Divorce Prep 101: Steps to Take Before Telling Your Spouse

There are a few steps to take before telling your spouse you want a divorce to ensure you’re prepared to start the process.

Be Proactive:  Start collecting all financial statements and records, including previous years tax returns.  Make sure you have access information, i.e. login and passwords, to all accounts.  Start watching bank and credit card transactions in order to be able to spot any red flags once you tell your spouse.  If any red flags appear, you may need to bring in a forensic accountant.

Create a Budget: Start by looking at spending over the previous 3-6 months.  This will give you a baseline for what goes out each month and line items for your budget.  Once you’ve got this, make a budget for post-divorce.  You can estimate future expenses based on past expenses and be sure to add any additional expenses of splitting the marital property and responsibilities.   And know that the budget you create is never set in stone.  It is a living, breathing document that should reflect your current needs. 

List Assets and Liabilities: Start a list of all financial accounts, assets and liabilities.  Don’t forget retirement accounts and any tax liabilities.  From this list you will gain perspective of what your post-divorce financial situation could look like. You can also start thinking of property division and have some ideas going into the divorce process. It helps to list what items are individual and which are joint, marital and separate.

Pull Your Credit Report: A large majority of financial decisions and access to credit is based on your FICO score.  Once you pull your free annual credit report at www.annualcreditreport.com pay the small fee to reveal your score. If you find your score is low, start taking steps to repair your credit. 

Hire Help: Hire a CFDP®  (Certified Financial Divorce Practitioner) to help with assess your current and post-divorce financial situation and a CPA (Certified Public Accountant) to assess the tax implications. Each can help you minimize the total taxes you and your spouse will have to pay during separation and after the divorce. 

Consider Mediation:  Mediation gives you the space to have your voice heard and provides more flexibility that a typical adversarial divorce.  You have more control over the process and issues, creating a divorce settlement that reflects your specific family and needs. Also, mediation can save you thousands of dollars in fees.  Just know that both spouses need to agree to this route, as mediation requires the input of each party and a willingness to participate in decision-making.

8 Steps to Cope with Financial Uncertainty and Divorce

8 Steps to Cope with Financial Uncertainty and Divorce

We’ve all heard that money is the number one reason for divorce.  Even if it’s not wholly accurate, finances can strain a marriage and negatively affect children.  Here are some tips in coping with financial uncertainty and divorce.

Educate yourself: Though it may seem overwhelming, sit down with the details of your finances.  If it is too difficult to do alone, have a Certified Financial Divorce Practitioner (CFDP) or other financial professional look at the numbers with you. Educating yourself is the first step to assessing your situation and looking for solutions.

Communicate to your children: Make sure to not skirt the situation, but also be reassuring.  You should give age-appropriate information without overwhelming with unnecessary details.

Focus on what you can control: Focusing on what you can’t control can lead to a feeling of hopelessness. Find small steps you can take to tackle your financial situation.  If you are unable to figure out where to start, a financial professional specializing in divorce financial planning can help.

Slow down: It is natural to want to get through a stressful situation as quickly as possible, but don’t make any hasty decisions.  It is important to consider all implications before making a decision that will affect the financial future of your family. Take time out to think things through and weigh all options.

Prioritize decisions: There are some decisions that will need to be made right away, such as where to live while others can wait, such as a career change.  Give yourself permission to wait on those that can and focus on the most pressing issues first.

Remember your health: The stress of divorce can lead to changes in eating, sleeping or exercising. Be aware of how stress is affecting your mental and physical heath and give yourself a break.

Stay positive: It’s easy to get bogged down in the negative feelings associated with the end of a marriage.  Don’t get distracted by these feelings and try to focus on the positive.  Yes, there is positive! Use this as a learning experience and focus on your positive qualities that are allowing you to conquer this situation. Staying positive will allow you to see a hopeful future and you’re more likely to move toward it more quickly.

Reach out: Don’t do this alone.  Surround yourself with professionals you trust and friends and family that support and energize you.  Choose those who truly listen to you without judgment. This is also a time to cultivate new relationships and make an effort to meet new people.  Join a club or group, take a class or volunteer in your community.  You’re bound to feel invigorated while focusing on something other than the divorce.

Nicole established the Denver Divorce Mediation Group, LLC and became a CFDP® after having experienced a divorce herself. She saw how difficult it was to make important financial decisions while overwhelmed with the emotions that come with divorce.  As a divorce financial planner and mediator, she has helped hundreds of couples move through divorce and gain control of their financial future.

