Female: - Second Saturday



The Twelve Pitfalls of Divorce - ScriptGinita’s Introduction – California specificWe’ve talked about the legal aspects of divorce. We’ve talked about the emotional aspects of divorce. Now, it’s time to talk about the money. I’m Ginita Wall, I’m a CPA and a certified financial planner and most of my work is in the field of divorce. [Substitute your own introduction]Now, that gets a lot of people confused because when they think about divorce, they think about the law. That it’s a legal process; that you’re going to be hiring attorney, go to court, and end up with a document that’s signed, sealed and stamped by the court. But when you get right down to it, divorce isn’t about the law at all. Divorce is about three things: it’s about family; it’s about emotion, and it’s about money. And for most of you, divorce will be the biggest financial transaction of your entire lives. It’s not something to be taken lightly. It’s something to approach when you’re feeling very calm and clear-headed and able to think very concretely about the present and what that means for your future. Unfortunately, that’s not where any of us are when we’re going through divorce. We’re the opposite of that. And that’s where I come in. A lot of people come to see me before they’ve even started the divorce process because they know what they’d be getting out of, but they’re not really sure what they’d be getting into. So, we talk about what their lives might look like after divorce; how things might work out and most importantly, what they could do between now and then, when they might file for divorce or say, they want a divorce, what they can do to be better prepared to go forward. I also work with people who are some place in the divorcing process, helping them make those difficult decisions: Should we keep the house; should we sell the house; buy him out of the house; what do we do with the debts; how do we divvy up the retirement plan; how are we going to possibly support two households on the same money, when we’re barely making it with one household; what are the tax consequences of what’s happening?I also work with people who have more complex cases. I work with their attorneys in tracing separate property. -- You have something, you brought it into the marriage or you inherited it during the marriage and it went into something else, like the house or the brokerage account, it’s now been changed around to be something else. And now, if you could trace it through all those permutations, you can get it, but only if we can trace it. Otherwise, it is presumed to be community property. I work through those tracings.I also work with attorneys in determining income available for support. In California, a lot of people have small businesses. Those small business, very often have cash transactions. Those cash transactions very often don’t seem to hit the books and the income tax return. A lot of people in California have high lifestyles. Some of those expenses to maintain those high lifestyles do find their way into the books of the business. So, my job is to find out what income isn’t there and to find out what expenses are overstated so that we can pull those out; so that we can get, first of all, better value of the business, but secondly, a better value for the income available for support. And then finally, I work with people who are in mediation, helping with that process. I’m not a mediator myself, but I often work with mediators. They’ll call me into the session or they’ll send clients to me individually or as a couple to determine what is the income available for support; how are we going to divvy these things up; who will keep the house or should we sell the house?The Twelve Financial Pitfalls of DivorceI’ve found that people have a tendency to fall into what I call the “12 Financial Pitfalls of Divorce.” That’s what I’d like to talk to you about today, so maybe we can keep you out of those pitfalls. The 1st Pitfall: Not Enough CashIt may be too late to avoid this one. Cash often runs out before the month does for a lot of us. In divorce, cash plays a very important role because, let’s face it, money makes us feel more secure and in a lot of ways, cash buys power. You don’t feel as powerless if you have financial assets because then, you’re going to be more impermeable to financial threats. So, my advice to you is stash cash, particularly if you’re at the beginning point where you haven’t really announced that you want a divorce or you haven’t filed for divorce, and you’re not yet separated. This is a great time to stash cash. And I do not mean hide money away, that you will never disclose that you have because when you go through divorce, you have to file paperwork that says what you own; what you owe, and you have to sign that under penalty of perjury. If it turns out that you left something off, you’re going to be in hot water with the judge and nobody’s going to believe another word that you say and even worse, it