Broken Agreements in Broken Marriages

Posted on September 15, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

Sometimes my College Station divorce clients come to the collaborative case with pre-existing spousal agreements. I am the neutral financial CPA on these cases. That means I am not an attorney and I don’t know the ins and outs of what attorneys do. But I have heard attorneys imply that these agreements don’t survive the entrance to a legal case. (Perhaps those were said by the attorney for the spouse who doesn’t like the agreement.)

By agreements, I am talking about things ranging from promises to give him/her the landscape painting to promises for support payments for “all” his/her living expenses.

If you have any pre-attorney agreements with your spouse, check with your attorney in your first meeting. Be clear about the agreements and what you think both you and your spouse said at the time. Be clear about your current intentions.

How will this be handled in my divorce case?
I didn’t agree to this, I just kept my mouth shut and now he/she is forcing this on me.
He/she promised to pay alimony for life. Can I really get that?
Can he/she really get credit for giving me something now that he/she already gave me as a gift years ago?
Is this agreement wiped out because we now have attorneys involved?
Can I make him/her honor this agreement now that we have started the legal part of this divorce?

In collaborative divorce cases there is a method to talk nicely about these expectations. I have been involved in these discussions dozens of times. It is best to get this resolved up front. Don’t hide from these issues. If you want to keep your costs down and get out as quickly as you can, be assertive about clearing the air on these old agreements.

I would like to hear about any broken agreements that you have experienced in divorce.

Six Rules for Social Security and Divorce

Posted on September 14, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

If you are divorced and were married at least 10 years to your ex-spouse, you are entitled to a spousal or survivors Social Security benefits.

The following is from the 2011 AICPA CPA’s Guide to Social Security Retirement Benefits.

For ex-spouses …

You must have been divorced from this ex-spouse for at least 2 years before you can apply for the benefits.
You have not remarried before you turn age 60.
If you remarry before age 60, you will still qualify for the survivors benefit if your subsequent spouse dies or ends your marriage in divorce before you apply for the survivors benefit.
Your benefits as an ex-spouse do not change or affect on what children or new spouse (with your ex) could obtain.
As an ex-spouse, you can start collecting spousal benefits before the working spouse has begun taking his/her benefits.
If you remarry before age 60, you get to choose the better Social Security spousal benefits. You can compare your benefits under the ex-spouse rules and the current spouse rules and then pick the best.

For more information, check out the Social Security website.

A Different Kind of Taxable Alimony

Posted on September 13, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

Herman decided to give his wife, Angie, lump sum alimony in their collaborative divorce. He didn’t want it to be taxable to her. He was okay with not taking any tax deduction on his side of the transaction. They can do that. It is legal.

He and his attorney told Angie and her attorney that the alimony in his offer is non-taxable. Angie would get to keep the entire lump sum and none of it would be taxable. Great. Angie considered the lump sum in relation to her cash needs. Looks good.

But, when the agreement was typed up for signatures, it said that Angie was getting her lump sum alimony money from Herman’s IRA account. Herman was going to transfer that IRA money to Angie. He was not going to withdraw it, pay the income tax due and then hand it to Angie. That meant Angie would have to pay income taxes on her alimony when she withdraws it from the IRA. When I point this out to her, she and her attorney are no longer happy.

Surprises are not fun in divorce proceedings. Angie and her attorney started packing their stuff, ready to walk out.

I sat down with Herman and his attorney to try to figure out how he could give Angie a lump sum that will not be taxable to her. After all, he had offered that to her.

He didn’t want to part with any of his cash-in-bank. So, we scoured his IRA and discovered that it included a large chunk of post-tax contributions. This meant that Herman could use the post-tax contribution money for the lump sum alimony. Angie would not have to pay income tax on the alimony money she withdraws from the IRA. Angie and her attorney were back to happy.

Income taxes are hidden in all kinds of places. Be careful.

Details in Divorce Are Critical

Posted on September 12, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

Is Guam a foreign country? Getting the wrong answer could have cost Steve his father-son relationship.

