mind. Speaking disrespectfully about your former spouse hurts your kids with anger, guilt, and confusion. They think, “If there’s something wrong with Dad or Mom, there must also be something wrong with me for loving them.” This can result in a damaged relationship with your children and resentment when they are grown.
Never sweat the small stuff, especially when it’s on your dime. The antique clock passed down from your great-grandmother might be worth it, but if it’s a rug you bought from IKEA, let it go. It’s all just “stuff” in the end. Draw a line around it and let it go. Bickering about the little things just takes years away from your life and dollars out of your wallet.
When you decide to divorce, it’s almost as if you’ve entered a club with a super-secret handshake…only no one is quite certain how to do it. So we asked the divorce360.com community what they wished they had known before they decided to file for divorce. From the emotional breakup of their marriage to the financial one, here are some of the best tips from people who have through the real life turmoil of uncoupling.
1. If You Are Parents, You Have a Relationship with your Ex Forever….But It’s very Different First, you and your spouse go from being best friends to enemies almost overnight, said community members “Banshee1,” a 30-something dad who is getting divorced. The difference is: “He doesn’t have to listen anymore. He doesn’t have to work out problems,” said “Paula1,” a single mom who was married for four years to a man who cheated. To make matters worse, “Your ex will not cooperate…they want to stick it to your for whatever they think you did. They will not be fair at all or logical…,” wrote Georgia resident “Rebec311.”He or she will “always be lingering in the background waiting for you to slip up so they can pounce on you again through the legal system because now they have a new life and no longer want to be responsible for their first life,” wrote “Eve31,” a single mother whose spouse has refused to mediate their divorce.
What’s tough is “how the little questions from the kids like, ‘Why do we have two houses?’ will drive you…nuts…” she said. If you’re angry with your former spouse for driving those questions, your children can sense it: “Don’t even think bad thoughts about their dad when they are within five miles of you,” community member “timless” said.
The best advice, said Maryland salesman “wave” whose wife left him after 30 years is “Keep your children first, always.” 2. Divorce Starts after You’ve Signed the Papers. You can got to Las Vegas and get married in 30 minutes, according to “Eve31,” but getting a divorce takes a lot longer. “Purebredinip,” a California woman whose husband told her he “wasn’t happy”, said: “They should make divorcing easier, but getting married difficult.”
What no one tells you, said “Eve31,” is “what it’s really going to cost you to be divorced… your youth, your sanity, your faith, your trust, your ability to wake in the morning with hope.” You now second-guess all your decisions: “Your ex destroys your trust but also your ability to sometimes trust yourself,” she said.
The real pain starts after you sign the divorce decree, “Paula1” said: “Every fight can now lead to court, which costs you money. Every disagreement now leads to heated arguments where nobody wins. Every new life stage (dating spouses, remarriages, kids asking more questions, kids suffering with divorce) equals more pain.”
3. If You’re the Custodial Parent, Every Other Weekend is a Blessing. Essentially, you are raising your children alone — even if your former spouse has them for a few days a week or every other weekend. If you have young children, it will be a long time before you can take a shower that’s longer than three minutes. “You’ll fight it during the divorce proceedings, but will count down the hours for his weekend after,” “Paula1” wrote.
And if you’re ex has found a new partner, “…You spend all your time raising the kids, through sickness, surgeries and through all the heartache and picking up all the broken pieces that the divorce has caused,” said community member “Paris299.”
Work becomes a refuge. “Taking care of kids all weekend without any help is hard and exhausting. Monday mornings now become something you look forward to,” “Paula1” wrote.
4. You Lose a Lot of Friends and Family in Divorce. “Girl70” said her husband filed for divorce after having an affair. His family sided with him: “I was with him for 22 years. It is like I didn’t exist. It’s as if I was the one who had the affair. I …truly cared for my father in law and stepmother-in-law. I miss them the most.”
The reaction from friends can also be tough: “Some people will treat you like divorce is catching…like leprosy,” said “Tracy74” of Michigan, whose husband fell in love with another woman. “Your married friends will fear you being around their husbands/wives,” said community member “kdb,” a 50-something mother of three whose husband told her he wasn’t “in love” anymore.
Community member “Banshee1,” felt a sense of being “completely alone” and “misunderstood by my married friends” who took sides during the breakup. “You will lose a lot of friends/people that you like a lot because of your soon-to-be ex,” said “Rebec311.” agreed. “The friends you keep will either…love you more and be there more or have no clue how to talk to you.”
