Happily Never Married

Single Women and Financial Independence

I won’t bore you with what you already know and what has already been said. Women are at a disadvantage in preparing for their financial independence because they generally make less money than men, interrupt their careers to take care of children and parents and, in general, enjoy longer life spans. If they are widowed, they often face a sharp decline in income when their spouse dies. If divorced, they find themselves fighting to make up for the resources they didn’t accumulate for all the same reasons mentioned above. For GenXers, those born between 1961-1981, half of those found at risk of not having enough money for retirement were single women. About 57% of Millennials, whose average age is now 28.5, are single.

Bottom line, there are a lot of single women out there!

For those nearing retirement or in retirement, boomers, widows and divorcees, the strategies for developing financial independence are different than strategies for younger women. But for both groups, young and older, passively accepting the somewhat sobering facts above is in fact unacceptable! Instead single women should be aggressively executing strategies that enable them to plan for a comfortable, financially independent lifestyle and attacking those strategies with a vengeance.  

For the GenXers and Millennials their advantage is that they have time. While a recent study by the Society of Actuaries report found fewer singles than couples put a high priority on retirement savings, for single women not prioritizing saving is a dangerous mistake. Time is their friend and the sooner they begin focusing on their financial independence the easier the work will be. I want to stress those two words, Financial Independence, not retirement savings. What I am talking about is building your “go to hell” flexibility account. This is the account that gives you choices. This is the account that will allow you to thrive, start that business and give you the confidence that only comes from taking control of your life and being able to say yes to those things you want. This is also the account that leaves you less vulnerable if the unexpected happens. This is your “I’ve got this handled account!”

In addition to saving, younger women do have the opportunity to focus on their income and make sure they are getting paid what they are worth. This is important. Society is becoming aware of the value of female leadership and young women can begin to take advantage of this and use this awareness to close the gap on wages. Negotiating their first paycheck is critical. It is the place where all things start. The next 40 years compensation package and all associated benefits start here. Retirement benefits, social security benefits and pensions or deferred compensation benefits are generally predicated upon salary. While women understand this, women are also known to be less effective and confident in the salary negotiations. They are often not offered nor do they seek mentors. I believe young women can change these trends, but they will need to do so actively. No one is going to hand them anything.

All women must make the decisions about lifestyle, decisions that allow them to prepare for their independence, but single women must make them actively because they are their only income and saving source. There is no backstop. In understanding this they should make sure they have created the space to save. It is important to live beneath your means. Equally important is to start early, start now and pay yourself first. For women who think they may be behind in their financial independence, put yourself first. I have worked with many women after a “grey divorce” who continue to put their adult children and grandchildren before themselves. When they ask me about helping with their grandchildren’s education, I remind them Grandchildren have a longer time to recover their college investment than Grandma does. Grandchildren can borrow for college, but Grandma can’t borrow for retirement.

Women should consider alternative living situations if it benefits them. More and more women are sharing a home. Not only does living become cheaper when shared, there is some comfort in the company provided and sharing resources. The homes chosen should allow for aging. I find more single women in their fifties choosing to move to retirement communities early where they can plan for their life transitions. Planning for continuing care is essential. Single women should be careful to maintain proper estate planning paper work that allows health information to be shared to third parties and insures that proper powers of attorneys are in place.

More women are single today than ever before. Women are the ones choosing to divorce today, twice as often as men. Because of longer life spans, women are also more likely to be widowed.  Young women are choosing to remain single longer, over three times more frequently than previous generations. I don’t know that women prefer to be single in retirement with the resulting financial consequences, but they must believe the benefits of maintaining their independence outweigh the costs of these consequences. I believe that women can create the quality of life they desire if they plan for it. But that is the key, they must plan for the life they have chosen. 

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Finding the Hidden Assets

I have advised many clients on divorce and the related tax issues, the majority have been women and invariably, they tell me their husbands may be hiding assets.

These clients also fall into three categories: First, there are those who are looking to divorce in as efficient and friendly way as possible. They ask for advice on things like property transfers, deductibility of legal fees and alimony payments. The seek guidance on the process and what to expect. They are looking for information that allows them to have better control of the process and hopefully the outcome. They also want to confirm that the assets their husbands are declaring are complete and accurate.

Then there are those who are already divorced. They need guidance on how to best utilize their settlements. They may be the spouse who did not drive the finances during their marriage and they now need to learn the basics of budgeting, money management and investing. They may also be in the unfortunate circumstance of having to enforce their agreement and to compel their former husbands to pay up overdue payments of alimony or child support.