Steve and Marci have two very young boys. In the middle of their collaborative divorce in College Station, Texas, Steve and Marci needed to agree on who would have primary custody if they lived in different locations.

They came into the meeting prepared. They had agreed that Marci had the boys if she lived in Canada or the U. S. If she moves anywhere else, the boys stayed with Steve. With her company folding, Marci had already announced that she would take a job “anywhere in the world”.

Steve is intending to follow Marci and his boys to nearly anywhere in the U.S. or Canada, but not anywhere in the world.

I asked them if they wanted to define the United States. They thought that an odd question. Did they want to stick with the continental U.S. and exclude Hawaii and Alaska? They decided to include Alaska and ditch Hawaii.

Knowing Steve wanted to keep his sons on this continent, I asked him how he felt about Guam. He looked surprised and Marci said, “I could live there!” Neither of them knew that Guam is a territory of the U. S. But then, they grew up in Eastern Europe where American geography and government were not strong subjects.

They agreed to define the U.S. as the lower 48 states plus Alaska. Had they not tightly defined the U.S., they could have ended up with Marci moving their sons to Guam or another U.S. territory.

I can hear the judge now, “Guam is part of the United States. You should have thought of that before you agreed to this.”

Divorcing? Will you be able to retire?

Posted on September 9, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

Four in ten Americans are at risk for not being able to maintain their lifestyle in retirement. Are one of them?

If you are contemplating anything other than a collaborative divorce, you won’t find the answer in that process. In fact, you will have more chance of being one of those four people after your divorce.

In the collaborative divorce process, you get to have a neutral CPA on your team. For less money and more expertise, your neutral CPA will quickly and effectively do the financial work. Attorneys are not quick and effective with numbers. They also don’t give financial advice. One thing your neutral CPA can do for you is analyze your chances of being one of those four Americans.

All my collaborative clients are worried about their financial future. Divorce is scary. Divorce is an unplanned large expense. Will you be able to retire? Will your children get to go to college? Will you be able to live like you have been?

These are all questions that your neutral collaborative divorce CPA can address.

Don’t be one of the four Americans who are looking at a reduced retirement lifestyle. Get your answers now.

Alphabet Financial Planners #3

Posted on September 8, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

In the past couple of days, I have covered some of the 210 different professional designations for financial advisers. The topic continues today.

CSFP (Chartered Senior Financial Planner) Requires minimum of 2 years experience directly or indirectly within the insurance, security or banking industry OR 2 years having been licensed within the insurance or security industry. Experience requirement is waived if you are an attorney or CPA. Three day review course and two-hour exam.

EA (Enrolled Agent) A tax professional licensed by the Federal government, who can represent a taxpayer before the IRS. Must pass a two-day exam and clear the IRS background check OR be employed by the IRS for 5 years in a position that required the application and interpretation of the Internal Revenue Code and regulations.

CWM (Certified Chartered Wealth Manager) Granted from by the American Academy of Financial Management (AAFM), which grants no less than 18 designations. According to the website no exam is required for any of the 18 designations. Let’s save some space here and I’ll just list the other 17 designations:

CAM (Chartered Certified Asset Manager)

MFP (Master Financial Planner)

AFA (Accredited Financial Analyst)

CPM (Certified Chartered Portfolio Manager)

CRA (Chartered Certified Risk Analyst)

CTEP (Chartered Trust and Estate Planner)

RFS (Registered Financial Specialist)

CMA (Chartered Market Analyst)

CCA (Chartered Compliance Analyst)

CAMC (Certified Anti-Money Laundering Consultant)

CAPA (Certified Asset Protection Analyst)

CEC (Certified E-Commerce Consultant)

MCP (Management Consultant Professional)

CTS (Certified Transfer Pricing Specialist)

MPM (Master Project Manager)

CITA (Certified International Tax Analyst)

RBA (Registered Business Analyst)

I think this is probably enough to give you an idea of how many light weight credentials are out there. You can check on the credentials of any financial advisor at FINRA. Click on “Please select a record” and you will see a drop down list of credentials. Or enter the initials in the search field. Easy peasy.