could be that that entire asset you left off goes to your spouse and none of it to you as a punishment to you for having willfully left it off. [The rules could be different in your state.]So, when I tell you “stash cash,” this is money you’re going to disclose but it’s also money that you have available that you can use to fund this divorce at the beginning stages, because divorce is a very cash-hungry situation. Somebody moves out of the house and needs money to rent an apartment, put furniture in that apartment, buy small appliances, buy spices, cookware -- all kinds of things. The kids need therapy, you may need therapy too. You have to go see an attorney, they’re going to have their hand out. You come to see me, I’m going to have my hand out. Everybody needs to get paid, and meanwhile, you’re trying to get support. It becomes a vicious cycle. That’s why you need the cash. If you have joint bank accounts, maybe this is a good time for you to get half of the money in the account. If you just grab that money out of the account and you haven’t talked to him about divorce, you’re going to have a discussion of some sort when he finds out that the money is missing. So, you probably want to tell him what you’ve done and why you’ve done it. The next pitfall is Pitfall #2 - Too little preparation. Preparation is important because it makes us less afraid and it makes us better able to act rather than just to react to the things that happen to us. So, what are you going to do to prepare? As I said, some people come to see me before they talk to their spouse. A lot of people also go to see an attorney. Just because you go to see an attorney doesn’t mean that you’re starting down that slippery slope of divorce. It just means you’re gathering information, and that’s a good thing. An attorney isn’t like a used car salesman. “Hey, you better buy this today because somebody else is going to snap it up and you really need to file for divorce because … “. No. An attorney is there to give you information. The only time the attorney would press you to go ahead and file soon is if they see a danger. For example, you’ve disclosed that your spouse may be about to clean out bank accounts, so you need those restraining orders that are on the back when you file [if that is true in your state]; or you’re in an abusive relationship and you need to file to get the judge’s protection. Those are the only times that the attorney would push you into filing. A lot of clients have seen attorneys for several years before they finally have decided to make that move to file and start the divorce process. Let’s talk some more about preparation. If you are in a marriage, a duration of 10 years or longer, that’s considered a long term marriage in California and you’re entitled for support as long as you need it and he has the ability to pay. [your state may be different] It works both ways. If you’re the one with the higher income, and you’ve not been married 10 years yet, maybe you’d like to end this marriage, file for divorce sooner rather than later because that would then make it a shorter term marriage. And in a shorter term marriage, you’re entitled to support for just half the length of the marriage, in general. So, those are things to think about. But there’s another 10 Year Rule that I want to tell you about and that’s for Social Security. If you and your spouse have been married for 10 years or longer when you reach Social Security age, you can collect benefits based on your earnings record, or his earnings record – whichever is higher. The benefits that you would get based on his earnings record are called “Divorced Spouse Benefits” and they’re the equivalent of one-half of what he gets. So, let’s do a little math as an example. If he is entitled to get $2,000 a month, your Divorced Spouse Benefit would be $1000 a month. If your own earnings history would give you $1200 a month, then that’s the $1200 a month they’ll pay you. If your own earnings history would only give you the $800 a month, then you’d collect the $1000, which is based on his earnings history. I want to be clear that these aren’t lumped on top of each other. You don’t get both of them at the same time. It’s an “either/or” situation. – Question?This is based on his entire earnings record, not just the duration of the marriage. It’s whatever he is entitled to at the end of his career. Even if he earned a bunch of it before you got married and a bunch of it after you separated, it’s all up for grabs.Your benefits can start as early as age 62, if you want to take reduced benefits, and you can get full benefits at age 66. For some of you younger people, it will be ratcheted up to 67 to get full benefits.You do not have to provide for this social security in your Marital Settlement Agreement [or whatever the divorce agreement is called in your state]. As a matter of fact, there’s nothing you can say in your MSA that governs Social Security because Social Security is by operation of Federal