What’s more, “You think they are all a bunch of whiny children, since you’re doing it all alone now, and they have husbands to help,” said “Paula1.”
5. The Courts Do Not Care. You will waste money if you treat your divorce attorney as a therapist. “Timless” said “…that’s what your girlfriends and personal therapy is for. If you don’t have them, get them before you start the process,” she said.
The court system is “cold,” said “Rebec311,” and its participants “don’t care about your feelings.” “It’s treated as a business,” she said.” “Are your kids sick and is your ex clueless about how to take care of them? The courts don’t care. He still gets them,” said “Paula1.” “Is your ex-spouse not paying child support because he’s unemployed again? The courts don’t care. Visitation and support are not tied. Is your ex-spouse living with a drug addict with nose rings? The courts don’t care. As long as he is a good parent and doesn’t abuse them, he still gets them and can have anyone around that he wants.”
Maryland salesman “wave,” whose wife left him after almost 30 years of marriage, was surprised that the courts didn’t take into account who was at fault in the break up. “She turns 49, her mother dies, she got her inheritance, and two months later, she wants out. I have no drug or alcohol problems, no money problems, no abuse, no womanizing, but I lose half, plus I pay her child support…and she keeps the inheritance…The courts don’t care about right or wrong.”
6. Money Is Always an Issue. “You don’t just worry about money. You obsess over it,” wrote “Kitty7470,” a 40-something mom from Ohio whose husband had an affair after 20 years of marriage.
“If you had a traditional marriage in which both parents were working, etc., get used to living on half. Child support, if paid, does not cover much. It’s not as much as you think it will be (which is another ridiculous tragedy by the courts), and your savings is probably wiped out by divorce costs,” said “Paula1.”
A New York executive, “Banshee1,” doesn’t feel his financial settlement was fair. “…It was tough for me to give up everything and move into an apartment that’s about a quarter of the size of my house — taking almost nothing,” he wrote. Plus, as the breadwinner in his family, “I will be taking the majority of the debt load, taking on losses due to the sale of our marital residence and providing significant child support payments to my soon-to-be ex.”
However, “there is hope for recovery,” he said. He’s slowly “rebuilding and making a home” for his children. He believes he’s better off today. “(My ex) and I had very different views on money, and now that I’m on my own…, I can save the way I feel most comfortable.”
For “Soon2Bfine,” a 40-something administrative assistant whose husband cheated on her, said money wasn’t her biggest financial problem. When her spouse stopped paying the credit card debt after their divorce, he ruined both their credit ratings. “Having a great job means the money is there to make the payments, but good luck getting a loan for anything,” she wrote. 7. Your Ex — and You — Have Personal Lives. Building a new life doesn’t include whining about your ex. “Learn to deal with it and not hold on to it,” “timless” advised. That can be difficult if your ex finds a new partner, “Kitty7470” said. “…They now have a say in your entire life, because your ex lets them.”
“Banshee1” said he’s surprised at how bitter people can be. “I’ve talked to so many people that get upset because they believe their ex is doing better than they are or are suffering less. My feeling is — focus on you and your life… You can spend the rest of your life comparing to your ex-spouse and miss out on opportunities that are right in front of you.”
Advice from the trenches: “Your ex has a life and so do you ……..don’t share,” said “timless.” “I’ve learned to keep things focused on my daughter and vague pleasantries. Any unnecessary details come back to bite me in the butt.”
8. You Will Get a Second Wind. When you think it won’t get any better, just keep moving forward. “The train wreck that was your life during the divorce suddenly gets a makeover as soon as your divorce is final,” “timless” said. “Somewhere near the end you have one final cry and then get a second wind… This is your saving grace, your reward for the pain and suffering.”
Unhappily married to her high school sweetheart for 15 years before she finally asked for a divorce, “Wow65” agreed, saying when the divorce was final she realized “I could do what I wanted with my life and have a great time doing it.”
“Now is the time to focus on you,” “Banshee1” advised. “Look at divorce as a chance to rebuild, to start fresh. Yes, there will be hurt, loneliness, frustration — but that’s life, isn’t it? For me, I’m taking the experiences that I’ve had has a husband and turning them into a guideline for how I want to live my life as a man. I will always and forever be a father to my children — and my focus is 150 percent on them. But, to be the best father that I can be I must learn to take care of myself, too. I’m learning to pursue my dreams, and through that inspire my children (and possibly others) along the way. My legacy to my children will be strength and perserverance even when the chips are down.”
