Divorces are complicated. There is no one solution that fits all. In fact, family law is one of the most difficult areas of the law due to all the moving parts. Think about it: the emotional impact of severing the family must be addressed while the financial concerns of both parties and the children must be considered. In fact, fear of making a financial mistake with long-lasting ramifications blocks many couples from reaching a quick and amicable resolution.

In most cases, it’s beneficial to have a team of professionals that includes not only the family law attorney but a divorce financial advisor as well.

The attorney’s role is that of coach and quarterback. As coach, the attorney has knowledge of the myriad rules of the game as well as how to negotiate with the other team. Surviving the divorce as financially and emotionally intact as possible is every client’s goal.

In this regard, the attorney acts as quarterback, inching the ball down the field to achieve the client’s goal. Along the way, one of the attorney’s most important tasks is identifying and valuing of all the marital property and income sources. Beyond that step, the critical question: what is the best way to divide the property as well as the income in the case of child support and/or spousal support?

Here the divorce financial planner becomes an important part of the equation. He or she helps the client define the settlement they want, strategizes with the attorney and provides supporting documentation for the attorney to use in negotiations. Spreadsheets and graphs help the client understand what they can afford and help them prioritize their financial goals.

The financial advisor should offer tax advice, pension and retirement account expertise as well as cash flow planning to help the team devise the best strategy. It is important not only to make sure that all assets and liabilities are accounted for but also to maximize whatever cash flow there is in a creative way to assist the party who has not been the primary wage earner to move forward sensibly.

There is an old saying that knowledge is power. It’s far easier to achieve a divorce settlement when the client understands their own financial situation inside and out and is provided with expert guidance from the attorney. The result is that fear of the unknown is removed, leaving the path open for a win/win on both sides. That is the true advantage of the team approach to divorce.

These are some of our thoughts…what are yours?

Written by: Henry S. Gornbein, Esq. and Jacqueline B. Roessler, CDFA
https://www.lippittokeefe.com/ATTORNEYS/HENRYSGORNBEIN.asp

Recently I sat down with my client, “Jane” for a “moment of truth” meeting. The culmination of several client meetings and extensive number crunching, it was apparent that Jane’s primary financial goal wasn’t realistic. Above all else, Jane wanted her three children to experience little to no change in their current lifestyle.

Based on my projections, that wasn’t likely to happen without significant financial sacrifice on Jane’s part.

The kids’ lifestyle included private school tuition, overnight summer camp and a plethora of expensive extra-curricular activities. As a parent of young children, I empathize with the desire to keep things as stable as possible in the midst of a tumultuous time. As a divorce financial planner, however, my job is to inject a dose of reality into the emotional roller coaster of divorce. I want my client to understand the short term and long term financial impact of their settlement before they sign on the dotted line.

In this case, Jane was stunned to hear that child support wouldn’t cover all her minor children’s expenses. Like most states, Michigan’s child support formula factors the income of both parents, the parenting schedule, family size and the tax status of the parties into the equation. The actual expenses of the children are not automatically considered. Jane assumed that since her husband had agreed in the past to prioritize private school tuition, he would be required to continue. That wasn’t necessarily the case. Savings for future college costs? Not part of the formula. The same goes for horseback riding camps, travel soccer, music lessons, etc…

After several tough meetings and in-depth conversations, Jane made some difficult decisions. The truth was that her kids’ expenses had contributed in some way to the divorce; she and her husband had been living beyond their means.

On the advice of her therapist, Jane sat down with her kids to discuss developing a family financial game plan. That might mean downsizing their house or cutting back on some of the extras. It might even mean a change of schools. However, it was empowering for them all (yes, even the kids) to know that they would be ok if they made smart financial decisions now to protect themselves for the future. For example, they all agreed that it was more important for Jane to be home after school than it was for the kids to continue at any particular school. The kids understood that they couldn’t attend every camp they had in the past, but would be able to choose one special experience. Jane didn’t burden her children with specific numbers or financial worries, rather, she initiated a dialogue about prioritizing to keep the family stress-free.

