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Read through FAQs, articles and other insights from Pacific Divorce Management, as well as other resources. If you can’t find what you are looking for please contact us at 858-257-4612 or Complete An Inquiry Form.

FAQs

We educate you regarding your circumstances, help you negotiate a fair settlement and along the way provide clarity regarding the impact of all the financial decisions you will be making.

No, we always work with attorneys. Divorce is a legal process that requires legal expertise. Our team specializes in the financial aspects of divorce.

Divorce is an extremely specialized and complex field when it comes to finances. Unless your other advisors have dedicated their careers to this specialty, they probably will not be equipped to meet your needs.

The earlier the better. Once you have chosen a particular divorce process, you may find your options are severely limited.

In California, there is a mandatory 6-month waiting period between the date of filing and the date the divorce can be final. In litigation, access to the court system can delay the process significantly. Alternative Dispute Resolution allows the couple to control the timing.

  1. Retaining an attorney and embarking on a litigated course before considering other options.
  2. Failing to understand the impact of settlement on future lifestyle.

Regarding co-parenting issues, many couples can save time and money by working together.

However, when it comes to the finances, we have found that when clients have set ideas of how their settlement should look it can actually be counter-productive. A lack of flexibility can create avoidable problems, further increasing animosity and expense. Do you both fully understand your family’s finances and the long-term impact of what you are agreeing to? Receiving the input from a Certified Financial Divorce Consultant allows you to make informed decisions leading to more durable agreements.

The Institute for Divorce Financial Analysts (IDFA™) is the premier national organization dedicated to the certification, education and promotion of the use of financial professionals in the divorce arena. The IDFA provides specialized training to accounting, financial, and legal professionals in the field of pre-divorce financial planning.

What is a Certified Divorce Financial Analyst?

Many people make financial mistakes during divorce that they must live with for years to come. During such a traumatic and emotional time, it can be hard for divorcing couples to see how financial issues will play out over time. Sometimes, partners in a divorce may not even fully understand what they’ve agreed to. Worse still, divorce settlements can be very tough to change once they’ve been signed and filed in court. As a result, an increasing number of divorcing couples are turning to certified divorce financial analysts for help.

A CDFA is an expert in the unique financial circumstances that surround a divorce. The professional training for the certification is focused on understanding and estimating the long-term costs of a divorce, because divorce settlements can impact a person’s financial picture for a very long time.

Areas of expertise include:

  • Tax consequences of divorce agreements
  • The process of dividing and valuing property fairly
  • Determining how much alimony and/or child support is appropriate and for how long
  • Modeling the future values of retirement and pension funds

Arguably, the greatest value a CDFA provides is an educated outlook toward the future. What seems equitable today may not look so fair when projected into the future, especially after factoring in considerations like inflation, cost of living adjustments, changes in custody agreements and other issues. A CDFA uses unique software programs and solid financial expertise to ensure that today’s split of assets and cash flow will still be fair and equitable for years to come.

Doesn’t a Lawyer Do That?

When a couple decides to divorce, the first step they usually take is to hire a lawyer. In many states, divorce lawyers often handle every aspect of a couple’s divorce, including decisions on how to split assets. However, a lawyer is trained in law, not finance. During the process of legal negotiations, proposals go back and forth between divorcing parties. It isn’t long before the financial consequences of all these different proposals can get lost in the shuffle. A CDFA can help to ensure that each party’s finances are protected.

However, a CDFA is never a substitute for a good divorce lawyer. Rather, CDFAs work closely with divorce lawyers to facilitate good settlements. Usually, a CDFA can save divorcing couples time and money by quickly deciphering the financial outcomes of legal settlements, thereby helping clients make sensible decisions quickly. Because CDFAs usually charge lower fees than a lawyer, it often makes good economic sense to keep a lawyer focused on the law and let a CDFA analyze the finances.