Divorce coach Annie O”Neill added: “You have your whole life ahead of you to do what you want to do. It is a chance to reinvent yourself, a new chapter of your life. You have to put your marriage behind you and decide to move on.”
It is said that the only sure things in life are death and taxes.
There is no doubt that the Internal Revenue Service wants their share of any income received by US taxpayers, and distributions from Qualified Domestic Relations Orders (QDROs) are no exception. Whether paid by the plan participant or an alternate payee, taxes are an inescapable part of the process.
Most people recognize that a plan participant must pay taxes on any distribution of QDRO benefits. However, what are the tax liabilities facing an alternate payee?
When the alternate payee is a spouse or former spouse who receives a share of the QDRO benefits from a retirement pan, he or she is also required to report the money received as if they were the actual plan participant. However, the spouse or former spouse is also entitled to a share of the participant’s cost basis (their investment in the contract). According to the IRS, the alternate payee’s share is equal to the participant’s cost basis multiplied by a fraction. This fraction is calculated as follows:
Present Value of the Benefits Payable to the Alternate Payee ÷ Present Value of All Benefits Payable to the Plan Participant = fraction
If the alternate payee is a child or other dependent of the plan participant, the taxes on benefits is assessed to the plan participant.
In some cases, an individual can roll over, tax-free, all or part of a QDRO distribution. If the alternate payee is either the spouse or former spouse of the plan participant, then he or she can roll over the distribution into another qualified retirement account (such as an IRA) and avoid any immediate tax liability on the QDRO distribution. Pursuant to the IRS, this option is not available to non-spousal alternate payees (e.g. children or other dependents).
The Divorce process is a stressful process that can easily bring out the worst in people. Some people even see divorce as a way to seek revenge on a spouse by seizing money and assets.
Although divorce can get you out of an unhappy marriage, it can also milk you for all you are worth if you don’t know your rights. Check out these 40 secrets from top divorce attorneys to help you protect your assets and stay on the winning side.
1. Don’t Let Emotions Lead Your Financial Decisions
People often want to take out their hurt feelings on their exes; however, it’s important not to let emotions interfere with the business at hand. In the long run, being spiteful could harm your own finances.
“Asking your lawyer to write a letter to your ex over who gets the $50 coffee table book is kind of nonsensical,” said Brendan Lyle, a former divorce attorney and CEO at BBL Churchill, a divorce finance firm. He went on to reveal that a short letter could cost you $500 in attorney fees.
2. Everything Is Divisible and Is Fair Game
Individuals often make the mistake of assuming that assets that are in their names can’t be claimed by spouses in a divorce. However, divorce experts caution that the opposite is true.
“Practically everything is divisible, including frequent flyer air miles or royalties from a book you wrote,” said Ann Narris, a Massachusetts attorney with the Narris Law Office & Family Mediation Partners.
Because the same holds true for liabilities like debt and credit cards, couples should be sure to consider all factors when doing their financial planning.
3. Make Big Purchases Before Filing for Divorce
Have a big purchase in mind, such as a new car?
“Most states issue automatic financial restraining orders prohibiting people from making big purchases or liquidating assets after the divorce is filed, absent a court order or an agreement,” said Narris.
In her practice, she advises those considering divorce to buy big items before filing.
4. Keep Track of Your Spouse’s Money
If you’re thinking of filing for divorce or legal separation, it’s a good idea to take a look at your spouse’s financial situation. According to Narris, spouses should start by tracking the partner’s new credit card and loan applications.
“People are more generous in their income reporting on credit or loan applications than they are in, say, their 1040,” said Narris, who went on to stress that loan applications could be crucial parts of a divorce discovery.
5. Gather Key Evidence Before Filing for Divorce
If you’re thinking of filing for divorce, it can be tough not to walk out the door when your spouse pushes your buttons. However, Narris recommended that individuals take time to collect evidence before a split. Along with taking pictures of assets, individuals should make copies of account statements and jot down any important numbers. Preparation is key if you hope to come out ahead in court.
6. Get Property Valued Before You Part Ways
When it comes to the divorce process, almost all property is fair game. However, spouses can’t hope to get their fair shares if they don’t know the value of assets.
“No sense in guessing on the worth of his baseball cards or your engagement ring — never mind a house or a business,” said Narris, who reminds couples that there are experts available who can appraise just about anything.
Doing your homework now is the best way to come out ahead down the line.
