Helpful Guidelines For Divorce

Divorce can have a devastating effect on everyone involved.  While some couples are able to navigate a civilized divorce and can remain friends and co-parents, many couples fight and suffer greatly.  Under such circumstances, and especially if they end up in court, the result can be permanently damaging for both, and for a very long time.

Can something be done to lessen the negative power of a divorce?  Are equitable settlements really possible?  YES.  Mediation with Nadia can turn a damaging approach around and empower couples to move forward with decisions and an overall settlement which is acceptable to both parties.

The following guide to a divorce is exactly that – a guide.  It is meant to help you prepare for the possibility of a divorce.  But divorce is a process, a series of steps.  The key is to take small steps and keep moving forward.  Nadia will guide you through the process of divorce, and help keep the steps manageable and moving in a positive direction.

Collect Information

Many times one spouse doesn’t know what the other spouse is doing concerning income, expenses, investments, insurance, loans, and even a family business. You and your spouse need to provide this information to the mediator.

Make A List of Assets and Debts

When you have your first appointment with Nadia, be prepared with your list of assets.  Don’t guess.  That wastes your time and hers, and costs you extra money.  It also important to list debts and loans from Mom and Dad, if any.

Temporary Support

The lower-earning spouse or the stay-at-home custodial parent may be entitled to temporary support.  This is to be used to pay bills for ordinary living expenses while your case is being settled.  It does not necessarily determine the amount of alimony and child support you will receive.

Tax Issues With Alimony

Remember, alimony is taxable to the person who receives it and tax-deductible by the person who pays it.  Some creativity can be used to offset the higher tax bracket of the paying spouse with the lower tax bracket of the recipient to end up with more dollars in the pockets of both spouses.

Alimony Recapture

The IRS has specific tax rules that govern the paying of alimony.  One thing they try to avoid is allowing divorcing couples divide their property by calling it alimony, so that the person with the higher tax bracket can get a tax deduction.

To avoid this, the IRS says that alimony should not drop from one year to the next by more than $15,000 within the first three years after divorce or they will not classify it as alimony.  In that case, the person who had been taking the deduction will have to re-capture all those tax deductions and pay them back to the IRS.  This is called “Alimony recapture.”

Child Support

All states now have Child Support Guidelines.  They are usually based on the incomes of both parents and the amount of time the children spend with each parent.  Nadia will go over all the calculations in her office with both parents. Child support is always modifiable. 

Consider Cost of Living Increases for Child Support

We all know that children seem to get more expensive as they get older.  They seem to have more expensive ‘toys’ such as computers, skis, orthodontics, etc.  Many couples discuss and anticipate additional expenses including a cost of living increase each year for child support. 

Know The Difference Between Separate and Marital Property

Separate property is everything you bring into the marriage and keep in your own name.  It is also what you receive during the marriage as a gift or an inheritance.  Marital property is everything acquired during the marriage – no matter whose name it is in.  The increase in the value of separate property could be marital.

For instance, consider a $20,000 savings account brought in to the marriage, which earned $3000 during the marriage, and is now worth $23,000.  The $20,000 would be set aside as separate property and the $3000 would be included as part of the marital assets to be divided.  Assume the wife adds $100 each month to her IRA which is in her name only.  That is still considered a marital asset because it is “everything acquired during the marriage, no matter whose name it is in.”

Capital Gain on House

The 1997 revised tax law says we can no longer roll over capital gain in the family home.  The one-time exclusion of $125,000 is also gone.  Instead, we have something even better.  Now, each spouse can take up to $250,000 exclusion if they have lived in the house two of the past five years.

If your house has a very large capital gain, you should consult with a CPA or a financial divorce specialist to see how to handle this the best way.  It is possible for both spouses to take the $250,000 exclusion for a total of $500,000 if it is handled properly.

Find Out The Basis in Your House

If you receive the family home that has a low basis, you may be liable for capital gains taxes later.  This would also apply to stock accounts and other real estate.  Basis does not relate to the amount of the mortgage.  It relates to the amount originally invested in the property adjusted by improvements, sales costs, etc.

Get Real Estate Appraised

You may agree on the value of your home, but what if you receive the home and you agreed it was worth $360,000 but when you go to sell it, you can only get $250,000 for it?  That means you may have left more than $55,000 on the settlement table! (One half of the difference of $110,000.)