It is usually best for the divorce attorney to hire the CDFA rather than a direct hire by the divorcing couple. If a CDFA is hired by the attorney, the client-attorney privilege is preserved; if divorcing couples hire a CDFA directly, anything they say or give to that CDFA is admissible in court, which might not always serve in their best interests.

Although some individuals choose to build a practice based solely on the CDFA designation, it is more typical for professionals to instead add the CDFA designation to their other credentials. Consequently, many CDFAs are also certified financial planners (CFP), divorce mediators, or even lawyers. In this way, the CDFA expands a financial professional’s skill set.

Financial Divorce

  1. Retaining an attorney before you have examined all your process options
  2. Deciding financial issues piecemeal rather than looking at the whole picture before choosing
  3. Assuming that an equal division is a fair division of property
  4. Not understanding the impact of settlement options on your financial future
  5. Underestimating your post-divorce expenses
  6. Allowing an emotional attachment to an asset (e.g. the family home or a pension) to dictate the outcome
  7. Not understanding the value of non-cash assets such as stock options and employee benefits
  8. Failing to accurately value a pension
  9. Failing to insure support payments
  10. Failing to understand liability issues related to debt incurred during the marriage

In most cases, one of the parties will purchase the other’s interest and continue on managing the company.  This process should always, if nothing else, include hiring the expertise of a business appraiser to value the business.  This appraisal will be used to determine how much cash or value in assets must be exchanged in order to buy-out the spouse exiting the business.  Anytime a business is involved in the divorce process, it is important to keep in mind that the process of valuing a business is considered more of an art than a science.  If you were to hire two business valuation experts, you are almost guaranteed to receive two different valuations in return.  As a result, we encourage clients to remain flexible when negotiating a buy-out settlement.  In all likelihood, a business valuation 12-months after the settlement date will provide a very different picture, whether good or bad.

However, only you and/or your business partner(s) are fully aware of not only the current cash flow, but also any future potential cash flow that may be necessary in correctly valuing the business.  You must be aware of the on-going business practices to ensure you get what is rightfully yours.

All too often we hear about cases where one party feels they were left short changed.  Take for example, the McCourt family in Los Angeles.  During their divorce, the McCourt’s were the majority owners in the Los Angeles Dodgers Major League Baseball team.  When the settlement was awarded in 2011, the wife, Jamie McCourt, was awarded $131,000,000 in cash and several pieces of real estate.  The husband, Frank McCourt, retained interest in the Dodgers together with the stadium and surrounding parking lots.  Shortly after the divorce settlement was reach, Frank sold his portion of the family business (LA Dodgers) for $2,000,000,000.  Needless to say, Jamie was not pleased with this result and later contended that Frank intentionally misled her about the value of the family business.

The biggest complication in this case came from the valuation of the Los Angeles Dodgers and their ongoing business deals.  At the time of the settlement, the team had listed $1,000,000,000 in assets and $500,000,000 in debt.  On the surface, Jamie should be very pleased with her original settlement, as it is unlikely she would have come out with $131,000,000+ after taxes and fees.  What was not accounted for in the bankruptcy filings; however, was the potential future value of the broadcast rights.

In a later court decision, they disagreed with Jamie’s request to throw out the initial settlement, stating that, paraphrased, ““Jamie McCourt had the information, knowledge, experience and evidence that the value of the Dodger assets was greater than what she indicated in her moving papers which she relied upon in entering into the settlement of this matter.  Further, there is no credible evidence that Frank McCourt misrepresented the valuation to her in this case.”

 Here are a few questions that Jamie, and others like her, should be sure to ask before signing on the dotted line of the settlement:

  1. How would you feel if the family business sold for significantly more than the agreed upon amount in the future?
  2. Could you foresee yourself regretting this decision?
  3. Is the settlement enough money to support your lifestyle moving forward and through retirement?
  4. Is that a relevant question?
  5. Lastly, always try to evaluate the costs, both financially and emotionally, of making this decision.