It may feel uncomfortable to discuss finances with children, especially as it relates to divorce. However, frank money talks and responsible role modeling on the part of their parents help children set and achieve their own financial goals as they venture into adulthood.

I recently had the opportunity to co-present a workshop for attorneys with my colleague, Melissa Joy, CFP® of the Center for Financial Planning in Southfield, Michigan on Social Security and Elder Divorce.

For those that weren’t able to attend, this blog recaps our “Top 3 Things We Bet You Didn’t Know” about Social Security and divorce.

1. It is NOT better to claim Social Security early, at age 62!

Generally, as long as you can afford to wait to age 66 and you’re in good health with a reasonable life expectancy, it’s far better to wait to full retirement age (FRA) to collect, in order to maximize lifetime Social Security benefits.

This seemed counter-intuitive for many of the seminar attendees, as it was for me when I began researching this topic. However, there is a steep reduction in benefits for those who collect early. That reduction lasts a lifetime. Keeping in mind that Social Security is an income stream that cannot be outlived, and life expectancy for Americans has increased dramatically, any number crunching will back up this tip. Think Social Security might go bankrupt? Despite what you’ve heard, this is an extremely unlikely scenario for the baby boomer generation and beyond.

2. 10 years married is the magic number.

Ex-spouses are entitled to receive up to 50% of their former spouse’s Social Security benefit or 100% of the benefit on their own work history, whichever is greater. However, in order to qualify, the marriage had to last 10 consecutive years and the recipient ex-spouse cannot be remarried.

Suppose your client, Sarah, is in a marriage with one high-wage-earning spouse and one lower-wage earner. Sarah’s ex-husband’s FRA Social Security benefit is $2,400. Sarah could receive 50% of her ex’s benefit ($1,200 per month) or the benefit on her own work history, $700 per month. Wouldn’t Sarah prefer bumping up to the divorced spouse retirement benefit in lieu of claiming her own?

Unfortunately, we see cases all the time where the marriage lasted close to 10 years — but not quite! This is often a critical planning error. Some couples might be willing to stay married for an additional year to have access to a larger lifetime income stream for the low-wage-earning spouse.

Keep in mind that when a divorced spouse’s retirement benefit is paid, it doesn’t impact the high-wage earner’s benefit in any way. They can still receive 100% of their own Social Security benefit. In fact, as long as the high-wage earner was married to each spouse for 10 consecutive years, he or she could have up to 4 ex-spouses collecting a divorced spouse benefit on their earnings.

3. Warn your client about remarriage before age 60.

Social Security widow benefits can be up to 100% of the deceased spouse’s Social Security benefit. This rule applies to ex-spouses as well. Sarah in the example above would be entitled to receive as much as $2,400 per month (remember that her own workers’ benefit was $700 per month and monthly spousal benefits were $1,200). However, there is a little-known caveat: the ex-spouse can’t remarry before age 60. In the example above, Sarah would surely consider putting off her pending marriage to her new beau, Mark, until she turns 60. If the remarriage occurs after age 60, Social Security widow benefits would still be available.

These are just a few of the topics discussed at the seminar. My next article will discuss the effects of benefit inequity in a long-term marriage. In the meantime, we’re here to help. If you need assistance, contact Jacki at qdrogirl@divorcesolutionsllc.com or Melissa at Mellisa.Joy@centerfinplan.com

With good reason, the majority of family law attorneys refer out the preparation of Qualified Domestic Relations Orders (QDRO) to QDRO/pension experts. Never a neutral document, QDROs always benefit one side at the expense of the other. Therefore, sharp attorneys carefully review prepared QDROs to ensure they represent an equitable division of the benefits and protect their client’s interests.

What about sections in the QDRO typically referred to as “boilerplate”–the ones that tend to be omitted in employer-provided QDRO Models and web-generated Orders? Are they necessary or do they just contain technical jargon (i.e. gibberish)? This blog zeroes in on one “gibberish” section that, if omitted, can come back to bite an attorney – years after the QDRO is entered.