Not infrequently, however, there’s a third category: women going through down-and-dirty divorces that disrupt their lives in unpleasant and expensive ways. They may be dealing with assets with which they are not familiar or that might include a private business where they are neither working or an active owner. They are afraid that the income from these investments or businesses may be underreported or even removed and hidden. Lots of them want to know whether it’s worth hiring private investigators to track down  any hidden assets. I generally say NO.

I then alert them to an alternative: The information they need to start with is often tucked away in their filing cabinets. It is their tax returns. They can begin to gather a good part of what they need from the separate schedules submitted with the returns they filed jointly with their husbands.

When they look into those 1040s, they may discover a list of  the names, amounts and sources of income that would reveal asset locations and serve as clues as to where to look. Here’s what to look for:

Schedule B. This schedule requires listing the names of mutual funds, brokerage companies, banks and other sources of dividends and interest. At the bottom of Schedule B are questions about the existence of foreign financial accounts and trusts.

The IRS doesn’t ask for a Schedule B from individuals who receive less than $1,500 in income from interest and dividends. Instead, the IRS tells them to list their totals for those kinds of income on the first page of Form 1040. Different rules, however, apply to taxpayers with foreign financial accounts and those involved in certain foreign trusts. They must submit Schedule B, regardless of the level of dividends or interest income.

All is not lost if there’s no listing of dividend and interest amounts on Schedule B. True, it becomes harder for a wife to discover her husband’s investments or bank accounts. Still, just listing totals of interest and dividend income on Form 1040 reveals that an ex-husband owns assets that generate interest and dividends, at least during the year covered by the return. This, in turn, gives women a starting point for where to look for assets held in their husband’s name.

Schedule D. This discloses capital gains and losses from sales of fund shares, individual stocks and other assets. The Schedule D reports profits or losses from sales of some stocks. The details of the sales establish the time frame that the shares were owned. There should be detailed buy and sell dates or at least the information detailing if they were short of long term gains, that is held less than or more than a year.  The next logical question is what happened to the sales proceeds—and what other investments does he own?

Schedule E. Here, taxpayers disclose income or losses from the following sources: rental real estate (including the type and location) and royalties; estates and trusts; and partnerships and S-corporations, which are companies—taxed much the same way as partnerships are—that pass profits or losses through to their shareholders, who pay taxes at their own individual rates.

Suppose the Schedule E reveals rental income. If so the identity of the property will be listed. : In partnerships and S-Corps the entity might continue to generate income for the ex-spouse in question. The companies themselves will also have value.

Schedule C:  Sole proprietorships and some LLCs will file their profits on a Schedule C that is included with their personal returns. These can be the most difficult to decipher and it may require an accountant who has auditing skills to confirm that all income is being declared and that he expenses declared are reasonable. These accountants are called forensic accountants and although expensive may be worth the fee if the concerns of hidden income are substantial.

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Support Your Children Not Their Ex’s

We support our children through the bumps and bruises of childhood, the awkward teen years, the stress of college and then they launch and we hope for the best. They marry and have children and we lovingly throw ourselves into the joys of grand parenting, showering our grandchildren as if they were our own with gifts, vacations…..anything and everything!. But what happens in the unfortunate event of divorce. How can we avoid sharing our wealth with their now ex spouses if that is our intention?

I have watched a trend among high-net-worth clients who now navigate the possibility of their children’s divorce. In the past they would have used trusts to protect estate assets, possibly protecting them from distributing assets to their children when they are too young or inexperienced. Today they are still using trusts but the provisions are changing. Instead of telling trustees to distribute income or assets at specific times or under specific conditions, such as attaining a age 25, 30 or 35, they are not mandating distributions at all. Today they are giving more discretion to the trustee possibly delaying the distributions until the trustee determines it appropriate.

For example, instead of an adult child  getting a pre-set amount, say 50% at age 30 or 35, the decision is now strictly left to the trustee’s discretion. Parents make this decision to retain trust assets because,  when distributed,  the assets immediately become subject to creditors, ex-spouses and more. Given the fact that today, most marriages occur later in life, this trustee discretion amounts to a way for parents to do some prenuptial planning for their children. Later marriages result in later divorces and parents take on the risk of losing assets if the divorce of their children happens after their death. If trustees have discretion and choose not to distribute assets then the trust assets remain with the trust and are not affected by divorce. Divorce is still commonplace, so it makes prudent sense that wealthy  and even middle class families put measures in place to protect family assets.