For the higher wage earner, it will have no impact: you will receive your full benefit. If you are the lower wage earner or have never worked, and you have been married for at least ten years, and you remain single, you are entitled to 50% of your spouse’s benefit or your benefit, whichever is greater.

What if the marriage is not so long term? Every so often we work with individuals or couples who have separated after 9 years of marriage and we have to investigate the possible eligibility for spousal benefits. For purposes of determining whether you meet the Social Security Administration’s 10 year marriage requirement, the marriage duration ends on the date when the divorce is finalized, NOT THE DATE OF SEPARATION. This allows for some strategy in situations when a marriage ends before the ten years required. When you have an amicable situation it may be possible to delay the date of the final divorce in order to reach the 10 year requirement. This is especially valuable when looking at marriages and subsequent divorces later in life.

This is just one example of the advantage gained in working with a Certified Divorce Financial Analyst® in handling your divorce. An experienced CDFA® will ensure a more secure, comfortable post-divorce future for both parties. Make sure you sit down with a CDFA® before finalizing your settlement agreement.

1. Home Insurance:
a. Rental Property – It is common in divorce for one spouse to move out of the home, often into an apartment unit as a temporary residence. It is important that a renter’s insurance policy is obtained to ensure coverage over all persona property within the rented home. This will also prevent against any negligence claims.

b. Primary – Although one spouse may have moved out, it is recommended that both spouses remain on the primary home policy until a final decree has been issued. Once a final decree has been issued, and assets have been divided, there are two common ways in which the primary property is handled.

i. If per the decree, it is decided that one spouse will remain in the primary residence, it is extremely important that the house is refinanced in their name ONLY and that the title to the house is updated to their name as well.               This is most important to the other spouse to ensure that they are not liable for any future payments due on this property

ii. If per the decree, it is decided that the house will be sold, the proceeds from the sale of the house will be divided according to the decree.

2. Car Insurance: If the two parties are able to handle the divorce process amicably, it is recommended to leave auto insurance policies in place as is to receive the lowest, multi-vehicle, rate. If the two parties are unable to handle the process amicably, it is recommended both spouses obtain separate insurance policies on their respective vehicles. Regardless of the circumstances, once the decree has been finalized, both parties should obtain separate insurance policies on their respective vehicles. Similar to real estate, it is important to confirm each spouses name has been removed from the other policies to avoid any future obligations.

3. Life Insurance: This is one of the most important, and often overlooked, details during the divorce process. In the unfortunate situation where the payor of support were to pass away, without a life insurance policy on their life, the payee spouse and family would be left with zero support. A life insurance policy should always be put in place on the life of the payor until support is no longer required, at which point the insurance policies should end.

Taxes, Hidden Assets & Divorce

One of the greatest challenges for attorneys, mediators, and judges in family law property division cases lies in the first step of that process; identifying the assets to be divided. We seek verification of and evidence to determine if assets are community, separate, or co-mingled property. Some assets are evident and some are concealed despite the best efforts of those responsible for uncovering them. Still another group of assets hides in plain sight simply because practitioners may not be looking for them. Losses in investment portfolios will bring an especially obscure type of community asset into play in coming years like we have not seen in decades.

Largely due to the recession beginning in 2007, there has been a massive loss of American wealth over the past decade. An unfortunate reality of market psychology is many of the people who lost money over that period locked in their losses. Locking in those losses may have created a marital asset known as the capital loss carry-forward.

What is a Capital Loss Carry-Forward?

A capital loss carry-forward is a federal tax law that allows taxpayers to “carry forward” losses realized in one year to be used against income in later years. The rule exists because the IRS allows taxpayers to deduct capital losses only up to the level of their gains in any given year. The IRS does not believe this rule encourages investment in the growth of the American economy so it was decided taxpayers could spread the deductions over future years if necessary to recoup their realized losses. The reduction in future tax liability should be considered an asset for division to the extent the loss was incurred on a community asset.