Law. The Feds don’t care what you put in your California decree. They’re going by their own rulesIf your spouse is already getting Social Security, then you would be entitled to get Social Security if you are of Social Security age. If you aren’t of retirement age, but he is collecting Social Security, that is income that he has available for support.The only way that you can screw this up, is by being married to somebody else when you reach retirement age. Because if you’re married to somebody else, then you’re going to collect spousal benefits based on your new spouse’s earnings history and not your old spouse’s history. I’m not telling you not to fall in love and get married, that’s fine. Just be sure you marry up … and not down. Let’s say that you do get married again. Prince Charming comes along and sweeps you off your feet, and you ride off on his white charger and live happily ever after in his wonderful castle. But then, ten year later, he is wandering around the countryside and he sees another fair damsel in distress who’s much younger than you, and he sweeps her up onto his charger and off they ride. So you and Prince Charming get a divorce. Now, you’ve got two ex-husbands in your past to whom you were married for 10 years or longer -- Husband #1 and Husband #2. You can get derivative benefits based on either of those spouses or your own benefits – whichever is higher. To be clear, this is based on the time you are married, not the time you lived together.As a matter of fact, I get emails all the time asking questions such as, “We’ve been married for 20 years but we only lived together for one of those years.,” Social Security doesn’t care. They care about the paperwork, when your marriage began and when it was final.Another thing you should know is that just because you are getting benefits that are based on his earnings history, it doesn’t reduce what he is entitled to receive. He still gets his full benefits. A matter of fact, if he’s remarried -- and most men do – his new wife is going to get spousal benefits on his earnings history. And if he has married somebody younger and he has a new family of little children running around, those children could get children’s benefits at the point that daddy retires. So, that whole family can be getting benefits and it doesn’t reduce what you get and vice versa. Your status doesn’t reduce that. As a matter of fact, maybe after being married to you, he goes out and marries Wife #2, is married to her for 10 years and then they divorce and he marries Wife #3. Everybody can be collecting based on his same earnings history. That gives you an idea why Social Security maybe going bankrupt in 2022. But those are the rules right now. Let me give you one more thing that you may want to know. What if after the divorce and a number of years go by, he dies? Well, guess what? Under the law, you become a quasi widow for Social Security purposes. -- Quasi means, “As if.” -- So even though, you and he haven’t been married for years, you are still treated as a widow and you get 100% benefits based on his earnings history, even if he leaves a real widow behind. So, that’s the rule for Social Security. Let me move on to another subject. Let’s talk about timing. -- Where are we now? This is September, the 13th.Let’s say, at the end of September, he is due to get an annual bonus from his company. I’d say September 13th would be kind of a foolish day to leave because it is after the date of separation, any income he earns is his, any income you earn is yours; any expenses he runs up are his, any expenses you run up are yours. [The laws in your state may be different.]So if I were you, rather than letting him get that bonus at the end of September, if you can, I’d stick it out till the payday comes, grab my half of it, and that’s the money that I’d use to move on. Now, if you’re the one who’s due to get that bonus at the end of September, today is not such a bad day to leave him after all. But if I were him, I’d be saying; “Well, wait a minute. That was an annual bonus and we were together for 11-1/2 of the months that took you to earn that bonus, so I think 11-1/2 is community property.” And you know what? He’s probably right. [Again, the laws in your state may be different.]But meanwhile, you have the use of those funds. That’s the cash that I told you to stash. If you use it for community purposes – for example, he is not paying off the joint credit card bill, so you use it to pay that down, you’ll get credit for that. If you use it for own personal purposes -- you pay your attorney, you pay your own bills, maybe you’ll get charged with it in the final analysis of the divorce, but at least you’ll have that money available to you.Okay, let’s talk about some more timing. Let’s say, after being in class today, you make up your mind, so you go home tonight and you sit your spouse down and you say; “Honey, you remember that computer class that I took this morning? Well it wasn’t about computers, it