Is it possible to modify child support or spousal support after the Marital Settlement Agreement is finalized?

It is possible to change the amount of spousal support and/or child support after the dissolution judgment has been finalized, but only by filing a petition with the court. In either case, spousal support or child support, the petitioning ex-spouse must show that a "substantial change in circumstances" has occurred.

In Illinois, a "substantial change in circumstances" that justifies an increase of spousal support could include a significant increase in your expenses or decrease in your income. Conversely, it could include a decrease in your ex-spouse's expenses or increase in his or her income. In order to satisfy the test to modify support, you must show more than a minor change in your or your ex-spouse's financial condition.

The same definition for modifying spousal support applies to modifying child support in Illinois as well. Frequently, child support will be changed as the children grow older and their needs become greater or, as stated above, the ex-spouse's income increases, which allows him or her to contribute more to the payment.

Please note that if your original dissolution agreement stated that there could be no future modifications to support, then no change is possible. However, even in this case, the restriction only applies to spousal support, not to child support. The right to child support can never be given up.

Also understand that your ex-spouse is able to use the same criteria to decrease spousal or child support in circumstances in which his or her financial situation has changed for the worse. For example, if your ex-spouse lost his or her job or income has decreased, this would be cause for a petition to decrease support paid to you.

If you have any questions regarding post-decree modifications, please contact my office. I can help assess if your current situation meets the modification criteria.

Steps to a More Fair Divorce

Although it may be hard to imagine, there are many steps you can take to negotiate a more fair divorce. The more knowledge you have throughout the process, the better equipped you will be to navigate potential pitfalls.

1. Call a lawyer and financial professional: Do not delay in assembling your "divorce team". Experienced professionals are an invaluable asset in assuring your interests are looked after. The end result is well worth the upfront costs.

2. Remember, knowledge is power: Enhance your knowledge regarding the divorce process by reading books, consulting experts and talking to friends and family who have experienced a divorce. It is important to feel comfortable with terminology used by your divorce attorney and divorce financial planner. Learning as much as possible about divorce helps you to form realistic expectations from the beginning and you are less likely to feel intimidated if you have working knowledge of the process.

3. Know your current financial situation: If your spouse keeps track of the finances, it is imperative that you become informed of your current financial situation. Read the "Start Now" guide and see what documents you need before taking any action. You must know where you currently stand in order to assess a reasonable expectation of your post-divorce standard of living.

4. "Time" divorce, if possible: It may sound callous, but if you are close to hitting the 10 year mark in your marriage, it may be worth it to hold out. For couples married 10 years or more, you may be eligible for social security benefits based on your spouse's benefits.

5. Separate emotion from assets: It is important to keep your focus on the future! If you are dwelling on past hurts or memories, you are not able to see your current or future situation clearly. You will most likely base critical financial and legal decisions on these emotions instead of sound advice. For example, though your home may be a symbol of family and stability for you and your children, it is not always in your best interest to maintain the house. You must be able to step back from the situation and gain perspective in order to do what is best for you and your family.

6. Be honest and realistic: Although it may be tempting, do not manipulate financial information. This will only lead to distrust between you and your "divorce team" and between you and your spouse. Legal and financial decisions must be made based on accurate information. To do otherwise is counter-productive and will only be detrimental to you post-divorce.

7. Utilize your support network: Balance is important when dealing with the emotion involved in divorce. Talk to family, friends or a therapist and remember you are not alone! Your friends and family are there to support you and they have your emotional health at heart. If you need an outside perspective, a therapist would be a great resource. Although family and friends mean well, they can tend to tell you what they think you want to hear. A good therapist is unbiased and trained to provide you with healthy coping mechanisms.

How the new health care bill will impact the market...

Health Care and Market Impacts

On Tuesday March 23, President Barack Obama signed into law a major change to the U.S. health-care policy that will impact every American and affect one-sixth of the economy. The social benefits of these policies we will leave to others to debate, our focus is what this means for the markets.

Within the Health Care sector the impact is mixed. There are three categories of companies affected by the legislation with the Health Care sector. In general:

· The Managed Health Care Industry is negatively impacted by extensive new regulation limiting profitability.

· The Pharmaceuticals, Biotechnology, Health Care Equipment, and Health Care Facilities industries benefit from broader health care coverage leading to greater volumes, but these positives are offset somewhat by Medicare reimbursement cuts and higher industry excise taxes.