Federal tax law states the reduction in future tax liability belongs to the person who realized the loss. From a titling perspective this means the capital loss carry-forward must follow title of the asset that created the loss. This rule does not always match with the goals of family courts. During a marriage the deduction would likely be taken on a joint tax return regardless of account title. In the years subsequent to divorce; losses related to an account held in the single name of a former spouse would escape the reach of the spouse not on title. There will be cases in the coming years where the value of these capital loss carry-forwards reaches six figures for high asset cases.

How Does This Apply To a Divorcing Couple?

Consider this example: An individual brokerage account titled in Husband’s name and funded entirely during marriage held $2,000,000 at the end of 2007. Between 2007 and March 2009 the account was invested entirely in the S&P 500 and realized capital losses of $1,140,000. The community had no other capital gains or losses in 2009 resulting in a capital loss carry-forward of $1,140,000. The couple was divorced on January 1st 2010. Over the next two years the stock markets rebound dramatically and both husband and wife, now divorced, realize capital gains in the amount of $500,000 each in 2011. Due to the fact the capital loss carry-forward follows title to the assets that create it, Husband would be entitled to the entire $1,140,000 of deductible losses to offset his gains resulting in $0 of taxes. Wife would have a federal income tax bill for $75,000 based on a generalized 15% effective federal tax bracket. Wife would need to realize $85,500 of federal income tax liability just to get back to where she started at the end of 2007. Based on the example the total estimated value of the capital loss carry-forward to the community was $171,000.

If the capital loss carry-forward is not treated as property in a divorce settlement it will be allocated under tax law according to title. This is likely not an equitable division. The capital loss carry-forward should be considered marital property when it arises from the sale of marital assets. Unfortunately, the family court lacks jurisdiction to change the title of the loss from one spouse to another. The only way to achieve an equitable division on this issue is to estimate the value of the tax benefit and award it to the titled spouse as part of the greater asset division. This would allow the non-titled spouse to receive an offset of other assets with similar value. Effective tax rates vary based on the specific circumstances of a taxpayer and are likely to change so the valuation should be performed by an experienced financial professional.

FL-142 is a four page Schedule of Assets and Debts. Here are the instructions written on the form.

“List all your known community and separate assets or debts. Include assets even if they are in the possession of another person, including your spouse. If you contend an asset or debt is separate, put P (for Petitioner) or R (for Respondent) in the first column (separate property) to indicate to whom you contend it belongs. All values should be as of the date of signing the declaration unless you specify a different valuation date with the description.“

The general idea is that the State of California wants to act as the first line of defense when it comes to spouses playing “fair” with financial information in their divorces. In the absence of disclosure requirements unrepresented litigants would likely have no mandated process for discovering and analyzing the family’s current financial circumstances leaving the holder of the information with an unfair advantage.

Disclosure forms take the first step towards leveling the playing field.  Legal counsel generally consider these forms to be the first step in the discovery process. Discovery loosely refers to the legal process of uncovering information about the parties to a divorce. In this instance we are looking at financial information. As a financial expert I will review these forms and the back-up accompanying and build a set of Issues, Concerns and Questions I would like addressed in additional discovery requests. Declarations of Disclosure are a very important step in piecing together the family financial picture.

Non-compliance with the disclosure rules can lead to a variety of outcomes and punishments. In re Marriage of Rossi the court ruled Husband was entitled to 100% of lottery winnings Wife had failed to disclose. This is an extreme example with extenuating circumstance including Wife attempting to conspire with lottery officials and co-workers to hide the winnings.  Other cases have resulted in sanctions or fines to the no-complying party.

Understanding concepts such as these could play a significant role in your post-divorce future. Hiring an experienced CDFA will ensure a more secure, comfortable future for YOU.  Make sure you sit down with us at Pacific Divorce Management before finalizing your settlement agreement.

