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Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process. 

Hiding Assets  (attempting to hide assets)

Guess what.  As divorce professionals, we have seen it all.  The judges too.   In this electronic age that we live in it’s next to impossible to hide assets, so it’s best not to even try.  Divorce attorneys are experts in knowing what opposing spouses will try to do in order to hide assets, and if they can find the hidden assets, they can easily hire a forensic accountant to find the assets.  

Remember this.  You are not the first one to get divorced.  You are not the first one to think that you can out smart your spouse’s attorney, and you are certainly not the first one to think that you have thought of something that has never been tried before.   Do yourself a favor and don’t even try.  Especially since most divorce decrees include a statement that awards any hidden assets, once discovered, become 100% the property of the other spouse.

Keith Powell, Certified Financial Planner® and Certified Divorce Financial Analyst​​™​
www.austindivorceplanners.com     kpowell@austindivorceplanners.com     512-963-6883

Securities offered through SCF Securities, Inc. • Member FINRA/SIPC • 155 E. Shaw Ave., Suite 102, Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX. Investment advisory services offered through SCF Investment Advisors Inc. SCF Securities, Inc. and Austin Divorce Planners are independently owned and operated.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine what is appropriate for you, consult a qualified professional. 

Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process. 

Not Considering Alternative Ways to Divorce

Divorce is a complicated process and you will want professionals to help you through it.  However, it’s like the say.  There is more than one way to skin a cat.  Likewise, there is more than one way to divorce.   One of those ways is called a Collaborative Divorce.   Think of it as the opposite of a litigious divorce.   In a collaborative divorce, the couple, along with their attorneys, a financial professional and a mental health professional, works together to figure out how to divide their time with the kids, and their assets, in a way that works well for all of the parties involved.

More importantly, after the divorce is over, couples who worked together to consciously uncouple make much better co-parents than those who fought about every little thing and spent a good chunk of their assets doing it.

To find out more, visit https://collaborativedivorcetexas.com and search for a professional in your area who is trained on the collaborative divorce process.

Keith Powell, Certified Financial Planner® and Certified Divorce Financial Analyst​​™​
www.austindivorceplanners.com     kpowell@austindivorceplanners.com     512-963-6883

Securities offered through SCF Securities, Inc. • Member FINRA/SIPC • 155 E. Shaw Ave., Suite 102, Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX. Investment advisory services offered through SCF Investment Advisors Inc. SCF Securities, Inc. and Austin Divorce Planners are independently owned and operated.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine what is appropriate for you, consult a qualified professional. 

Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s always a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process.   Having another set of eyes on your situation is always a good idea.  Your attorney will give you advice on your legal rights during divorce, but your financial professional looks at asset division in a whole ‘nother way.

Here are the first 3 of 6 most commonly overlooked financial issues I’ve seen in divorce cases over the years:

4) Hiding Assets  (attempting to hide assets)

Guess what.  As divorce professionals, we have seen it all.  The judges too.   In this electronic age that we live in it’s next to impossible to hide assets, so it’s best not to even try.  Divorce attorneys are experts in knowing what opposing spouses will try to do in order to hide assets, and if they can find the hidden assets, they can easily hire a forensic accountant to find the assets.   Early in my career, I worked with a woman who’s husband had their money spread out in 54 different bank accounts.  We hired a forensic account to comb through 3 years of statements from all 54 accounts.   After about 40 hours of work, the accountant was able to find $2mm that was unaccounted for.

Remember this.  You are not the first one to get divorced.  You are not the first one to think that you can out smart your spouse’s attorney, and you are certainly not the first one to think that you have thought of something that has never been tried before.   Do yourself a favor and don’t even try.  Especially since most divorce decrees include a statement that awards any hidden assets, once discovered, become 100% the property of the other spouse.

5) Dividing Assets One at a Time

I see this all of the time, especially when there is an engineer in the mix.  One of the spouses will put together a complex spreadsheet on how they are going to divide each bank account in half, divide the college funds in half, divide the retirement accounts in half, and then either one spouse will buy the other spouse out of the house, or they will elect to sell the house and divide the proceeds in half.

This is not how we look at it.  I like to look at the couples overall financial picture.  Add up all of the assets and liabilities and figure out what constitutes the marital estate.  Their Net Worth if you will.  From there, we decide what kind of division is fair and then we try to award accounts in their entirety as much as we can.  Ending with one large assets that is divided at the end to make up the difference. 

For example, if one spouse get’s the matrimonial home, the bank accounts, and the nicer car, then the other spouse might get the vacation home, the brokerage accounts and the not as nice car.   After those divisions are made, we can balance the final division out by using the large 401k account allocated to BOTH parties and shoot for the division percentage we are looking for.