was about divorce. I’ve been thinking about this for a while and it really helped me make up my mind and I’ve decided I want a divorce and I’m leaving.” So you go in the bedroom and you pack your clothes into a suitcase and load the suitcase and the kids into the car: Don’t drive away in a car that needs four new tires and a valve job. Because guess what? When you go to get the repairs done on Monday morning, that’s after the date of separation, which was Saturday night, that’s your expense. [The laws may be different in your state.] So if you are planning to leave him tonight, drop by the tire store on your way home from class today and get the tires on the car before the date of separation. This advice also applies to anything else. If you’re one of those people who has not yet had the divorce conversation of “this marriage is over,” then it’s probably time to do what you need to get in a good position. If you’ve been a “stay at home” mom and you’re going out in the workforce, this is a good time to get the career clothes in the closet before the date of separation. If you’ve been putting off your dental work, because you had to buy “back to school” stuff, this is a good time to get your teeth fixed before the date of separation. The Holidays are coming, maybe get some Christmas gifts and Hanukah gifts stashed before the date of separation. [The date of separation may not have significance under your state laws.]“Date of separation” is subjective. It depends on all the facts and circumstances. Usually, parties agree on it, and sometimes, they agree on an artificial date. Somebody may say; “Hey, we’re separating today but let’s make the date of separation September 30th because we’re going to get all the financial information – the quarterly financial information on Retirement Plans and stuff as of that date.” If you can’t agree, you can have a little mini trial on it. But usually, that doesn’t happen because there’s not that much difference in the outcome between the two dates. In general, any expenses he runs up after the date of separation are his expenses. There’s an exception for the necessities of life. [The rules may be different in your state.] If he put them on a credit card and you are jointly on the credit card, then the credit card company is going to have their hand out to you as much as to him.The 3rd Pitfall is: No records. Let’s say, after being in class today, you decide you want to have an appointment with the attorney you heard today. So you call her office and set up an appointment and go in to see her; she’s going to want to know something about your situation. So let’s say, your conversation with her goes something like this; We’ve been married 12 years, we’ve got 3 great kids, I’ve been a stay at home mom the whole time, I don’t work outside the home. As a matter of fact, I don’t handle the money. He likes to do all that, so I don’t care. I don’t even have my name on any bank records or checking accounts. He gives me a household allowance in cash and then I use a card to pay for anything else I need and he takes care of the payment. It all works out just great.You want to know about Retirement Plans? Well – gosh, you know, we must have some Retirement Plans. I mean, neither of us is getting any younger, but maybe you don’t remember what I said. I said that he takes care of all of that, so I never see any paperwork on that. You want to know about the house? Well -- yeah, I guess we must own the house. Most people do own the house, don’t they? But I don’t know anything about how it’s titled or if there’s a mortgage on it because he just brought home papers and told me, “Here, just sign here. You’re too stupid to understand it anyway.” So I would sign it and I didn’t care. You would like to see the tax return? I do sign the tax return every year. Yes, I do. But he always turns it to the 2nd page and he covers up the numbers. So when I sign, I don’t really get to see what I’m signing. Of course, I don’t have copy of it because he keeps all of that. You’d like to know how much he makes. Oh, I really don’t know. As a matter of fact, I’m not really clear on where he works. I know he leaves in the morning and he comes home at night. If your situation is anything like that, the attorney is going to charge you a pretty high retainer. And it’s not because she doesn’t like you, it’s because she knows that your husband has been reluctant to share information with you even though he is required to do so by California Fiduciary Law. [The laws of your state may be different.] He is going to be doubly reluctant to share information with her, your divorce attorney. So, she’s going to send him a notice to produce documents, he is going to refuse to comply, she’s going to have to drag him into court, the court’s going to order the documents to be produced. He is going to say, “Hey, you remember that rainy spell we had a few weekends ago? Everything just washed away.” And suddenly, there she is, having to send out