While the article itself mostly discusses the high net-worth clients that would be enticed to use an offshore account, it brought up a few good points that got us thinking about some things that all individuals going through divorce should keep in mind if they are concerned that their divorcing spouse may be playing this hide and seek game.

  1. Always keep in mind, while gathering data and compiling a complete picture of your family’s finances may be difficult, it is not impossible.
  1. With the advent of electronic discovery, combined with the skills of a forensic expert, the trouble with tracing electronic data has been significantly reduced. Thus, making it more possible to catch a cheating spouse who may have opened a separate bank account to pay for their new girlfriend/boyfriend’s apartment, car, or other gifts.
  1. Take advantage of social media and the booming smart phone industry.
  1. 81% of American Academy of Matrimonial Lawyers surveyed said they have seen an increase in the use of evidence from social networking sites such as LinkedIn and Facebook
  2. 92% saw an increase in evidence from smart phones
  1. However, be warned, accessing your significant others password-protected accounts may be against the law. So be sure to seek advice from an attorney before proceeding.

Issues such as these could play a significant role in your post-divorce future. Hiring an experienced CDFA will ensure a more secure, comfortable future for YOU.  Make sure you sit down with us at PDM before finalizing your settlement agreement.

The Impact of Divorce on Children

Divorce 101 (and Finances)

Divorce can be an overwhelming experience both physically and emotionally. Despite your best efforts, you may feel that the circumstances and decisions made are out of your control. While this may be true for certain aspects of divorce, there are certain things that you can control. Maintaining accurate, organized and updated copies of financial documents can help accomplish this. Here are five tips on how to best stay prepared:

1. Get the details first

• Collect every piece of financial paperwork make two copies of everything before returning the paperwork to where you found it.
• Gathering complete documentation records will help build an accurate picture of the marital estate and assist in making educated, well-informed decisions.

2. Prepare accurate financial statements to help prepare your attorney including:

• Schedule of Assets and Debts – also known as a Net Worth Statement
• Income and Expense Schedule
• Include as much documentation and supplemental information as possible

Accurate schedules are the most important financial documents during preparation stages. Complete and accurate forms will allow you to negotiate from a position of strength and help you weigh your options when developing your best alternatives for settlement.

3. Have all information available and easily accessible throughout the process.
Missing information or documentation is one of the most common causes for delays and canceled settlement conferences. Both will cost you more money in attorney and expert fees when subpoenas, interrogatories and repeated formal requests for documents are required.

4. Keep your schedules and documentation updated during the process.
This will insure accurate information is available when you are weighing your options on the courthouse steps and avoid expensive 11th hour document preparation when exchange of documents is required.

5. Keep a record of EVERYTHING.
Track everything from day one including community expenses you pay, cash given to your spouse, bank statements, receipts for major purchases, etc. Credits and Reimbursements are important and often valuable financial tools in your negotiations.

Definition:

Transmutation is the legal analysis of property transfers.  Typically this relates to the conversion of property from one character to another, Community Property to Separate Property or the other way around. The court must analyze, trace and determine if there was a transfer and what was transferred.  Quit Claim transfer deeds on real estate title are among the most common transmutations and can lead to unintended consequences.

Why is transmutation important?

Parties often make decisions (e.g. buying a house using funds from only one party) without understanding the potential impact. How the parties transfer the property could benefit one and harm the other if not handled properly.

Automatic Temporary Restraining Orders (ATRO’s) accompany a Petition for Dissolution of Marriage and are printed on the back of the Summons (FL-110). These restraining orders prohibit the disposal of property by any methodology. They are effective on the Petitioner as soon as the Petition for Dissolution is filed and the Respondent when the Petition is served on them and remain in effect until the Petition is dismissed, a judgment is entered or the court makes further orders. The orders restrict a party from:

  1. Removing a minor child from the state;
  2. Cashing, borrowing against, canceling, transferring, disposing of or changing beneficiaries on life, health and other insurance;
  3. Transferring, encumbering, hypothecating, concealing or in any way disposing of any property;
  4. Creating a non-probate transfer during dissolution proceedings without the consent of the other party or an order of the court.

