If you’re like most people, you probably don’t think that these two topics are related in any way. Let me briefly explain why they, in fact, are intimately related.

Last week, the Social Security Act turned 88 years old! The original intention was to protect the average citizen from a poverty-ridden old age as well as the family of that individual worker. Unfortunately, over time, it has become clear that more often than not, older women, especially those who are divorced, are living in poverty … as a matter of fact close to 25% of these women as opposed to those women who were never married or are widowed. How is this possible you may ask?

There are several things you need to understand about social security, how it works, and what mistakes to avoid. First, you qualify for social security benefits with 40 credits (4 credits earned every year). The earliest age you can apply is 62. Full retirement age (FRA), which is based on your date of birth, is the next watermark, and 70 is max age for everyone. If you take your benefits anywhere between 62 and your FRA, your benefit will be forever reduced.

So, now let’s talk about how this effects women who are getting divorced. In order to qualify for a spousal benefit, which is up to 50% of the earning spouse’s benefit, you have to be:

1. at least 62 years of age
2. have been married at least 10 years
3. divorced for at least two consecutive years
4. not remarried
5. and have an ex-spouse who qualifies for social security

Your individual benefit, if you have one, should be less than what your spousal benefit would be. For example, if your individual benefit is $1,000 and your ex-spouses benefit is $3,000, this means that your spousal benefit could be $1500. In this instance, it makes sense for you to take your spousal benefit . HOWEVER, if you are deciding to take this option and YOU are not at your FRA, the benefit will be reduced because of your age. This will effect your social security benefit permanently. So while your ex-spouse is receiving the full $3,000 you will be forever receiving less than half!

These are things that needs to be considered, analyzed and discussed during any conversation regarding post-divorce income and retirement income. Please listen to the full conversation in the previous post from my appearance on The Divorce Hour with Ilyssa Panitz and call me at 516-234-7522 to discuss your own situation and the decisions that you can make.

Recently, I appeared on an episode of The Divorce Hour with Ilyssa Panitz. The episode aired at the end of June, and being Pride Month, we had decided to discuss how and why divorce finances are different for the LGBTQ+ community. Before we begin let me say this … just because June is over doesn’t mean these issues go away or don’t need to be discussed. So here goes …

I feel that one of the main reasons it is crucial for a divorcing same-sex couple to hire a CDFA is this … the standard approach to division of assets often doesn’t apply in these cases. Why? Because the “standard” approach assumes two demarcation points … the date of marriage and the date of separation … which defines what is separate vs what is marital. This in and of itself poses a challenge. It is often the case that the couple who is now getting a divorce has only been legally married for a short period of time representing a small percentage of the totality of their relationship. This, then, creates issues when it comes to the division of assets and the definition of separate vs marital.

For example, when one member of the couple has a pension, let’s say this person is a teacher, and has been working for 25 years each spouse is entitled to a portion of the future income from that pension. The committed relationship between the couple has existed for 20 years; however, their marriage was not recognized as “legal” until 10 years ago. How do we decide what is the marital portion and what is the separate portion of the total pension? Well, there’s a well recognized way of doing this … The Majauskas Formula. This formula, derived after a NYS of Appeals court case, gives us a mathematical method of determining what is separate vs what is marital. HOWEVER, let’s go back to issue #1. The demarcation point of marriage is NOT representative of the total years that this couple was together and using this formula would result in an amount that was skewed to one individual vs the other.

Is all hope lost? Not at all. First, as a CDFA, I work with many individuals prior to the start of their divorce action to help them plan ahead. This can be very useful for all people contemplating divorce but especially members of the LGBTQ+ community. I strongly encourage these couples to establish other recognized joint asset designations that can resolve problems with brokerage accounts, stock, bank accounts and real estate. Unfortunately, these types of joint ownership titles cannot be used with retirement accounts because those are always individually owned. My recommendation there would be to use a mediation or collaborative method of divorcing rather than a court litigated one. Why? Because during a mediation or a collaboration, the UNIQUE circumstances of any couple can and will be taken into consideration in order to come up with a settlement that is equitable, truer to the original intentions of the relationship, and specifically designed so that both individuals can live with the agreement and move forward post-divorce.

For more information, you can reach me at [email protected] or 516-234-7522

The start of a new year brings opportunities to start fresh … sometimes this means filing for divorce. If this is the case in your situation, there are some important issues that you should be aware of when it comes to your finances.

How do I get my finances ready?