6) Not Considering Alternative Ways to Divorce

Divorce is a complicated process and you will want professionals to help you through it.  However, it’s like the say.  There is more than one way to skin a cat.  Likewise, there is more than one way to divorce.   One of those ways is called a Collaborative Divorce.   Think of it as the opposite of a litigious divorce.   In a collaborative divorce, the couple, along with their attorneys, a financial professional and a mental health professional, works together to figure out how to divide their time with the kids, and their assets, in a way that works well for all of the parties involved.

More importantly, after the divorce is over, couples who worked together to consciously uncouple make much better co-parents than those who fought about every little thing and spent a good chunk of their assets doing it.

To find out more, visit https://collaborativedivorcetexas.com and search for a professional in your area who is trained on the collaborative divorce process.

Keith Powell, Certified Financial Planner® and Divorce Analyst​​™​
www.austindivorceplanners.com     kpowell@austindivorceplanners.com     512-963-6883

Securities offered through SCF Securities, Inc. • Member FINRA/SIPC • 155 E. Shaw Ave., Suite 102, Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX. Investment advisory services offered through SCF Investment Advisors Inc. SCF Securities, Inc. and Austin Divorce Planners are independently owned and operated.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine what is appropriate for you, consult a qualified professional. 

Divorce is commonly seen as one of the most stressful experiences one will ever go through.  Along with all of that stress, you are also making financial decisions that will most likely affect the rest of your life and perhaps the lives of your children as well.  For that reason, it’s always a good idea to get the advice of a Certified Divorce Financial Analyst™ or some other financial professional during your divorce process.   Having another set of eyes on your situation is always a good idea.  Your attorney will give you advice on your legal rights during divorce, but your financial professional looks at asset division in a whole ‘nother way.

Here are the first 3 of 6 most commonly overlooked financial issues I’ve seen in divorce cases over the years:

1) Handling of the Term Life Insurance

In a 2018 Insurance Barometer Study, by Life Happens and LIMRA, ONLY 59% of Americans have some form of Life Insurance.  That’s a sad statistic considering everyone could benefit from some form of Life Insurance, even if it’s Term Insurance.    “Term Insurance” is the kind of insurance that only last for a certain ‘term’ or period of time.   10-year term and 20-year term are some of the common terms that I see.   In some cases, a couple going through a divorce might already have a term policy that they purchased when the kids were born.   Usually consisting of just enough insurance to get them through college if something were to happen to one of the parents, most likely the high-income earner.   Because term policies don’t have any cash value, I’ve seen them completely ignored during the divorce settlement and if they are addressed, the decree might say that the insured is ‘required’ to keep their spouse as the beneficiary.  However, a piece of paper that requires someone do something doesn’t actually keep them from doing it.   The high-income spouse might remarry down the road and five years from now find themselves in an insurance review with their new spouse where they find out the old spouse is still listed as the beneficiary.  Forgetting why that was the case, or that they are ‘required’ to leave it that way, they change the beneficiary, and nobody finds about it until policy holder passes away.

In a collaborative divorce, the spouses can request that the insurance company change the ownership of the policy to the beneficiary, thereby making the beneficiary the one in charge of who the beneficiary will actually be.  Something they will most likely never change.  The trick is that this request must be made while the parties are still married.

2) Forgetting the Tax Effect of 401k Money

Let’s say that a couple is getting divorced and they only have two assets.  A 401k worth $200,000 and house with $200,000 in equity.   In a Kitchen-Table style divorce, where a couple sits at their own kitchen table and figures out their own divorce, it might seem fair for one spouse to take the 401k, and one spouse to take the house.  After all, they are both worth $200,000, right?   Well, that is rarely the case.  Consider this.  If the spouse taking the 401k has not worked in many years, and I’ve often seen clients who have been out of the work-force for over 20 years, if they take the 401k, but it is known that they are going to have to live out of the 401k for a few years while they get themselves back to work, then they are going to have pay income tax on any money that they pull from the 401k.  Assuming they pull $50,000/year for expenses, they will pay over $8,000 in taxes each year.  Should they bear the burden of all of those taxes?  Probably not.  If this couple had used a financial advisor during their divorce, it would have become obvious that the two assets were not of equal value. 

Now assume for a second that the spouse who took the house was not planning on keeping the house.  If they were planning on selling it, they would end up paying a percentage to their agent and perhaps even more to get the house ready to sell.  Their net at the end of the day would not be $200,000, but something less. 