Do you ever represent union employees, their spouses or participants who retire prior to age 65?

For those who answered “no,” you’ve dodged a bullet and are free to skip this blog. The rest of you, read on.

Were you aware that, under IRS Code Section 415, the government restricts the annual dollars employees can receive from their defined benefit pension plans? For 2015, that amount is $210,000, with the added stipulation that benefits can’t exceed 100% of the employee’s average compensation during their 3 highest consecutive paid years.

$210,000 in annual pension benefits? Think this only affects the highest-paid employees? Think again.

Suppose your middle-level automotive client, Joe, begins taking his pension benefits at age 48. Under Section 415, the $210,000 maximum annual benefit is actually reduced to reflect Joe’s early commencement. His employer determines he’s in violation of Section 415, which results in a lifetime annual pension reduction for Joe. Also consider the case of Jane, a multi-employer union employee who receives a relatively modest paycheck, but an extremely fat pension benefit – as negotiated by the union. Jane’s annual pension income easily exceeds 100% of the average of her three highest wage-earning years. Her pension is reduced accordingly, per Section 415. Both Joe and Jane end up with significantly more reduced pension benefits than they had anticipated.

How does this affect divorcing spouses and QDROs? If a pension payout is in violation of Section 415 limits, the retiree’s pension income will be reduced until the income is within the acceptable limit. If the QDRO doesn’t include a Section 415 paragraph, the entire reduction will likely come out of the retiree spouse’s share instead of being shared by both parties.

For example, Jane is going to receive $1,500 per month and her ex was to receive $1,500 per month via their QDRO. Since Jane is in violation of IRS Section 415 (her pension was much higher than her wages), her $3,000 per month pension is reduced by $1,000 per month. Since her QDRO lacks language on IRS Section 415, her benefit amount is reduced to $500 per month. Her ex still receives $1,500 per month, however.

That would be an unpleasant surprise for Jane!

Therefore, if you represent the plan participant, check the QDRO “gibberish” and confirm there is a Code Section 415 paragraph that offers protection – for your client and you!

When newly pregnant, I read and re-read my favorite book, What to Expect When You’re Expecting, until its cover was ripped and the pages were falling out. It gave me a second opinion on my doctor’s advice; and it was a voice of reason that calmed my worry-bugs in the middle of the night and (thankfully) skipped the medical jargon in favor of plain English.

If you know someone experiencing divorce (another of life’s major transitions), Henry Gornbein’s new book, Divorce Demystified is a must-read. Gornbein, a family law attorney with more than 40 years of experience, shares the inside scoop on what to expect when you’re divorcing. This book is, in fact, the divorcing person’s equivalent of the “What to Expect” guides. Providing an experienced second opinion that offers advice without judgment, this book is a welcome addition to the divorce self-help catalog.
Not sure what to look for in a divorce attorney/client relationship? How can you evaluate your attorney’s effectiveness? How is alimony taxed as compared to child support? Maybe you need to hear that the one issue you’re digging your heels in on isn’t going to end in your favor. These topics and so many more are gently folded into text that is both empowering and practical.

Gornbein has advised a diverse clientele with a variety of common and unusual issues and wants you to benefit from the mistakes he’s seen clients make along the way. Forget the glossy overview; this book tells it like it is. Many books in this genre do offer tidbits of valuable advice, but many are ridiculously filled with legal jargon which makes the advice inaccessible to the reader. Gornbein’s text, however, is clear both to the novice and those with knowledge about divorce matters. That makes it a truly valuable tool for all levels of experience.

There is a particularly eye-opening chapter on the impact of social media and technology on today’s divorcing couples. Prepared to read the familiar advice, “Don’t post pictures of yourself in a compromising position on your public Facebook page,” I was surprised to find brand new tips and advice everyone should consider. The issues raised regarding the legality of taping in your home, cell phone tracking and social media trolling were particularly enlightening.