The most important thing to do is to start collecting statements from your accounts: bank, credit card, mortgage, utilities, retirement accounts, brokerage accounts, life insurance, car loans/leases etc. This way, when you meet with your attorney or CDFA (certified divorce financial analyst) you will be ahead of the game when it comes to speaking about your current financial situation. Also, since December 31st, the end of the year, was just a few weeks ago, most companies will be creating annual statements. Some companies don’t necessarily send monthly or quarterly statements but they must send an annual one. If it isn’t in print format, it will be available on line. So, what if you’re not the person who handles the finances? This could be a bit trickier, however, here is where working with a CDFA can be helpful. A CDFA can work with the attorney/mediator to request these statements from your spouse and compile the information into a usable, easy to understand format.

Should I be more conservative during with spending during the divorce process?

In any time of extreme change in a person’s life it is wise to be more conservative when it comes to discretionary spending. This refers to things that are more “wants” than “needs”. It is going to be a big adjustment for the family as they separate households and finances. Individual budgets need to be created. For many people who have never actually done a budget, this can be a daunting task. A CDFA can help someone put a budget together that makes sense so they can see where there money is really going. This is not the time to be making big purchases that don’t come under the category of food, clothing, shelter … and by “food” I’m not talking about eating out every night of the week; and by “clothing” I’m suggesting that you look twice at those designer labels and realize that this might be more of a luxury item right now and may not fit into your budget. I give this same advice to high net worth individuals … I caution them to hold back until they see where the dust settles and they have a more realistic picture of what their new normal looks like.

How can I avoid potential financial disaster? What are the things I need to look out for?

The first answer to this question is a category unto itself and that is your individual credit score! The key here, and the first step, is to get your CREDIT REPORT PRINTED! The biggest problem with separating marital finances is that people forget that it’s not just about the assets … it’s also about the DEBT, and even though your individual name may not be on that credit card, that car loan … debt accumulated during the marriage is a marital obligation. Pulling your credit report is not just about knowing your score. While this is important, it’s more about seeing what “obligations” are in your name. There may be a joint account that you’re not even aware of. You should also get a copy of your spouse’s credit report for the same exact reason.

The second answer is to make sure you understand the immediate AND long-term ramifications of what you decide to “split” and what you decide to “keep” of the marital assets. So many people try to trade apples for oranges and they don’t consider things like capital gains tax on a house or stock portfolio or the tax impact of future distributions from a retirement account. They think that just because the bottom line numbers may be equal that this is actually “equitable distribution”. IT’S NOT!

For example, a martial residence with an “equity value” of $750,000 is NOT the same as a 401(k) worth $750,000. Why? Because if the house is sold when the couple is still married, they have a combined $500,000 of capital gains tax exemption on the sale. An individual only has $250,000. So if the sale value of the house is $1,100,000 and the mortgage is $250,000, the net proceeds of the house (not taking sales commissions and other fees into account right now) would be $850,000. You would also need to know the cost basis of the house which is the purchase price plus capital improvements. So, let’s say they purchased the house for $500,000 and made $50,000 of improvements. That brings their cost basis to $550,000. Net sale of $850,000 – $550,000 = gain of $300,000, which as a married couple is covered by their joint exemption. BUT as an individual, the exemption is only $250,000. If one person “received” the house in the equitable distribution, they would owe tax on $50,000 upon sale.

Likewise, the 401(k) being $750,000 must be tax impacted for future distributions. Every penny of the money that is in a 401(k) or other retirement account is taxed upon distribution of at least 10%. Depending on the individual’s tax bracket at the time of the future distribution there could be the tax could be 25 – 30%. That said, the 401(k) would have to be worth $825,000 in order for it to “equal” the equity value of the house.

Not knowing these things could absolutely put an individual in a position of being blown up on a financial land mine. Working with a CDFA will mitigate the risk of doing just that.

There are so many misconceptions about divorce and finances. One of the biggest and the one that trips people up quite frequently is the idea of 50/50 when it comes to dividing assets that have been accumulated during a marriage.

First and foremost, the thing to remember is that it has a lot to do with where you live. For instance, there are community property states like California and there are equitable distribution states like New York. Most states are equitable distribution states. If you live in a community property state, marital property, that is, property acquired during the marriage, automatically becomes jointly owned by both spouses, 50/50. That also refers to income — income earned during the marriage by either spouse is equal for both spouses, 50/50.