All of this does not mean the beneficiaries lose the benefit of the trust assets. If the trustee is given total discretion to make distributions both interest and principal, the beneficiary simply needs to ask. More likely than not, if the trustee selection has been made carefully, when asked the trustee will most likely comply. Also the grantor of the trust could give guidance as to what circumstances the trustee should make distributions, the funding of a grandchild’s education, for example.

Giving this type of discretion to trustees also provides creditor protection to the beneficiary. Because the beneficiary has no control over the asset, the ownership belongs to the trust not the beneficiary. This has the added benefit of protecting adult children from themselves or ventures that they might otherwise not enter into because of the risk they might pose to family assets. The beneficiary does have the extra step of requesting the distribution but the benefit of the extra step may outweigh the inconvenience.

When distributions are made it may also be wise to educate the beneficiaries as to how to keep the assets separate from their joint accounts. Family communication in using these tactics is imperative lest the beneficiaries misunderstand the parent’s intentions.  Parents need to explain to their adult children why the trusts are being established with these provisions. Otherwise it may be seen as lack of trust on the part of the parents for their kids.

But what if a trustee becomes unreasonable? After all you are putting a lot of power in the hands of this individual. Establishing procedures for this contingency can be included in the trust agreement. Otherwise the beneficiaries have no choice but to petition the court. And in that case, the beneficiary would need to offer proof for the reason the trustee is being removed, such as mismanagement of assets, not complying with trust terms or self-dealing. Language can be included in new trusts or reviewed in established trusts to determine the parameters for removal.

Times they have changed and the changes require new thinking around trusts for our children.

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If you are getting a divorce the clock is ticking!

While the new Republican tax legislation is called the Tax Cuts and Jobs Act (TCJA) there will be no tax cuts for folks divorcing in 2018 and the message is hurry up!

What is new in the TCJA?

Before the new legislation, divorces that included alimony, income payments from one spouse to another, were tax deductible to the person paying the alimony and taxable to the recipient. Under the new legislation this deduction is eliminated and the payment to the soon to be ex spouse is no longer taxable. why hurry? Only agreements signed and approved by December 31, 2018 will retain the old tax characterization.

Why does this matter?

Suppose Harry pays Sally $5,000 per month in alimony. Sally get $5,000 in income but must declare it on her tax return because it’s treated as taxable income to her.  If Sally is in a 24% tax bracket she will keep $3800. Let’s assume that Harry is in a highest 2018 tax bracket of 37%, when he pays his alimony to Sally, he gets to deduct it from his taxable income generating tax savings of $1850 so the net cost after taxes is $3150.

So Sally keeps and the $3,800 but it only costs Harry $3150? Harry’s tax savings is footing part of his alimony bill and the IRS doesn’t like it. The new legislation is intended to close this loophole.

The New Tax Law and Alimony

The new legislation affects any agreement entered not after December 31, 2018. entered into means approved by the courts, so even if signed before December 31st they are not truly affected until approved. This means most couples should check their jurisdiction to determine lead time to filing. For some, the deadline is coming soon.

Why should you care?

The tax advantages of alimony have made the income portions of a settlement discussions more palatable. Alimony is often necessary, particularly in the transition years immediately following a divorce for that spouse needing time to get on their economic feet. But it is often also the most difficult part of a negotiation.

As we saw above, alimony shifts income from a high tax bracket to a lower one. This may seem unfair to married couples, but those couples already enjoy the benefits of a lower tax bracket in the joint tax bracket. Regardless, new legislation ignores this and removes the tax advantages of alimony.  After 2018 alimony a will no longer be that valuable negotiation tool used by attorneys across the country to help settle divorce cases. Couples already in the midst of divorce negotiations should take note. The economics will change dramatically after 2018.

Tick, Tock

While the date is set to be December 31, 2018, divorce takes time. Delays necessitated by your jurisdiction will have an impact. Be certain that you are aware of requirements like mandatory child impact meetings and state determined cooling off periods and factor them into your time line for filing. Consult with a tax preparer, attorney and/or divorce financial expert to help you understand how the tax law changes may affect your divorce. But if divorce is in your future tick, tock!