subpoenas on your behalf and you can’t even tell her where to send them because you don’t know anything. It’s going to get very expensive and very ugly. Let’s say that your situation is different, so your conversation with her goes more like this: We’ve been married for 12 years, 3 great kids, I work part time, he works full time, we keep our records on Quicken so I brought a print out, and you can see what the net pay is and how we spend money. Here are the tax returns from last year, so you can see the W-2s, and you’ll see is there’s a deduction for retirement accounts on his. I don’t get retirement accounts at work because I’m just part time. But he’s got them and so I brought the latest statement, which is June 30th. We’ve talked about how to divide some of the things, but for some of them we disagree, and that’s why I’m here. If your talk with her goes something like that, the retainer may be much less because she sees that you and your spouse are able to exchange records voluntarily; that you have access to information; that you and he are talking, at least at some level, and so this is a case that probably can be settled through a series of four way meetings or maybe through mediation. So, it’s going to less expensive. The moral of the story. If you fall more into the first camp that I described than the second one, my best advice to you is: gather records. Get as many records as you can find. Tax returns would be great to have. If you don’t have personal tax returns, then we can get them from the IRS, using 4506. We cannot get the business returns. So if he has a business, then you need to see if you can find the records for that some place or get them from him. If you and he refinanced the house at some point, that would be helpful to have, that refinance application, because that really is a personal balance sheet. It lists your assets and what they were worth at that time or at least what you were saying that they were worth, and it lists your debts. So, that would be helpful to have. You’re going to need bank statements, so you can show what your income and expenses are. If you have any separate property that you brought into the marriage, you are going to need the documentation to be able to trace that separate property through to where it ended up. For example, if you had a condo when you got married, then you sold the condo, you used that money to buy your first house, which got sold, and the money from the first house went to the second house, you are going to need that documentation. Now you may say; “He was there the whole time. He knows what happened.” But you know what? Sometimes they develop amnesia at this point in the process and they can’t remember a darn thing. Or their attorney says, “She has to have the paperwork to prove it.” So then, you’re stuck getting the paperwork. So, don’t leave home without that paperwork. Let me move on then to the next pitfall, which is #4: Overlooking assets Some of the assets can be fairly minor. For example, frequent flyer points. I had one client, her husband had 1.4 million frequent flier flights. Yeah. Yeah, that’s a lot of frequent flier points. That’s enough to lease an SUV for three years at no cost. So, that had some value. You can’t get his frequent flier points by and large but he could have tickets issued for you and the kids so that you could take a vacation rather than just him and his girlfriend going around the world.Vacation Pay. If one of the ways that he’s coped with a deteriorating marriage is to stay at the office and never take a vacation and he has built up a lot of vacation hours, guess what? That’s community property earned during the marriage [the laws of your state may be different.]. You can’t take the vacation but we can value it by multiplying the number of hours times his hourly rate to come up with a value for that pay. But it works both ways. If you are the one with all the vacation hours and he wants to get compensated for half of that, then that’s going to happen. But remember, you never get paid the full amount by your employer. The income taxes and the payroll taxes are always deducted, so be sure to figure the net pay and not the gross.Retirement Plans. We talked about Social Security a little bit earlier, now let’s talk about the rest of the Retirement Plans. They come under a number of different names. It can be Pension Plans; Profit Sharing Plans; 401(k)s; 403(b)s; IRAs; SEPs. Basically, any combination of letters and numbers that’s a stash of cash that’s put away for retirement is a Retirement Plan. If it was put away during the marriage, then it’s Community Property, even though it’s in the name of only one spouse, and it’s subject to division. So, how do you get your share of it? Maybe you don’t want your share of it. Maybe you say; “I want the house. He can have his stupid retirement accounts he loves so much, let him keep those.” If they are roughly equal in value, this seems like a pretty easy divorce. He gets the Retirement