7. Don’t Hide Assets
You can try to deceive your spouse by hiding or concealing assets, but don’t forget that you’re also messing with the law. According to Narris, if what you’re hiding is discovered, you’ll lose your credibility in court. There could also be stiff penalties, including monetary sanctions. To protect yourself and your property during a divorce, it’s best to declare all assets upfront in the divorce process.
8. You Can Write Off Alimony Payments on Your Taxes
People who pay alimony are rarely grateful for the opportunity. Paying alimony can actually help you out come tax time, however. According to Narris, people who pay alimony to their exes can write it off as a tax deduction. On the other hand, those who receive alimony must report it as taxable income.
It’s important to note that alimony is different from child support, which is neither taxable nor deductible.
9. If Not Considered Alimony, the Income Is Not Taxable
If the transfer of money in a divorce is not considered alimony, the receiving spouse is in luck: These funds aren’t regarded as taxable income, according to Christian Denmon, founding partner of Denmon & Denmon, a personal injury, divorce and criminal defense law firm in Tampa, Fla.
Not so lucky is the payer, as there is no tax break for money transferred during the divorce process.
10. There Are Hidden Tax Implications to Watch Out For
During a divorce, it’s important to stay alert to hidden tax obligations.
“A husband might have purchased stock for $50 during the marriage,” said Denmon. “The stock has gone up in value so that at the time of the divorce, the husband ends up transferring $75 to the wife. If not otherwise addressed in the divorce settlement, the husband will be on the hook to pay taxes on the $25 gain on the stock.”
According to Denmon, spouses who are receiving real estate, stocks or bonds need to understand that taxable gains can leave them vulnerable.
11. Get Job Training or Update Your Education Before Filing
If you are currently being supported by your spouse, you might want to consider taking the time to dust off your resume and freshen up your skill set before seeking a divorce.
“Even if you receive support, the courts can impute income and expect you to be working if your kids are school aged and you are not of retirement age or disabled,” said Narris, who cautioned against “depend[ing] too much on a hopeful spousal support award.”
Updating your education now can help protect you later if things don’t go your way in court.
12. Familiarize Yourself With Your Finances Before You Split
Normally, one person in a household manages the finances. However, this arrangement can create a “power imbalance when it comes time to negotiate settlements,” according to Narris. So what can you do to protect yourself?
Seek professional help to guide you in making more informed decisions about finances being filing for divorce. Doing this will help you come out swinging when you get your day in court.
13. Consider Mediating Your Divorce
It’s no secret that divorce can be expensive. In fact, according to Narris, the average cost of legal fees in a divorce is $15,000. One way to cut down on these expenses is to use a mediator.
A mediator doesn’t work on behalf of any one party, just facilitates agreements. If you want to keep your divorce details behind closed doors while cutting costs, a mediator might be the best bet for both you and your bank account.
14. Know What Is Your Biggest Asset
According to Narris, many people mistakenly believe that their house is their biggest asset when it is actually a retirement or pension account. Even if your retirement account is less than robust now, the court will likely consider its future value when dividing assets.
“There are many ways to divide your portion of your spouse’s retirement asset (called a qualified domestic relations order) so give that due consideration,” said Narris.
15. If Your Lawyer Recommends a PI or Forensic Accountant, Hire One
Many individuals are hesitant to shell out for a private investigator or forensic accountant when going through a divorce, but sometimes, these professionals’ services are necessary.
According to Eva Cockerham, an attorney with Burke Jaskot law firm in Baltimore, “Private investigators are useful for investigating people who own small businesses, as independent data about numbers of customers, employees and resources can give a much fuller picture of a person’s true finances.”
Likewise, Cockerham noted that forensic accountants can give “insight as to whether a person going through a divorce is getting accurate information from their soon to be ex-spouse.” By spending a little now, you might be able to save yourself a bundle in the future.
16. The Most Expensive Lawyer Isn’t Always the Best
Pick your divorce lawyer wisely because your choice could save your bottom line.
“Find one that is experienced and knowledgeable but is also a good fit for you,” said Narris. “You have the power to set the tone for your divorce. The attorney should advise you but also respect your position on how to approach the negotiations.”
Just because an attorney has a high hourly rate doesn’t necessarily mean he or she will honor your wishes. For best results, go with your gut feeling.
17. Understand Debt Obligations
According to Heather Sunderman, a divorce attorney with Mirsky Policastri in the Washington, D.C. area, too many clients assume partners’ debts are joint when they’re not.