Appraise The Family Business

The family business is more complicated.  It is sometimes difficult, and costly, to appraise a business.  But it is necessary to have an accurate value to make an informed decision about your final settlement. If you both decide not to get an appraisal, that is your decision.

Value of Household Goods

Household goods are valued at garage sale value.  That means all furniture, pots and pans, sheets, etc.  The exceptions would be: antiques, art, collections, etc.  They may need to be appraised if you feel there is greater value to them.  Autos are typically valued by the Blue Book value.  

Children’s Accounts Are Not Marital Property

You may have accounts that you have earmarked for the children’s education.  They must be set aside and not divided as part of the marital property.  They belong to the children unless you both decide otherwise.

Don’t Forget Tax Refunds

Sometimes, assets come in later, after the divorce is final – such as tax refunds, bonuses on work done while still married, royalties, etc.  Don’t forget to include those in your settlement negotiations.

What About Stock Options?

Stock options are complicated and require a lot of investigation into the type, the ability to transfer, and the way to allocate the finds when they are divided.  They are matrimonial asset unless you both decide otherwise.

Get Information About All Retirement Plans For Both Spouses

Retirement Plans, even though in one name only, are marital assets and can be divided through a divorce decree.  It is important to know the value of each account and to know the different rules of liquidating them. 

There may be a pension from a previous job that is just sitting there waiting for retirement.  Get information on that, also.

Get A Pension Appraised

We are using the word “pension” to apply to a Defined Benefit plan which provides a future monthly payment after a person retires, based on that person’s length of employment and amount warned.  These plans can be complicated to value but can be worth a significant amount of money.  Advice from a financial specialist is needed in this area and Nadia will advise you if it is needed in your case. 

Use of QDRO

This stands for Qualified Domestic Relations Order.  It is the legal document that is sent to the plan administrator which tells the administrator how much money from the retirement plan to send to the ex-spouse.  It is the only way for the ex-spouse to get payout from a qualified plan such as a 401K.  Nadia will advise you if doing a QDRO is necessary in your case.

Don’t Cancel Insurance Too Soon

If all your cars are on one insurance policy and your car’s insurance is cancelled because your spouse figures you will get your own, you are without insurance until you do get your own. 

Suppose you are the beneficiary of your spouse’s life insurance and it is cancelled.  Two things may happen: (1) Your spouse may die before the divorce is final and there are no proceeds or (2) The court orders your spouse to carry insurance to cover alimony (see next paragraph) and now the spouse is older and to get new insurance will be much more costly.

Life Insurance To Cover Alimony

Alimony stops upon the death of the payor.  So it is extremely important to protect that stream of income with life insurance on the payor’s life.  It is also important to consider having the beneficiary be the owner of the policy.

COBRA vs. Self-Insure

COBRA stands for Consolidated Omnibus Budget Reconciliation Act and is formed to allow employees to continue to get health insurance from their previous employee for up to 18 months after leaving that place of employment.

In divorce, COBRA allows for up to 36 months of continued health insurance for the ex-spouse of the employee, if the company has at least 20 employees.

It is important, however, to consider self-insuring – getting your own health insurance.  After the 36 month period on COBRA, if you have become uninsurable in the meantime, they do not have to continue to insure you.  If you have your own insurance, as long as you pay your premiums, you are covered.

Social Security Benefits

If you have been married ten years or longer when you get divorced, the lower earning spouse can get half the higher earning spouse’s Social Security benefit.  It does not reduce the higher earning spouse’s benefit.

You can get your own benefit or half your spouse’s benefit – whichever is higher.  You have a choice.  You can only get one benefit. 

Make sure you change your will immediately.  If you die after the divorce is final, the court may take that into account.  However, the risk is that your ex-spouse could get your property instead of where you want it to go. Nadia will help you with a separate Will and Testament at the time of the filing of your divorce.

Remember that consideration and completion of all these areas SHOULD take some time.  Be gentle with yourself during this period and allow for the “small steps” of the process to help you move forward.

Nadia has spent more than a decade assisting people through this process and uses her experience to guide all parts of this process along positive lines.  It IS possible to eliminate harsh and hurtful interaction between spouses.  It IS possible to work together and come to an end result that you both can be proud of completing. Mediation IS the way to accomplish this goal. Nadia can and will work closely with both of you to achieve this outcome.