Plans, you get the house, you each drive off in your own vehicles, you probably take the furniture -- most of it – you give him what he wants, and there you go. However, when you reach retirement age, what are you going to live on? Because you can’t go to the grocery store and say, “Hey, I’ve got that great house down the street, so give me groceries.” When he retires and his income drops, your support is going to decrease or maybe even end. So, it’s going to be problem for you. That’s why I said, if you’re not thinking straight at the beginning of this process about both the present and the future, if you’re not really clear- headed, you need somebody like me who can do that kind of reasoning with you and walk you through that, so that you can see the decision that you are making by taking all of one asset and less of another. Maybe your situation is different. Maybe he’s got his Retirement Plans, you’ve got your Plans, they’re roughly equal, so he keep his, you keep yours, and we equalize with something else. That’s an easy divorce.But let’s say that my first scenario is true. He’s got most of the Retirement Plans on his side, but you listen to the voice of reason and you decide; “I need to get my share of those Plans.” How are you going to do that? For all except IRAs, you need a Qualified Domestic Relations Order. -- The initials are QDRO and we pronounce that “QUADRO.” If you talking to friends back East, they’re going to be saying Q-DRO, but it’s the same animal. The QDRO is an order signed by the judge, that is served on the Plan Administrator for the purpose of dividing the Plan. Because the Plan Administrator needs some legal orders. Assuming that your husband is the employee, it identifies you as the alternate payee, gives your name, address, Social Security number, and tells the plan administrator how much of the Plan belongs to you. It’s usually a formula saying, half of the money that was there at the date of separation plus earnings thereon, from the date of separation to the date divided [the laws in your state may be different], and then it will tell the Plan Administrator what to do with your share. In some plans, the money has to stay there till retirement, and there’s nothing else that can be done. That would be like STRS and PERS and FERS – all the governmental Plans -- and many Pension Plans as well. Or it may allow is for the money to be paid out to you. You probably want it to go to your IRA to avoid taxation right now, so that it can grow there for your retirement. The plans allowing that would be the 401(k)s and 403(b)s. If the funds are transferred into the other spouse’s IRA, there’s no current tax and it doesn’t have to be reported on the tax return. The 3rd alternative that you have is, rather than having that money go to your IRA, it could come directly to you. That may sound like a great idea, but there are two problems with that. The first problem is that the money won’t be there to buy those groceries you’ll need in retirement, and the second problem is that you have to pay tax on the funds you withdraw now. There’s no penalty for early withdrawal or being under the age of 59-1/2, but the taxes will take up to 35% of the money away from you right at the outset. They withhold 20% for Federal tax and a smaller amount for State tax, and then the rest of the taxes would be due on your tax return when you file next April. So you thought you were getting a 100,000, but now you’ve only got $65,000. And that $100,000 could have grown for retirement, now you got $65,000 that is a lot less and isn’t growing to be anything. So, be very careful before you make that decision. We can see if there are other sources to get the cash you need, because you are going to have enough left over to grow for your retirement. -- Any contributions that go in after the date of separation are the separate property of the spouse who earned those contributions. [The laws may be different in your state.] But the earnings go on. So he may say; “Hey, all you get is half the value on the date of separation.” That’s not true, because any dividends that is earned on your half after the date of separation belong to you And if the underlying investments go up in value, you get that as well.IRAs are a good deal easier. They don’t require the QDRO. All we do is write into your Marital Settlement Agreement that you are going to get half of the money in the IRA or whatever formula we want to put in, show that to the IRA custodian and they can make the transfer to an IRA in your name.You can’t get money out of the IRA before age 59-1/2 without paying a penalty, even if you are in a divorce situation. A Roth IRA is different only in that when you take payments out at the end, you do not have to pay tax on those.You don’t need a QDRO for IRAs or Roth IRAs. Businesses. Small businesses may have value, even if they don’t seem like they would. But sometimes it isn’t much. A lot of people own a job. It is a business that doesn’t really