“Some states do not divide marital debt if it’s just in one person’s name, so if possible, during separation you may want to pay down that debt preferentially,” said Sunderman.
The last thing you want is to be on the hook for debts you didn’t accumulate.
18. Don’t Forget About Beneficiary Designations
Divorce attorneys note that many clients fail to remove former spouses from their beneficiary designations.
If you fail to remove these designations, “those amounts may end up being paid out to a former spouse,” said Sunderman. “Usually that’s not the result you want.”
For best results, handle beneficiary designations and other tedious paperwork as soon as possible.
19. Pay Court-Ordered Attorney Fees
Court-ordered attorney fees are no joke.
“The court can order one spouse to contribute to the other spouse’s attorney fees,” said Denmon, who went on to explain that this type of debt was treated in a special manner. When it comes to court-ordered attorney fees, the judge can throw the offending spouse in jail for failing to pay.
In light of these regulations, Denmon advises that spouses who are receiving financial help have language drafted into agreements clarifying how much money must be paid and by what date. Doing this gives spouses the ability “to enforce the agreement should the paying spouse fail to follow through with his agreement,” said Denmon.
20. Consider Your Income Before Asking for All the Deductible Items
Clients typically strive to get as much as possible in a divorce. However, according Russell Luna, a certified divorce financial analyst in Colorado, higher incomes can disqualify individuals from important tax deductions.
“If you file single and make more than $380,750, your personal exemption of $4,000 is not available,” said Luna.
In light of this fact, individuals might not want all the items they originally requested in a divorce. For best results, speak to a financial professional about your specific fiscal situation and options.
21. Take Advantage of Free Legal Advice
Most attorneys will offer free consultations, said Narris, who advises clients to “take advantage of that and get some basic information, see if the lawyer is the right fit.”
To ensure you make the right choice, be sure to consult with a few attorneys before coming to a hiring decision. After all, the outcome of your divorce depends in large part on the quality of your legal advice.
22. Be Mindful of the Date When Initiating Divorce
While you might be tempted to file as soon as possible, it’s important to note that property division is based on the date of marriage separation in some states. Typically, the court uses a formal date of separation (DOS) to determine property division and the value of certain assets.
“If you are expecting a large increase in the value of a major asset upon a certain occasion, be mindful of that when you decide to initiate the divorce,” said Narris.
23. Design a Joint Parenting Arrangement Wisely
Unlike claiming a child as a tax dependent, claiming head of household is not assignable, said Narris, who went on to explain that individuals either met the criteria or did not.
If you’re negotiating who will claim a child as a dependent, Narris said, “You can include a provision that the right to claim the child is dependent on the parent being up to date on their support obligation.”
24. Plan Finances for After the Divorce
Clients often neglect to consider how their financial planning can change after a divorce.
“Your risk aversion may be very different than your former spouse[‘s] and you do not need to keep the same investment trajectory you had before the divorce,” said Narris.
If you don’t know where to begin, you might want to hire a financial advisor. Remember to think long term when planning finances after divorce.
25. Have a Paper Trail
While most assets are divisible in divorce, there are some exceptions to the rule. Documents can help preserve what you believe to be separate property when it comes to divorce proceedings and should be collected beforehand.
“Too many times the necessary documents seem to disappear after a divorce starts, so to the highest degree possible, gather those documents before you start the divorce,” said Jeff Anderson, a Dallas family law attorney.
26. The Division of Property Can Be Complex
Dividing assets and properties isn’t always a simple numerical transaction.
“Negotiating the division of property is an art form all its own,” said Keith Nelson, a family law attorney with Orsinger, Nelson, Downing and Anderson, LLP in Dallas. “It’s a three-step process: Characterize the asset, value it, divide it.”
After the asset is identified as community property, separate property or both, figuring out the value can be tricky. “For instance, a bank account with cash in it is pretty easy to value — look at the balance,” said Nelson. “But a retirement account, a house or securities can have more complex issues.”
27. Retirement Accounts Are Not Worth the Statement Balance
Just as it can be difficult to value assets, couples often struggle to determine the true value of their retirement accounts. One reason that retirement accounts pose problems is that deferred tax will have to be paid at some point. In light of this fact, Nelson cautions clients that retirement accounts might be worth even less than the balance minus tax.
“If one of the parties will be liquidating a retirement account early, then the highest marginal tax rate and the early withdrawal penalty might need to be subtracted from the value of the account,” said Nelson, who went on to explain that the value of these assets is often drastically reduced as a result.