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Don’t Let Divorce Derail Good College Plans

Divorce is so complicated that the decisions regarding college planning are often left unaddressed causing disagreements when they do have to be made. Most divorce agreements have a plan as to how to divide other assets that have been accumulated during the marriage, the family home, cars, collectibles, joint bank accounts, retirement and brokerage accounts but when it comes to other savings, such as college savings or 529 plans, often the agreements are too vague. Couples operate from assumptions, such as  the parent who established the account controls it, and absent any other agreement that will be true. But we all have suffered the  consequences of operating under the wrong assumptions, and for divorcing families, when they make assumptions, the mistakes they make often mean they pay more for college education than is necessary.

For example, during divorce most accounts are divided but that does not have to be the case for college savings or 529 plans. In fact the division of these accounts may either overcomplicate things or serve failing purposes. There is much more to consider in dealing with educational funding accounts than a simple division of assets.

First, it is generally assumed that 529 plan funds continue to benefit their children and that these funds will pay for a college education. Most agreements that address these accounts allow each parent to continue to contribute to them and by agreement how the funds can be used. Under the new tax legislation, however, funds can be used beyond college costs, such as for private high schools, and agreements should probably address these new possibilities and the process of agreement upon expenditures. What if a child chooses not to attend college but another form of advanced education, revisiting this agreement in this instance should be addressed. If there are insufficient college savings but there are other savings that could be used for college, agreements should address which savings should be allocated first. If agreements require ongoing contributions to 529 plans they should spell out when they terminate and may even stipulate the maximum age at which the children can use the money in the account for educational purposes. Agreements should also clearly state how assets remaining in the account after that date are to be distributed, if they have not been used for college  and who should pay the tax penalty. This obviously requires that each party be able to see the statements, so agreements should address how and how often.  A simple solution is to name the parent not managing the account as an interested party with the custodian.

For some families who struggle in their ongoing relationship it may be clear these accounts should divided and they generally can be without penalty. An obvious situation is where parents do not have good working relationships. Separating accounts serve to avoid ongoing conflicts and each parent can then decide their own deposits to be made to the account and how their funds might be used.


 Divorce Decisions Affect College Aid Eligibility

In addition decisions regarding 529 plans can have a great impact on eligibility for financial aid mostly by which parent owns the 529 plan and who and when they take the distributions.

When parents are divorced, completing the Free Application for Federal Student Aid (FAFSA) is the responsibility of the custodial parent (the parent with whom the dependent student lived the most during the 12 months ending on the FAFSA filing date). If the student lived equally with both parents, which can happen in a recent divorce, the custodial parent is the parent who provided more support. If the custodial parent owns a 529 account, it’s reported as an asset on the FAFSA but distributions are ignored. Need-based financial aid eligibility is reduced by a maximum 5.64 percent of the asset value. If the non-custodial parent owns a 529 account, it isn’t reported as an asset on the FAFSA but distributions count as untaxed income to the student. This reduces need-based aid eligibility by as much as half of the distribution amount. Thus the timing of the distributions is critical and possibly should be left to the final few years when the FASFA look back would have less of an impact

Assume the 529 account has a $25,000 balance and it’s spent to zero during freshman year. If the custodial parent owns the account, the worst-case scenario is it reduces aid eligibility by $1,410 (5.64 percent of $25,000). If the non-custodial parent owns the account, the worst case is it reduces aid eligibility by $12,500 (half of $25,000).

These considerations may also give guidance as to annual custodial arrangements, division of 529 plans and whether and how they should occur as well as   distributions and their timing

Stepparents are also a consideration. Stepparent’s income and assets are also considered in FASFA forms and impact financial aid eligibility. Their own children can also have an impact especially when their kids are enrolled at least halftime in college, it can reduce the expected family contribution (EFC). Going from one child in college to two is like dividing the parent income in half.

Today college costs greatly affect family finances both in traditional and divorced families. They deserve great consideration in both circumstances, with divorced families needing to give a little more!


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Financing Our Home Again

As couples move through all the decisions their divorce requires them to make, inevitably they must make a decision regarding their home. In my most recent post I discussed the emotional impact of this decision both on each divorcing party and their children. Once we have come to understand the place our home has within the values of our overall finances and wealth, we must decide what to do with it.

That question while seeming simple, do we keep the home or sell it, in reality has complicated answers. Selling or buying a home can be intimidating at any stage of our lives but if it needs to be made at the time of our divorce it can be even more challenging. What  affects our decision is the value of the home in relation to all other marital assets, the individual income of each party, the stage of their lives where they are divorcing, and what they need to do to secure their financial future moving forward. I’d like to address these issues individually.