make anything more than they would make if they were working for somebody else doing that same job. So that business really doesn’t have value over and above the stuff that’s there. The cash in the bank; the accounts receivable; the computer and other equipment, the auto the owner drives -- that’s the only value that that has. But there are other businesses that have value if they can earn more than that person could make otherwise. Let’s say you are married to a neurosurgeon and he earns $750,000 a year from his practice, but an average neurosurgeon in San Diego County with his level of experience and his expertise would be earning $450,000. That means there’s $300,000 of excess earnings that he makes in his practice over the average person in his same position. So that $300,000 has value. We take the excess earnings and we multiply it by a multiplier someplace between 1 and 3, depending on the type of business. [The laws of your state may be different.] So you say; “Hey, guess what, honey? Your business probably is worth $300,000.” And he says; “No way! I don’t have a business. I am a neurosurgeon.” “Well yes, but it’s worth $300,000.” “But it’s just me.” “Yes, but it’s still worth $300,000 dollars.” “But if I die there’s nothing there.” “Well, we’re not killing you, we’re divorcing you. And the value is $300,000.” “Then I’m just going to quit and there won’t be anything there for anybody.” “Well, that’s fine. But when we separated the value was $300,000. You can do what you want but you are going to have to pay me half of the $300,000.” And he’ll probably also owe support based on what his income was before he quit his job. You don’t really have to explain those rules to him, his attorney will tell him the bad news.If he doesn’t have the funds to pay you, you may have to take a note and get payments over time -- you probably could get collateral of his house in case he doesn’t pay. If he can’t or won’t pay you, the judge could order the business to be sold. The 5th Pitfall is: Ignoring tax consequencesDivorce is not a taxable situation. You don’t have to report it on your tax return, but the assets that you take are at the same tax basis you and he had. So if you got a house that’s gone way up in value, you may want to reconsider whether you want to keep it. If you and he were to sell it together, you can each exclude $250,000 of the gain, which is the difference between what is worth now and what you paid for plus improvements. That $500,000, is probably enough to make the sale of the house tax free. But if you take over the house, when you sell it, you only have your $250,000 exclusion available to you. That may mean that you are taking on a tax liability that you wouldn’t have as a couple. Some of the work that I do with people is helping them make that decision and figure out if they’re going to be having some hidden tax problems if they do take over that house. The same thing would be true of a rental property. Maybe you own the condo that you lived in when you married, and then you moved into a big house but kept the condo as a rental. And you’d really like to get take the condo and get that rental income, because there’s little or no mortgage to pay. But be aware that when you sell that rental, you’ll have huge capital gains taxes to pay, and he doesn’t have to share in them because you took that hidden tax liability on as a part of your settlement. I am not saying not to keep the condo, but you need to be aware of how much those taxes are going to be, so that you can make a decent decision.Let me say one more thing about taxes, then we are going to zip through the next 7 Pitfalls because we’re running out time.Alimony, which we call “Spousal Support” in California, is taxable income to the one who receives it and it’s a tax deduction to the one who pays it for support agreements executed before 2019. Child Support is not taxable to the one who receives it and not deductible by the one who pays it. He may come home and say; “Hey, I talked to my attorney and he says we ought to do family support [or whatever it is called in your state] instead of the differentiated child and spousal support.” Just be aware that if you do that, you are going to pay tax if you are receiving it. You are going to pay tax on the whole shebang and he is going to get a deduction for the whole thing.It’s often a good deal to do it that way because you’re moving money from his higher tax bracket to your lower one, but be aware that you’re going to need to be getting enough to cover those taxes and share on the tax savings.The 6th Pitfall is: Believing that ignorance is bliss. We have talked about a whole lot today, and your head is probably swimming. If you leave here knowing only one thing, I want it to be this; Divorce is not fair. Divorce is an uphill battle. It’s fought in an arena that you don’t understand. It’s for a prize that can’t possibly be enough because at best, it’s going to be half of what you had before. You’re using money