Alphabet Financial Planners #2

Posted on September 7, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

Yesterday I covered a few of the 210 different professional designations for financial advisers. Here are a few more.

CLU (Chartered Life Underwriter) This is generally thought of as the highest professional designation for a life insurance agent. They must have extensive experience and courses from The American College.

ChFC (Chartered Financial Consultant) These are typically insurance agents with several years of experience. They have passed courses in financial planning from The American College and want to expand their business into other kinds of financial planning. They may also have a CLU credential because the academic requirements are the same.

CDFA (Certified Divorce Financial Analyst) These folks have to pass an exam and take 20 hours of continuing education every two years. I have this designation. It focuses on the sub-specialty of divorce financial planning. On its own, it is not a heavy weight credential. Look for a certificate holder who is also a CPA, CFP or both.

CSA (Certified Senior Advisors) To get this, you need to pass a 150 multiple choice question exam and have some experience or training in working with seniors. According to the WSJ report, in 2007, the Society of Certified Senior Advisors “began requiring CSAs to disclose to clients that ‘the CSA designation alone does not imply expertise in financial, health or social matters,’ among other things.”

And more to come…

Alphabet Financial Planners #1

Posted on September 6, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

There are 210 different professional designations for financial advisers. How are you supposed to know which ones are credible and which ones are lame?

Credentials help advisers make more money. Jason Zweig and Mary Pilon in a Wall Street Journal note that according to a “2007 study by the Financial Industry Regulatory Authority (Finra), 46% of older investors are more likely to accept financial guidance from someone with a professional designation – and 17% of investors would be more receptive to advice from a ‘certified adviser for senior investing,’ even though such a credential doesn’t exist.”

Here are a few of the 210 for you to think about.

CFA (Chartered Financial Analyst) Only 42% of candidates pass the three required exams after 900 hours of studying in accounting economics, ethics, finance and math. This process can take several years.

PFS (Personal Financial Specialist) and CPA (Certified Public Accountant) Every PFS holder must be a CPA. Usually you will see “CPA/PFS”. These CPAs have met education and experience requirements and have passed a comprehensive exam on financial planning. Many PFS advisers focus more on tax-efficient financial planning than just tax work. CPAs must pass a 14-hour exam and must get 40 hours of continuing education on an annual basis.

CFP (Certified Financial Planner) These advisers must also meet education and experience requirements and pass an exam. They must get 30 hours of continuing education every two years.

RIA (Registered Investment Adviser) This is NOT a credential. It simply means that the person has registered with the either the SEC or the state securities board and has paid a registration fee.

More later…

Get Reasonable About Spending After Divorce

Posted on September 1, 2011 by Tracy B Stewart, CPA/PFS/CFF, CFP, CDFA

I recently had a few divorce cases where the couples spend more than they can afford. The crazy thing is that they refused to see how dangerous this is.

I read in the news that Americans are saving more and spending less. Not divorcing Americans. Don’t these people want to retire some day?

Hello, readers! If you are facing divorce and are not a billionaire, then you are going to need to cut back on your spending. I’m sure you feel you deserve to keep your current lifestyle. Odds are that your current lifestyle wasn’t sustainable anyway.

I’m talking about people with incomes ranging from modest to a million dollars a year.

Are you socking away 10% of your income? If not then review your spending. Look for ways you can cut back. Examine your spending habits and then cut back.

Stop getting manicures and pedicures. Do them yourself. The more you do them, the better you get at it. Invite girlfriends over and make it a party.

Are you overpaying for insurance? My husband and I had our insurance reviewed last month and saved $500 a year.

Look at your summer clothes. Did you wear them all? Take the ones you didn’t wear to a consignment shop.

Tracy B. Stewart

Money & Divorce: Advice You Wish You Had

Monthly Archives: September 2011