Why are ATRO’s important?

Automatic Temporary Restraining Orders are important because they provide a broad freeze on all assets held by either party.  This is intended to prevent parties from hiding or disposing of their assets, which is a common reaction after divorce filings. Further, ATRO’s will make the job of tracing assets easier as transactions post separation will be limited.

An MSA, or Marital Settlement Agreement, spells out the terms of the divorce between the parties involved. An MSA will generally cover property division, spousal support, child support, child custody, asset division and other issues related to the parties divorce.

Why is an MSA important?

An MSA is important because it is used not only to determine how to divide the current household, but also as reference for any new issues that may arise in the future.  An MSA provides clear evidence that the marriage has been dissolved and additionally provides verbiage for the future governance of your relationship.

Grey Divorce (and Finances)

Are you considering a Gray Divorce?

It has become more and more common for couples over the age of 50 to find themselves filing for divorce.

The good news? Research shows, “older, divorced Americans find themselves happier and emotionally better off…so long as the financial challenges of a gray divorce are mitigated.” Make the transition a positive experience by educating yourself appropriately.

Catherine J. Byerly of Divorce Magazine has some financial tips to consider when preparing for the next phase of your life:

Five Things to Watch for When Splitting Finances in Gray Divorce

Divorce comes with plenty of lifestyle changes at any stage of life, but divorcing late in life offers increasing complexities and some very important post-divorce financial planning concerns. As Gray Divorce becomes more common we are finding new and different financial planning concerns that are specific to individuals and couples divorcing in their late 50’s or 60’s.

What is Long Term Care Insurance?

Long Term Care (LTC) Insurance is a relatively new form of health insurance designed specifically for long term care in a nursing home, home based health care and other expenses not covered by Medicare, Medicaid and traditional Medicare Supplemental insurance.

Long Term Care Insurance is purchased from one of many insurance companies offering coverage in your state.  Generally policies provide a daily maximum benefit amount for a specified period of time. Ultimately this provides a benefit pool from which future benefits will be drawn. At $200 per day for 1,080 days (3 years) you would receive a total benefit pool of $216,000. If you draw less than the $200 per day maximum, your benefits will last longer. Policies come with a myriad of options and choices outside the scope of this article such as daily benefit amounts, benefit periods, elimination periods and cost of living adjustments. These choices should be made with the assistance of an expert in the available products.

In order to qualify for benefits a person, generally, must need help completing at least two activities that are necessary for daily functioning, such as:

  1. Personal hygiene and grooming
  2. Feeding oneself
  3. Dressing and undressing
  4. Functional transfers like getting out of bed
  5. Voluntarily controlling urination and bowel movements
  6. Ambulation

OR need substantial supervision to protect the individual from harm due to cognitive impairment.

Why do you need it after a Gray Divorce?

Any friend or family member who has ever played the role of caregiver knows how physically demanding and emotionally taxing it can be.

Long Term Care insurance will pay for a skilled nurse or caregiver to come visit a home and provide in-home care up to 24 hours a day. The caregiver might cook meals, clean the house or just offer assistance with bathing and other daily activities to avoid accidents and insure quality of life is not compromised. Most importantly, it will provide peace of mind to those who care most about your health

We feel obtaining Long Term Care Insurance is one of the most important financial planning decisions to be addressed in post-divorce planning for a newly single person in their 50’s or 60’s. This age range is considered to be the ideal time from a cost benefit perspective to purchase coverage and the loss of the built-in caregiver should be the catalyst to motivate.

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Please call us at 858-257-4612 to schedule a complimentary 15-minute consultation with one of our Certified Financial Divorce Consultants (CDFA®).