Conversely, if you live in an Equitable Distribution state, property acquired during the marriage and income earned is divided in such a way that is determined to be “fair” based on many factors. FAIR does NOT mean EQUAL! All assets and debts are accounted for and given a value based on a specific date chosen. This is usually referred to as the “cut-off” date and helps the couple to decide what assets are in which columns and what the totals are. For instance, with a 401(k) retirement plan, it is important to decide on a “cut-off” date because the contributions made AFTER that date are no longer considered marital property. In addition, anything contributed to that retirement account BEFORE the date of the marriage would be considered separate property.

Once that has been determined and the columns are created … Wife has a total of “$X”, Husband has a total of “$Y”, decisions need to be made for distribution of those assets. Sometimes, the picture is pretty clear, but when there are more complicated situations, there are factors that will be considered in determining who gets how much of what:

1. Is there a pre-marital contract (prenuptial agreement) that determines the division of assets and income in the event of a divorce
2. What is each spouse’s earning ability now and in the future
3. What is each spouse’s financial need now and in the future
4. What is the total value of the assets that each spouse holds
5. What did each spouse contribute to the marital asset pool
6. What is the age and health of each spouse
7. What obligations, if any, are being paid by one spouse to the other (ie: child support or spousal maintenance)

When the couple themselves cannot come to a conclusive agreement regarding division of assets, the court will get involved. This is certainly not what anyone wants to see happen — having someone else decide what you get to keep and what you have to forfeit your rights to is not in an individuals best interest. This is where a mediator or collaborative team (attorneys, financial neutrals and family specialist) can help. It is their job to assist a couple in reaching a mutually agreeable outcome, outside of the court system. This saves the couple a great deal of time, money and heartache and creates an agreement that they can both move forward and live with.

For many people, the financial aspect of their divorce is one of the most stressful. There are many questions that come up regarding what marital assets are available, what debts have been incurred, and how the two individuals are going to be able to afford to live separately. One member of the couple may feel out of their element when dealing with finances and have more questions and concerns in this area than their soon-to-be ex-spouse. The fear that arises can lead to the feeling that their spouse is hiding something … sometimes this is true, others not … but a trained financial professional can help to discover the truth.

Financial Fraud. Wow, that’s a scary phrase. Financial Infidelity. That certainly can push some emotional hot buttons. So, let’s get down to defining what those terms are and the differences between the two before we talk about how to deal with them. Fraud, in any circumstance, is defined as “wrongful or criminal deception intended to result in personal or financial gain”. The key word here is criminal. The most common types of financial fraud are tax evasion, money laundering, embezzlement and insider trading. More often than not, these are not the types of things that happen during a divorce. On the other hand, financial infidelity which is defined as the act of hiding money or information about money and finances from the other spouse, does happen more than you think. Common activities include having a separate, previously undisclosed savings account, wracking up huge amounts of credit card debt on a personal card and losing money because of gambling or addiction.

There are definite red flags of suspicious behavior that can point to financial infidelity. Is your spouse very controlling over the household finances and spending? Is your spouse suddenly engaging in very expensive habits or hobbies? Is there a history of lying about money? You may feel a bit paranoid. Understandably so. Have you noticed that there are a lot more “cash transactions” than in previous years? Is money moving around from account to account making things more confusing? Are statements coming in the mail from banks and credit cards that didn’t exist before? Have valuable assets suddenly disappeared?

Taking control of the situation is essential and the first step is to hire a financial professional … a CDFA (Certified Divorce Financial Analyst) or a Forensic Accountant to help you get to the bottom of it all. This individual will act as your financial advocate and be there to help uncover whether there is financial infidelity or fraud and work with your legal team to best serve your interests. The financial professional will need as much back-up documentation as possible in order to help you figure the puzzle out and put together the right picture. Copies of statements from bank accounts, financial accounts, credit cards and retirement accounts will create a paper trail that can lead to the answer you need in order to be prepared when you sit down at the negotiating table.

If you feel that you are the victim of financial fraud or financial infidelity, please contact me for a free consultation at 516-234-7522.

Many people are asking me, “How will a recession affect my divorce? Should I wait?”. While this is an extremely personal decision and has more to do with your individual circumstances than world events, we can certainly look to the past to give us some guidance.

Statistics:

During the last recessionary period of 2009-2011, there is evidence to prove that, in fact, divorce did decline about 4% from anticipated totals. Some experts believe that the reason for that was the housing market, and if we think about that for a minute, it does make some logical sense. There are, however, many other factors to look at and take into consideration when contemplating a divorce during an economic downturn.