· The Health Care Services and Health Care Distributors industries benefit from broader health care coverage leading to greater volumes with no direct cuts to pay for them.

Much of the impact has already been priced in to the stocks in the sector. In the near-term, Health Care sector investors are likely to be relieved that the period of uncertainty is now over.

A potentially negative longer-term outcome for the broader market stems from the tax and deficit impacts of the legislation. The legislation imposes a new 3.8% tax on investment income. This lowers the after-tax return on investments. It also adds a 0.9% tax on wages for those earning more than $250,000, set to take effect in 2013. The macroeconomic impact that may be most significant is the potential to increase the deficit despite the tax hikes.

Two important facts are necessary to understand the concern evident in the markets over the deficit impact of the legislation:

• The average cost of a family health insurance policy offered by employers was $13,375 in 2009, according to the Kaiser Family Foundation and the Health Research & Educational Trust. On average, employees pay about 20% of premiums with the employer making up the rest (an average of $10,700 per employee).
• The legislation establishes new insurance exchanges for the purchase of health insurance by those who do not have insurance offered through their employer. Under the exchange, the cost of a policy would be subsidized by the taxpayers for individuals and families with incomes up to 400% of the poverty level. This means that a family of four with the national average income of about $70,000 (at 317% of the poverty level of about $22,000) would have their spending capped at 9.5% of income which would be about $6,650. The other half of the cost of the insurance would be picked up by taxpayers.
  

The Congressional Budget Office, the agency that tabulated the budget impact of the legislation, estimates that about 25 million people would take advantage of the exchange to obtain subsidized health insurance by 2019. However, if employers that currently offer health insurance drop their coverage in order to save $8,700 per employee ($10,700 less the $2,000 penalty for employers with more than 50 employees that do not provide coverage) and shift that cost to the taxpayer, the number of people getting subsidized health insurance could surge well beyond the budgeted 25 million. After all, there are 127 million people with incomes between 150% and 400% of the federal poverty level. If a large percentage of these 127 million people were shifted to the exchange, with a typical annual subsidy around $5,000-$6,000, the annual cost of the legislation would soar and significantly worsen the budget deficit. While all of the potential effects of the health care legislation are unknown, market participants may focus on the risks.

While the passing of the uncertainty surrounding the health care legislation may be welcomed by many investors, it could contribute to higher interest rates as fears of the rising deficit combine with rebounding economic activity and excess money provided by the Federal Reserve. We expect Treasury yields to rise this year so we would caution against government bonds.

As always, I encourage you to contact me if you have any questions.

"Is it a bad idea to divorce in a recession like this?"

As in most things divorce, it’s complicated. Our houses won’t sell, our loan and credit options have dried up and our paycheck just doesn’t go as far as it used to. Add to that the strain of divorce and you could have a recipe for disaster. For those thinking twice about divorce, I’ve compiled a few tips to help you whether you decide to stay or go.

Issues:

House: You need to sell or refinance the house to remove the other spouse from the mortgage, but the housing market is at an all-time low and financing is difficult even for those with good credit.

Assets: All of the accounts are 40% of what they were…how do you divide the assets fairly when everything is down?

Spousal Support: One party has had to take a pay cut or even lost his or her job.

Bills: You will potentially need to afford two households instead of one.

Cost: Divorce can be expensive. Attorney’s fees are high and the stress of economic hardship could lengthen the process.

The “Sapient Solutions”:

The House: Try to re-finance the mortgage at a lower interest rate. If you are denied, contact your lender to see what your options are. If you want to stay in the house, contact a divorce financial planner to see if you can afford it. If you’re open to selling, explore the possibility of a short-sale.

The Assets: Try to negotiate a way to hold on to assets, rather than selling, until the market improves.

Spousal Support: Instead of waiving your right to spousal support altogether, try to negotiate a tiered scale based on future economic improvement.

The Bills: You must know where your money is going! If you don’t, track all spending for at least 3 months (try Quicken). Cut expenses, i.e. give up the expensive lattes and stop eating out. Also, prioritize spending. Don’t let your health insurance lapse due to poor planning.

Cost: Try mediation. Its focus is communication and is less expensive than litigation.

Be proactive!

If you decide to wait until the dust settles and the economy turns up, take this time to prepare. Consult a divorce financial planner to start laying the groundwork so you’re in the best possible position when you are ready to take that step.