In a Collaborative Divorce, it’s customary to have a financial person on the team who can calculate the estimated net value of the 401k and the estimated net value of the house and come up with a division of the assets that is fair.

3) Valuing a Pension

While pensions are not that prevalent these days, they are still common for School Teachers and Government Employees.   Every participant who is enrolled in a pension gets a statement showing them what dollar amount they could access if they cashed in their pension.  This dollar value is NOT the value of the pension.   It’s simply their walk-away value.   A professional pension valuation would need to be done in order to calculate what the actual value, in today’s dollars, is.   To do this, we need a few bits of information.   The hire date, the marriage date, the separation date, and the last day of employment, if employment has been terminated.   That information will tell us how much, if any, is community property and how much, if any, is separate property.   We would also need to know when the employee is entitled to start receiving monthly payments and what would those monthly payments be and is there a cost of living adjustment.

Next, we would need to know what growth value we are going to use to calculate the present value.   In other words, we are calculating how much money one would need to have invested today, at the given growth percentage, to create a pool of money that would generate the same stream of payments at some point in the future.   The most commonly used return percentage would be the 20-year treasury.   Currently, that figure is 2.65%.  The smaller that number then the larger the valuation will come out to be, but it is usually significantly more than the figure on the employee’s statement.  Failure to accurately calculate the true value of the pension can have a significant effect on the asset settlement.  It’s always a good idea to have a financial professional involved in your divorce so that these issues are not overlooked.

Check out next month’s blog on 3 more commonly overlooked financial issues of divorce.

Keith Powell, Certified Financial Planner® and Divorce Analyst​​™​
www.austindivorceplanners.com     kpowell@austindivorceplanners.com     512-963-6883

Securities offered through SCF Securities, Inc. • Member FINRA/SIPC • 155 E. Shaw Ave., Suite 102, Fresno, CA 93710 • 800.955.2517 • 559.456.6109 FAX. Investment advisory services offered through SCF Investment Advisors Inc. SCF Securities, Inc. and Austin Divorce Planners are independently owned and operated.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine what is appropriate for you, consult a qualified professional. 

What am I not thinking about?

Ok, so you are getting divorced.  You have decided who gets the kids on which weekend, who is paying child support to who, and how much, and you have split all the assets down the middle.   What’s left?  What else should you be thinking about?   While every divorce is different, there are a few issues that seem to be common, but not many people think of them unless they are working with a Divorce Planner.   Here is a list of some common, and some not-so common financial issues to think about.

• Have I updated my will?
  •  This should be done at the time of separation.  While it is true that you may still want all of your post-divorce assets to revert back to your ex-spouse if something were to happen to you, it’s not likely.   Most people don’t think about updating their wills for many years after a divorce.  Usually, it’s not until they get remarried.    As an added bonus, when you are updating your will, you will most likely also want to update your living will.   After all, do you still want your ex to be the one who gets to decide if they pull the plug or not?

• Do I have a life insurance policy on my ex?
  • Why would you want a life insurance policy on your ex?  Well, if that ex is paying you child support for the next 10 years, what are you going to do if something happens to them?   Many of my clients rely heavily on the additional income that is child support.  If that income were to stop coming in because of untimely death, they would be a in a heap of trouble trying to make ends meet.  While many judges will order that a child support payment be backed up by life insurance, it’s not the judge’s responsibility to think of issues like this.

• Can I use spousal support or property settlement payments to qualify for a new home loan?
  • That depends on how much you are getting and how long the payments will last.  Most lenders like to see these payments have at least 36 months left on them at the time of application.   If you are getting a 36 month payment, that will not be enough time to get your divorce settled and your loan application in the works.  Sometimes, just asking for a 37 month payment will make the difference between approval or denial.
    • As a side note, just because your ex was awarded the house, doesn’t mean that your name was taken off the loan.  You may not qualify for a new place if you are still responsible, according to the bank, for the note on your old place.  Make sure that whoever is being awarded the house, can refinance the mortgage into their name.    If they cannot, then insist that house be sold.

• Have I canceled all of the credit cards associated with my social security number?
  • Just because there is still a balance on a credit card, doesn’t mean that you can’t cancel that card.  I recently had a client who’s ex took on all of the debt, but my clients name was still associated with the debt.   Of course, the plans were to pay off the debt over time, but there was nothing in place to guarantee that.   The ex could still add additional charges to the credit card and might still have a balance on that account 20 years for now.  I advised my client to cancel the card.  Since her name was still on the card, she could act alone and close the account.  No more charges could occur.  Of course, the card still had a balance that needed to be paid off over time, but at least my client’s credit history was eventually going to get cleared up.