As a financial professional working in the divorce arena, Gornbein raises legal, financial and psychological issues that I wish more of my clients understood. Of course, as Mr. Gornbein reminds his readers, this book isn’t meant to take the place of sound legal advice for your particular situation. However, anyone contemplating or experiencing divorce can always use a second opinion in the middle of the night when their worry-bugs strike.

Although IRS rules on IRA transfers between ex-spouses pursuant to divorce haven’t changed, the practical application of those rules by IRA custodians has evolved dramatically in recent years. The unfortunate result for divorcing couples includes delayed transfers, increased frustration and, in some cases, unanticipated professional fees to untangle the mess.
Pursuant to IRC 408(d)6, IRA transfers incident to divorce and pursuant to a Court-ordered decree are a non-taxable event for the owner spouse and the recipient spouse.

However, we’ve noted two new problems: a growing number of IRA custodians are requiring QDROs to transfer funds, and others are requiring overly complex Letters of Authorization.

Why Is It a Problem if a Custodian Requires a QDRO or a DRO?

Easy answer: unanticipated costs and delays for the parties.

QDROs are the legal documents used to divide qualified employer-sponsored retirement assets that are covered by ERISA (The Employee Retirement and Income Security Act). Whereas an IRA transfer should be a relatively inexpensive procedure, QDRO preparers charge fees in the range of $400-$750 per QDRO. Each document should be tailor-made for the case at hand and include provisions that Plan fiduciaries require so that the transfer of qualified plan funds doesn’t violate ERISA’s anti-alienation clauses.

In addition, QDROs must be signed by both parties and entered with the Court, which generally requires the services of an attorney.

Why Is It a Problem if a Custodian Requires a Detailed Authorization Letter?

In certain circumstances, this can actually be more problematic than preparing a QDRO on an IRA account.

Many IRA custodians now require a detailed letter signed (and sometimes notarized) by both parties that details how each holding should be transferred.

Suppose the parties are attempting to transfer an IRA pursuant to a divorce that occurred several years ago. The IRA account owner isn’t feeling cooperative and won’t (or can’t) provide a detailed account statement as of the date of divorce. Even worse, what if the divorce decree stated that several IRA accounts were to be equalized with one IRA transfer letter? That requires collecting various (often old) account statements from both parties. What if the IRA account was transferred to a new custodian?

The end result is often a trip to the attorney’s office to determine what measures can be taken to enforce the divorce decree.

What Can Attorneys & Financial Professionals Do To Avoid These Problems?

First and most important, while the divorce is pending, contact the custodian to determine what’s needed to process a transfer. It goes without saying that it might be difficult to find the person or department that knows the answer to that question. Be persistent.

Second: Enter the Letter of Authorization/DRO on the same day as the divorce decree, or as soon as possible. Once the divorce decree is entered, there is less incentive for everyone to cooperate.

Lastly, follow up with your clients to confirm the transfer occurred. Beneficiary designations take precedence over language in divorce decrees. Timing for IRA transfers, therefore, is critical. After the divorce, the IRA owner has the ability to alter beneficiary designations to disinherit the ex-spouse.

It also may be beneficial to consult with a QDRO preparer or divorce financial professional before reaching an agreement. They often know which custodians are “easy” to work with and which ones can become problematic.

Above all else, don’t fall into the “It’s so easy to transfer an IRA” trap!

We’re here to help. If you need assistance, contact us today at qdrogirl@divorcesolutionsllc.com

There’s a very negative connotation against women trying to get a fair and equitable divorce settlement – without being labeled as greedy.

Often in high-profile divorces, we see a pattern projected by the media that is not in favor of the wife. How many times have we seen the wife described with these words:

“She took this amount of money from him in a settlement.”

“He lost “x dollars” to her.”

“She wants more than her fair share.”

“Isn’t 2 million enough for her? Why does she need more?”