According to Nelson, “Even if the account is not going to be liquidated, the taxes which will be paid on the money at the time of retirement can be considered and a reduction of the overall value of the asset might [be], and very often is, appropriate.”
28. ‘Division of Property’ Depends on Where You Live
When a divorcing couple heads to court for a property dispute, state law is used to divide the property using one of two classifications: community property or equitable distribution. With community property, both spouses own income and assets equally, and items can be divided evenly. Additionally, individuals can keep separate property.
According to NOLO, a legal advice website, community property applies to the states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin as well as Puerto Rico. Every other state uses equitable distribution, which involves “fairly” divvying up assets and money accrued during marriage. Knowing the law of the land can help you avoid surprises during your divorce proceedings.
29. Some States Are Better for Getting a Divorce
According to the government research site InsideGov, the five states with the easiest and most lenient divorce laws are Alaska, South Dakota, Wyoming, Iowa and Washington. The ease of filing, fees and processing times are all considered as part of the rankings. If time and cost are of the essence, you might want to consider where you live before filing divorce papers.
30. Be Mindful of the Worst States for Divorce
Based off InsideGov’s data, the most difficult states to get a divorce include Arkansas, New Jersey, Rhode Island, South Carolina and Vermont. Arkansas takes the longest amount of time at 540 days. If you live in one of these states, you and your spouse might want to consider relocating to expedite the divorce process.
31. When in Doubt, Seek a Professional — Or It May Cost You
Todd Huettner, president of the residential and commercial real estate mortgage bank Huettner Capital and a financial analyst who has helped many individuals dealing with divorce, advises clients to seek professional help at all costs.
“A simple mistake that drops your credit score 40 points can cost you thousands on your next mortgage,” said Huettner. “Making a mistake separating accounts, renaming beneficiaries or not setting up life insurance properly can cost you hundreds of thousands and impact you for years.”
32. Make Sure You Actually Implement the Divorce
Despite their eagerness to be divorced, many people actually fail to complete all the steps needed to make their divorces legal, according to Huettner. For the best results, clients should make sure all their bases are covered and check up on spouses to ensure they have completed the necessary steps.
“You don’t want to find out that your ex-spouse never refinanced the house five years ago like he was supposed to and [it’s] now in foreclosure,” said Huettner. “By the time you find out about it, your credit will be destroyed for years.”
33. Compromise Could Help You
You win some, you lose some, right? Unfortunately, divorcing spouses often refrain from compromising out of spite.
While you might be tempted to fight every battle that comes your way, agreeing to compromises could save you a lot of headaches and money on legal fees when going through a divorce. As an added bonus, your decision to compromise could encourage your spouse to do the same.
34. Don’t Forget About Health Insurance
Although federal law might dictate that you have health insurance access under your former spouse, Narris cautions clients against relying on COBRA coverage long term due to the high cost.
Her advice: “Start doing legwork for available options that may be less expensive. Better yet, find a job for yourself that has benefits.”
35. Belts Are Always Tightened During a Divorce
While individuals tend to factor the price of getting divorced into their budgets, they don’t always consider other everyday expenses incurred during the process.
Narris recommends that clients carve out a little extra money to care for their personal needs during this difficult time. “Factor in a gym membership, therapy co-payments, massages,” said Narris. “You will want to be as healthy as you can to help your kids through the process, and you never know when you may have a bad day.”
36. Take Action but Be Wary
Savvy divorce attorneys advise their clients to be cautious when filing for divorce.
According to Luna, it’s important to make sure you have the current statement for your spouse’s brokerage account before announcing and filing for the divorce. After all, a deceitful spouse could very easily liquidate the account with no paper trail by neglecting to cash checks until later. The last thing you want is to find out your spouse set up a new account after the divorce settlement while leaving the current brokerage statement with a zero balance.
37. Avoid Underestimating Living Expenses
You need to know what your spouse earns monthly, as well as where the money goes. According to a Divorcenet.com article, when considering the cost of future living expenses, it’s important to take into account the effect of inflation.
Narris recommended keeping receipts so you have a good idea of what everything actually costs. Doing this will help you maintain quality of life after a divorce.
38. Don’t Let Emotions Get in the Way of Selling the Family Home
Whether you have an emotional attachment to your family home or are just being vindictive toward your former spouse, be sure you’re thinking wisely about your decisions with regard to shared property. You don’t want to discover later that you gave up other assets just to keep a home in which you can’t afford to live.