These are just a few of the financial issues that might come up during a divorce.  There is a lot more to unraveling a financial marriage than simply dividing the assets.   Find a CDFA™ in your area who offers a free consultation and get the advice you need.   You never get a second chance to write your decree.

There are many ways to get a divorce, which means there is a wide range of how much a divorce will cost you.   Many years before I met my wife, she divorced her first husband for $60.   Not only did they not have any possessions to divide, but she was a college student at the time and was able to use the campus attorney for free.   In other words, she managed to get divorced for the cost of filing only.  Unless you are a member of an organization that offers a limited amount of free legal advice, it’s likely that your divorce will cost more than $60.

On the lower end of the scale, there is such a thing known as the ‘Kitchen Table Divorce.’   Just like the name implies, a couple may elect to figure everything out on their own while sitting at the kitchen table.  Once they have decided on the possession schedule of their kids, the amount of spousal support, if any, to be paid, and who is getting what assets or debts, then the next step would be to file a petition for divorce with the county.    There are websites online that can help you prepare the documents.   These sites are very inexpensive, but I don’t want to mention any here as I do not believe this is the best option.

Moving up the scale of cost, your next option would be to take your agreement to an attorney and have them help you with filing for a divorce.   I know attorney in Austin who will charge between $750 and $2500 for their services, plus the filing fees.   Keep in mind an attorney can only legally represent one party in the divorce.  They will likely explain this to you and recommend that the unrepresented party hire an attorney of their own.  This is standard operating procedure.

Just as hiring an attorney to help you file the legal documents with the county will keep you from making mistakes that could be costly or time consuming, you might also consider hiring a CDFA™ or Certified Divorce Financial Analyst™ to consult you on asset division.   This would add an additional cost associated with the divorce, but having the advice a financial professional could save you thousands of dollars in the long run.

Over the last few months, I have been hired by 3 different couple who want to work with me to assist them in their asset division.   In cases like this, I will work with both parties, as a financial neutral.  I help them make sure they are thinking of everything when it comes to division of assets, support payments, & taxes.   The last couple I worked with paid me $1500 for my services and we found an attorney who charged them $1250, including fees, to help with the filing.   All in all, they peacefully dissolved their union for less than $3000.   Not bad considering they had a net worth close to $1mm. ($1,000,000)

In this last example, the couple had 2 kids, but they were grown and out of the house.  If they had kids under the age of 18 and could not figure the parenting schedule out on their own, then we could have elected to hire one of the many psychotherapists that work with couples to resolve these types of issues.  That would have added another $500 to $2000 to the cost of the divorce, depending on how quickly they could come to an agreement.  Still, when most attorneys I know ask for $5000 as a retainer to get ‘started’ on the case, and you have to hire 2, you can see why this process might make a lot of sense for a couple who is in agreement on most issues regarding their divorce, and simply need a little guidance in certain areas.

If communication is not at this high level, then of course, the more traditional route of litigation or collaborative law may be the way to go. 

When separating from your spouse or getting a divorce, one of the biggest questions my clients have is about child support and paying for the expenses of the children.  In Texas, at least, child support is pretty easy to calculate based on the non-custodial parent’s income and how many children they need to support.  In addition to child support, many couples identify certain agreed upon extra-curricular activities they intend to enroll the kids in, while splitting the cost.   While this is a common practice, it gets people to thinking about future expenses as well.   For example, what about a car when the child turns 16, or a wedding, or a prom dress?   Some people even want it written in the divorce decree about who will pay for college and how much.

I always steer my clients toward making agreements that benefit everyone in the family, while at the same time are very similar to what a judge would order if the case ever made it to court.   In my experience, the rule of thumb is those obligations to the children end at 18 years old, or whenever they get out of high school, whichever is last.   In other words, no judge is going to order that one spouse or the other pay for college expenses, even if those expenses are incurred while the child is under 18 in the form of contributions to a college savings plan, like a 529 account.

The next thought to keep in mind is this.  The more items you identify such as braces, clothes, special event expenses, etc., the more you are undermining the idea of child support to begin with.   In other words, if the custodial spouse is asking for all of these different expenses to be split, then what is the child support actually for?  

Whenever, you are going through a divorce, it’s always best to have an attorney review your specific situation.   It may cost more in the short term, but you’ll protect yourself from unforeseen issues in the future.   If your estate is more complex, then you may want to enlist a financial advisor who specializes in divorce.   Be sure to look for an advisor who has the CDFA™ or Certified Divorce Financial Advisor™ designation, and ideally also has the CFP® or Certified Financial Planner designation as well.