The purchase of a home when we marry often depends on what we feel we can afford based upon the family income. With the majority of family income coming from dual working couples, at divorce that income can be more than halved. With the housing crash of 2008, qualifying for mortgages have become more challenging. Transferring the mortgage to one spouse can be difficult. If it seems that the decision to keep a home is one to be considered the first step is to be certain that the party considering keeping the home is able to qualify for a mortgage and at what level. It may not be the same level as both incomes could qualify for previously. It will probably require a refinance.

If new financing is involved there are some key factors to consider. A couple’s first step is to review all other debt levels. Is there credit card debt, student loans or personal loans? Who will be responsible for what debt? Divorce often involves a significant mid life change in finances and leaves little room for error. We continue to have responsibilities to our families, have a greater possibility of changes in our health, and may risk greater employment uncertainty. As a result our debt levels, including mortgages, should be approached conservatively. It is prudent to have all debt levels to fall below what we think we can afford. This will affect how much property we can afford and guide us in the consideration to keep our current home and even the home we might purchase. It may cause us to take a step down from what we could afford during the marriage. If it is determined that keeping the home is essential it may guide the division of other marital assets and income. It may drive any spousal or child support discussions. But taking an objective look at our global finances and all contingencies will help us avoid a situation where a change of income might affect our ability to afford our mortgage and force us to disturb other savings.

Evaluating our finances will also give us guidance as to how much we might need for  any down payment. If other funds allow, we might make a more significant down payment to reduce our mortgage payments. It could also shorten the time until our mortgage is paid so that it could better coordinate with our plans to retire.

For those of us in the “grey divorce” arena either approaching retirement or in retirement, consideration could be given to a reverse mortgage. Home Equity Conversion Mortgages can help with the division of a marital residence especially if it is a considerable per cent age of the couples marital assets. A HECM is a simple loan available to folks over age 62 that can be taken against the the equity in a home. The proceeds can be taken in a lump sum, as a line of credit or in the form of lifetime income. As a result it can be used to facilitate the buyout of a spouse, the purchase of a new home, or to pay down an existing mortgage. The cost of acquiring an HECM has come down significantly in recent years making them a more realistic means of helping couples divide assets in their later years. Regardless, care should be taken in acquiring a HECM working only with a highly qualified lending professional along with the guidance of a financial planner.

Any decision we make during divorce should be an integrated decision viewed within a long term comprehensive prospective of our overall finances. Home purchases and the mortgages that we use to facilitate those purchases impacts us for years to come. We should take steps to fully understand the implications of those decisions.




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Our Kids Our Homes After the Split

Let’s face it, everyone hates to move. I want to meet the person who tells me, “I love packing up and moving from my home to a new place!” If I ever do meet them I might check for fever, delirium or the possibility that maybe this whole divorce really has gotten to them. So it’s not surprising that the home can be an emotional conversation for the family in the midst of an already difficult time. It usually is one of the first issues that has to be confronted especially when it is clear you can’t stay together any longer. S0 one  family member is definitely moving now and maybe both if the family homestead is not affordable to either.

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Divorce Our Personal Tsunami

In 2011, an earthquake and tsunami tore through Japan. 16,000 people died during the natural disaster and many communities are still recovering 6 years later.

But one coastal Japanese town is offering a unique way to help many Japanese who lost a family member deal with their grief in a unique way—a white telephone booth with glass panels. Sitting atop a grassy hill in Otsuchi, overlooking the Pacific Ocean the phone booth, which only has a disconnected rotary phone inside, has become a place where families who lost a loved one suddenly in the tsunami can communicate to the loved one they lost.

Otsuchi is a town that was decimated in the disaster. The entire area caved in within 30 minutes and 10 percent of the town’s population was killed. The immediacy of the loss was sudden and complete and unanticipated.

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If Marriage Is About Love, Divorce Is About Money

A new client came to me this month at the recommendation of her Family Law attorney. She wanted to consult with a financial advisor while preparing for her mediation.

She wasn’t necessarily looking for a specialist, a Certified Financial Divorce Analyst, just someone who could help her envision her financial life post divorce.

I am a CDFA and understand divorce law in New Hampshire but in this case that really wasn’t my role. My role, as her attorney defined it, was to help her understand what she and her husband owned and how some of that would support her for the rest of her life.

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