This attitude trickles down from celebrity cases such as Bobby Flay, Tiger Woods or Michael Jordan to all other levels of income and social class where there is an implied sense that the wife is taking from the husband, rather than simply getting 50% of the assets in a fair settlement.

Often the discrimination is subtle, not overt. The subtle implication is that the wife is grasping for assets, has a sense of entitlement, and that she is taking money from the husband. There is no recognition that the estate is not “his” estate; it is “their” estate.

There is a presumption in most states that anything acquired during the marriage, whether it is a debt or an asset, belongs to both parties, not just one. Yet, only the wife is left in a position of having to justify why she needs a fair settlement, and having to show that she needs to maintain the same lifestyle.

Often mediators put their own feelings about money into the mix, and can forget that this particular spouse is not accustomed to a lower standard of living. If we can start to change the rhetoric that’s used in these high profile cases, women from middle-income and lower-income cases will feel differently about standing up for their fair share as well. I hear women who say, “Maybe I am being too greedy.” It is not greedy to want a fair share of your property.

Changing these patterns is not easy and takes time. It needs to start with mediators and judges taking off their own personal hat and asking what is fair and equitable, based on the numbers in the case, not on their personal opinion of how much money is enough for one person.

We’re here to help. If you need assistance, contact us today at qdrogirl@divorcesolutionsllc.com

Clients want you to get into the nitty gritty.

Recently, I spent half an hour on the phone talking with a woman about the details of a pending QDRO. We discussed the differences between electing a Single Life Annuity versus a Joint & Survivor Annuity on a defined benefit plan. I explained the “quirks” of the particular plan being divided as well as the limitations imposed by the Plan Administrator. We talked about survivor benefit choices and the risk that would accompany putting off getting the Order prepared and entered.

Was she a trained actuary? No.

Was she an attorney or an accountant? No.

She was the client!

Was she capable of understanding the complex issues we discussed and making educated decisions about her future and financial well-being? Absolutely! She was also very grateful that someone was taking the time to explain the options.

Far too often in our practice we discover that clients don’t understand the details of their agreement as it relates to dividing up the retirement accounts, brokerage accounts, health insurance continuation, potential tax implications of their agreement, etc. Even worse, in some cases, clients are shocked to discover that the language they agreed to is not what they would have chosen for themselves, if asked.

Take the following typical scenario:

Mary Smith’s Judgment of Divorce (JOD) awarded her 50% of her ex-husband Joe’s pension. However, the JOD did not specify the division method that would be used. Would Mary rather receive her benefits based on her own life expectancy and give up a share of any early retirement supplements? Or would she choose to wait until Joe retires to share in any early retirement supplement and cost-of-living adjustments?

No one ever asked Mary, assuming this was too much detail for her to be concerned with.

Under Joe’s plan, alternate payees can’t have both. The end result was that the parties went back to court, post-JOD to hash out the details. This was expensive and stressful for everyone involved.

As with many complicated legal and financial issues, divorce attorneys are forced to focus on “the big picture” with their clients to achieve a settlement. However, the client frequently walks away with an incomplete understanding of the details. That is why, in our office, we use plain English to help our clients understand legal language and important financial concepts. In other words, we “bother” the client with the details.

‘Gray divorce’ cases raise new financial questions for their attorneys.

A recent Bowling Green University study reported that an astonishing 25% of all new divorce cases filed are by those age 55 and older. Is this the result of changing attitudes towards marriage and monogamy amongst the so-called “Baby Boomer” generation?

Regardless of the reason, family law practitioners need to sharpen the tools in their toolbox to handle some of the particular financial issues affecting gray divorce.

The first consideration that bears looking at in a new light relates to Social Security income. John, for example is entitled to receive $2,600 per month at his age 66. Mary, a stay-at-home mom, will receive half of John’s benefit ($1,300) at her age 66 – John still keeps his full $2,600. As long as a divorced couple was married at least 10 years, each spouse is entitled to 100% of their own Social Security benefit or 50% of their spouse’s, whichever is greater. In most states, within the context of divorce, Social Security is viewed purely as an entitlement, not an asset of either party.