39. Know What You Value
When contemplating divorce, it’s important to consider what assets you value most and be prepared to let some things go.
“A major mistake in divorce that everyone can get trapped into is spending hundreds or thousands of dollars fighting for something that you don’t even want,” said Narris.
Take your time so you can make the most rational and intelligent decisions.
40. Dress Appropriately for Court
It might seem like a small matter, but buying nice clothes for court can boost one’s confidence.
“You will feel better and likely fair better with the judge,” said Narris.
Of course, clients should remember to keep it professional and avoid dressing in a manner that’s flashy or overly pompous. Play it safe by keeping clothing neutral and accessories to a minimum.
It’s important to remember that divorce law varies by state, and some of these tips might not be applicable in your region. Be sure to find a divorce attorney in your area to advise you on how to get a divorce. Doing this will help protect your assets and property while ensuring the divorce process goes as smoothly as it possibly can.
Often the divorcing couple doesn’t remember they have these items, or doesn’t consider them to be assets.
When you’re working through your divorce settlement, deciding who gets what, you are likely focusing on major considerations: house, cars, retirement accounts, investments. While these items are clearly important, many other assets are easily overlooked. Often the divorcing couple doesn’t remember they have these items, or doesn’t consider them to be assets.
Even if you think you don’t care about how they’re divided, keep in mind they have value; adding them to the pot not only increases the total amount of assets to be divided (which increases your share), but they also represent chips in your ongoing negotiation. If you were the more enthusiastic traveler in the marriage, for instance, you might be willing to give a little back on the home sale in order to secure frequent flier miles.
Here are some often overlooked assets to consider when you’re tallying up during a divorce:
Stock options: Your or your spouse may have stock options from your employer. This might seem like something with no value (particularly if they aren’t fully vested), but these options do have monetary value and can increase the total value of your joint assets.
Intellectual property: Copyright, patents, trademarks and even things like books that one of you has written—even if the copyright paperwork hasn’t been completed—have value.
Digital assets: Websites or blogs that either of you owns are assets. Even your social media accounts should be included in your settlement. Most likely, these accounts have no value (unless you have a large number of followers who have potential value for business reasons) but it’s important to establish who will own the accounts after the divorce.
Digital downloads: Movies, music, and e-books are expensive to replace, so be certain to include these items when tallying assets.
Frequent flyer miles and loyalty programs: You and your spouse probably have memberships in lots of loyalty programs and many of them accumulate points, particularly airline programs. Any loyalty program in either of your names is a marital asset and should be divided in the divorce.
Capital loss carryovers: Capital losses can be carried over from one year to the next on income taxes and such losses can reduce future taxes. If you are carrying a capital loss, make sure it is included in your settlement.
Loans: If you or your spouse has made personal loans to friends or family during the marriage using marital funds, the balance and interest due on those loans should be divided in your settlement.
Vacation pay: Paid time off accumulated at a job has a value and is a marital asset. Make sure this is taken into account.
Pets: Emotional attachments to pets can sometimes give rise to nasty “custody” battles, but beyond that aspect, your pet may also be a purebred or particularly valuable for some reason; if that’s the case, you should also include this in your list of assets.
Prepaid memberships: Any personal (for example, a gym) or professional memberships and subscriptions that have been paid for this year and for future years should be included if marital funds were used to pay for them.
Adding items to your total list of assets results in a larger total to divide and more for your half, but beyond that, thinking through what matters to you and to your soon-to-be ex can help devise a settlement that feels advantageous for both sides. A good lawyer can assist you in finding these “hidden” assets, and help decide what’s worth negotiating for as you work through your divorce.
Divorce marks the end of one chapter of your life and the beginning of another, and odds are, you’ll look back at this time and see it as a positive turning point in your life. However, before you achieve that perspective, there’s plenty to go through – and much of that comes down to finances.
Financially speaking, divorce is mostly about the division of marital property (and debts). Most couples today have complex financial portfolios that include many kinds of assets, and at first, figuring out how to divide everything fairly can seem overwhelmingly complicated.