Account Values:

When the stock market is on the decline, there is a direct cause and effect relationship on your portfolio values ie: retirement accounts and other savings. During equitable distribution discussions this results in “less to share” which can be looked at as a positive result. Unfortunately, the flip side of this is that the account owner also has “less to keep” making it a scarier prospect of splitting that account, especially when retirement age is looming.

Real Estate:

Let’s return to the real estate market. It’s not unusual that the marital residence can be one of the, if not THE, largest asset in a marriage. When prices start declining it is natural to ask if the couple contemplating divorce have lost their “selling window”? Maybe, maybe not. A great deal of that depends on location. If, on the other hand, interest rates are also on the rise, this could pose a problem for one member of the couple considering buying their spouse out which could necessitate a refinance.

Income:

For those individuals who are contractually salaried employees (teachers, firefighters, police officers) a recession’s effect on their income is not as much of a concern as it is for those individuals in corporate America or self-employed professionals such as doctors, attorneys etc. Since spousal support and child support are calculated based on household income, a recession will have an immediate effect on available resources to support what will now be two households. That is one of the reasons why it is important to look at three years of average income in order to determine what is customary for the lifestyle of the family. A forensic accountant or CDFA can provide a lifestyle analysis to assist with these calculations.

Business Valuations:

As with income, the value of businesses will be adversely effected by a recession. In this current economic environment, coming out of a global pandemic, businesses are still trying to recover their value and many are struggling to survive. Prior years records are crucial to determine a fair value for a family or individually owned business during equitable distribution discussions.

While all of these issues need to be taken into consideration, divorce still remains a very personal and difficult decision to make. Consulting with a team of professionals is your best defense.

Donna LaScala, CDFA®

President, Comprehensive Divorce Solutions, LLC.

During a divorce, one of the most challenging areas to tackle is division of the family’s assets and liabilities.  Between brokerage accounts, retirement accounts, pensions and the family marital residence, things can get pretty contentious as emotions run high.  What may once have been considered “ours” now gets thought of as “what’s mine is mine” especially when discussing retirement accounts and pensions.  Temperatures rise when one or both spouses take the position that their retirement account or pension is something that he/she “earned” and their spouse has no right to receive any portion of it.  Of course, we know that this is not the case and there are clear ways to define what is marital, what is non-marital, and what portion will be divided according to the rules of equitable distribution.

Furthermore, the issue of who will remain in the marital residence, how long that person is be able to stay there, if and when the house gets sold and who can afford to buy the other out comes up in many situations and, when there are minor children still living at home, it raises many more questions that need to be answered. Many couples opt to sell the marital residence, split the proceeds and go their separate ways in a new location.  This seems like a simpler solution to a complicated problem and can be mentally and emotionally beneficial, allowing both parties to start fresh.

Above and beyond these common scenarios, one of the more complex issues for a couple is when there is a family-owned business. This always presents unique challenges to the clients and their attorneys.  Does one spouse own the company?  Was it passed down through generations within that spouses’ family? Are there sibling partners involved? This issue could certainly throw a monkey wrench into what otherwise could have been a relatively straight-forward financial negotiation. Is the other spouse a silent partner without a day-to-day working knowledge of the business? Normally, if only one spouse is actively involved in the company, the other spouse will be appropriately compensated once a forensic accountant has been engaged to determine the value of the business and the marital portion to be awarded to the non-owner spouse.

However, the situation may be more complicated when both spouses are owners AND hold important positions within the organization.

What happens if both spouses are vital to the ongoing success, profitability, and value of the company? Will they be able to work together in the future? They and their advisors must weigh advantages and disadvantages of trying to divide the corporation between the spouses versus having them continue to work together, IF that’s even a viable option. Can they continue to work together? Should they? Is either spouse so indispensable that the business would suffer irreparable damage due to their departure? Will the profitability and viability of the business suffer if one spouse leaves? Can the remaining spouse buy the other spouse out of their share? Is there a buy/sell agreement in place? Is the company an asset that can be sold or is it a business that is dependent on the intellectual capital of one or both of the spouses?  And, let’s not forget liabilities! Is the business in debt? Is this debt the responsibility of one or both parties in the marriage? Is there cash available? All of these questions need to be addressed before a determination can be made regarding how the business will be handled as an asset.

With all these questions needing answers, there is some positive news. The loss of value due to the departure of one spouse after divorce can be temporary.  The health of the company may actually improve after the spouses have gone their separate ways… just like ending a bad marriage might improve the lives of the now separate individuals.  Neither scenario is out of the realm of possibility … it all depends on the individuals involved and the compromises that can be reached during negotiations.