For an aging couple, however, Social Security income can be a substantial portion of their combined income. Attorneys in gray divorce should be considering equalization of Social Security income between the parties in the form of permanent alimony.

In fact, another component of gray divorce is viewing the alimony equation differently. There is an assumption in most jurisdictions that alimony will cease at a “normal retirement age.” However, as life expectancies lengthen, many people continue to work well past the age of 70. In addition, in gray divorce, a necessary budget item for both parties might include long-term care policy premiums, as well as any payments towards Medicare supplemental health insurance policies. When working with older clients, it is essential to address future health care and longevity concerns.

Perhaps the most complex issue is how gray divorce will affect the next generation. Do the parties own a family business? How does gray divorce (and perhaps subsequent re-marriage) affect the anticipated transfer of wealth to the next generation? In the past, the golden years were a time when spouses anticipated taking care of each other. Going forward, if a 60-year-old client is divorced and in bad health, how does that impact their grown children? Who will handle the financial and physical responsibilities of their divorced parents and how can that be addressed within the overall settlement?

This is just the tip of the iceberg; required minimum distributions, tax issues and pensions already in payout status are other significant financial concerns affecting gray divorce. To find out more about how Divorce Solutions and certified divorce financial advisors can help your clients, call today at 248-354-0495.

Divorcing couples often have after-tax brokerage accounts, but sometimes attorneys might not recognize that there may be a wrong way to divide these accounts.

What I’ve found in my practice is that a good attorney will review the parties’ current brokerage account statements to determine the account value and legal title. I often hear, “There’s $150,000 in this account. We’re going to divide the account 50/50. She get’s $75,000, and he gets $75,000.”

As a divorce financial advisor, attorneys hire me to review the same statements but with an eye to gathering additional information.

First, what type of investments are in the account, and are they suitable for the client’s post-divorce needs?
Next, what is the cost basis of the investments?
Last, can we confirm that all the assets are divisible without surrender charges and/or penalties?

Let’s take the case of Mrs. Smith. The parties’ joint brokerage account was primarily invested in high-risk assets, many with back-end loads. It’s likely that these positions won’t suit Mrs. Smith after the divorce. Her primary post-divorce investment goal is to receive income from her portfolio along with moderate growth within the confines of her low-risk tolerance. While Mr. Smith will likely maintain his current investment strategy, what will the cost be to Mrs. Smith if she has to reposition?

Her attorney says, “She gets half the account and half the capital gains….isn’t that fair?”

Surprisingly, the answer is, “Not necessarily.”

If, for example, Google shares were purchased at $20/share and sold at $100/share, capital gains taxes on the profit would be owed, based on the party’s tax bracket and how long the asset was held. On the other hand, if Mrs. Smith left the entire position with Mr. Smith, perhaps he would retain it until he had enough capital losses to offset the gains, or maybe he would sell in retirement when he was in a lower tax bracket and capital gains taxes wouldn’t be assessed. In any case, tax liabilities should be incorporated in negotiations.

Looking deeper, many of the account holdings in the Smiths’ account raised red flags. They owned back-end load funds which carry a penalty for early withdrawal. Mr. Smith won’t be repositioning his assets soon (after all, he was the decision-maker), so he won’t pay the penalty. However, Mrs. Smith wants to reposition immediately and would therefore incur a penalty. In addition, other assets such as private equity positions and real estate trusts were not divisible without cashing them in. How would that be fairly addressed when the divorce is final?

Should these hidden costs and suitability concerns be addressed within the divorce process? While attorneys aren’t responsible for giving clients the investment answers, they are responsible for raising the following question:

“What is the right 50% of the investments for my client’s post-divorce financial health, and then how do I advocate for that position?”

Attorneys who are not financial experts should communicate with the existing financial advisor or call in a third party regarding which assets are best for each client. Remember, for some clients, there is a wrong “50%” of the assets.