For example, valuations of even the most common assets, such as real estate and bank accounts, cars, boats, and the like, can be points of contention in a divorce. Then, there are investments and employee compensation plans–including life insurance policies, retirement plans, pensions, stock options, restricted stock, deferred compensation, brokerage accounts, etc. –which must also be inventoried and evaluated for the purpose of division in a settlement agreement. Complicating matters further, the current dollar value of assets such as these isn’t necessarily the best basis for determining their worth. Plus, there are many more types of assets to consider: valuable home furnishings, art, antiques, horses, wine collections, rare coins, classic cars. . . . and if you or your husband have been given significant gifts, or have interests, passions or other ventures that you’ve invested in during the marriage, it’s likely these have resulted in marital assets that are now subject to division, as well. (Interestingly, these types of assets often prove the most difficult to Think Financially, Not Emotionally® about. Even if your husband has never shown any interest in your beloved collection of rare first editions, don’t be surprised to hear him express a sudden attachment to it once he learns the collection is subject to division.) Many women find there are marital assets that didn’t come immediately to mind, yet would have significant value or consequences should they fall to one or the other spouse. Please don’t forget that you may be entitled to:
Benefits from previous employers
Your check list should include stock options, restricted stock, retirement accounts (401Ks and pension plans) and deferred compensations plans from previous employers.
Capital loss carryover
Check tax returns for this one. If capital losses exceed capital gains, and also exceed the tax deduction allowable for a single year, the loss can be carried over to future years. If the loss occurred during the marriage, it is a mechanism for reducing tax liability and should be addressed in your divorce settlement.
Cemetery plots, or equivalent
Given that you’re divorcing, it’s a fair bet you’ve changed your mind about wanting to be buried by his side. A cemetery plot can have significant value and should be negotiated.
Collections and memorabilia
Think about what you have in storage, as well as on display in your home. Comic books, gold and silver coins, stamps, books, art and antiques are all potentially valuable items, as are some sports and election memorabilia. If an item or collection is specifically noted in your homeowner’s insurance policy, it’s probably important to your divorce settlement, as well. But, even if you forgot about it when buying insurance, be sure to remember it now.
Country club, golf course and other memberships It could be that your husband is the only golfer in the family, and that the club membership is not something you particularly valued during the marriage. However, many clubs require substantial initiation fees to join, as well as annual dues, presenting an asset to divide.
Gifts you gave each other during the marriage
Gifts received from each other while married are marital property, subject to division in divorce. Gifts given before you were wed, such as your engagement ring, are separate property. (Read about the difference between separate and marital property here, and remember: Separate property can lose its separate property status if you commingle it with marital property or vice versa. For example, if you re-title your separately owned condo by adding your husband as a co-owner or if you deposit the inheritance from your parents into a joint bank account with him, then that property will most likely now be considered marital property.)
This includes trademarks, patents, copyrights and royalty rights. While these may not have generated much income during your marriage, that doesn’t mean they won’t in the future. Intellectual property rights should be specifically addressed in a divorce settlement agreement.
If a winning lottery ticket was bought during the marriage, the winnings are marital property. Money loaned to others, payable to either spouse
For example, if your husband loaned his sister $10,000 during your marriage, the money she’ll pay back to him is subject to division in divorce.
Divorce laws of most states treat pets as property, not family members. Pets may be more commonly assigned to the spouse with a more flexible schedule, and/or who has historically taken care of the animal. If custody of a pet is important to you, make sure your attorney knows to make it a priority.
Photographs and keepsakes
These are literally invaluable assets. With the prevalence of digital photography, it should be no problem for each of you to keep the entire library of recent family photos, but many of us still also have collections of older photographs and negatives. If necessary, make an agreement to share the cost of having them copied. You’ll also need to make arrangements about keepsakes that can’t be duplicated.
This refers to the portion of corporate income that is retained by the corporation rather than paid out as dividends to shareholders. If your husband owns a business, this is one of many things to watch out for.
Depending what time of the year finds you in the thick of divorce settlement negotiations – or if the process spans more than one year – it could be surprisingly easy to overlook a pending or past tax refund.
Term life insurance
Whole life insurance policies with cash value are obviously subject to division, but term policies can also be important to negotiate, especially if yours is a “grey divorce” or if one of you is ill and/or uninsurable.
Travel reward program points
These can make for some nice luxury travel for the spouse that keeps them. Check out my article about who gets the air miles.
There is, to put it mildly, lots to consider, and state laws vary greatly, especially between Community Property and Equitable Distribution States. Fortunately, there is also excellent professional expertise available to work through various financial strategies for dividing each of these types of assets, and to help you be sure that nothing falls through the cracks. Knowing that your divorce settlement leaves no stone unturned, you can turn with confidence to that next chapter you’ve been looking forward to.