that you don’t really have: none of us say; “Hey. When we get married, let’s put $200 a month away into a divorce kitty so we’ll have that money in case we decided to get a divorce.” That’s not what we do. So, you’ll be using money out of the kids’ college fund or out of your savings for the new house or retirement funds, or borrowing on a home equity line of credit or more likely, borrowing from friends and family to get you through this. And finally, it’s going to take longer than you ever, ever imagine. And those are the realities of divorce. So, if you can give up the idea that divorce is fair and just figure out what’s most important for you and what’s most important for him and see if there’s a way that you could each get at least some of what’s most important to you, let the rest go. It’s not worth fighting for every nickel to make it exactly fair because you and he are not going to agree on what’s fair. The attorneys are going to have a heyday and in the end there’s not going to be enough for either one of you. Get through it as best you can and get it done in the most peaceful way possible. Sometimes you have to go to court but if there’s another way, keep yourself out of court.Learn as much as you can about the legal process; get some therapy if you need it to help you get your head on straight about the divorce; learn what you can about your family issues; research a new career if that makes sense. I know that women are big readers, so let me tell you some of the books that are out there. [Research books that you think will be of benefit to your audience.]The next Pitfall is #7: Mixing money and emotion. I know that divorce is emotional -- I’m not saying it isn’t. But do your crying at home and not in an attorney’s office. It’s very expensive to cry at $450 an hour and you can’t absorb what’s being said to you. Don’t let guilt rule you. Don’t tell him, “Just take everything. Just let me go,” because if it’s you that he wants, “everything” isn’t going to make him happy, and you’re still going to feel guilty. Now, if he is the one who’s leaving and he feels guilty about what he’s doing, and he says, “Take everything …”. Then maybe this is a good time to get him to sign, but probably, his attorney isn’t going to let him strike that bargain. The next Pitfall is #8: Not fighting for what is yours. I don’t mean fighting dirty. But let’s face it, since we were little girls, we were socialized to make nice; to be the peacemakers; to be sure everybody’s happy. When you’re going through divorce, you’re not going to be making anybody happy. Divorce is not about manners, divorce is about survival. So, figure out what you’re going to need to get through this. For example, you’ll need the money to pay for Health Insurance. If you’ve been covered under his Health Insurance at work, it’s not going to continue unless you continue coverage for three years under COBRA, in which case, it’s probably going to be more expensive than you could buy on the marketplace under Obama Care.Educating the kids. As long as you are discussing finances, this is a good time you to talk about who’s going to be paying for the children’s college, and whether you’re going to continue to contribute to the 529 Plan or other college savings investments. The 9th Pitfall is: Not taking control.Don’t do your worrying in the dark. If you wake up at 2 a.m. worrying and can’t get back to sleep, that’s not right. So turn on the light, write down what’s bothering you on that pad of paper you keep by the bed,. If you write it down, it will look less daunting in the morning when you can actually do something about it, and by writing it down on paper you may be able to get it out of your head so you can go back to sleep. Protect yourself with Life Insurance. If something happens to him, his new wife is not going to be sending you the support check the next month. If you’ve been depending on that support to support you and family, you need life insurance that will provide a stash of cash that you’re going to have to be able to continue paying your expenses. The courts mostly understand that. If he has Life Insurance at work, you can probably get an order for him to continue to keep you on as a beneficiary. If there is no Life Insurance, you have an insurable interest, so you could go out and buy a policy on him. You may have to get a court order to order him to take the health exam. The 10th pitfall is: Not being ready for the worst. Think of what’s the worst that can happen. He runs off to Tahiti with his girlfriend and never pays you a dime of support. What are you going to do? Go on welfare? Find out how the system works. If you’re going to have to get a second and third job to make ends meet, figure out who is going to take care of the kids while you’re working at nights. If you are going to have to go live with your parents, give your mom a call and tell her you may be coming. Think of the worst things that could happen and whatever does happen is going to feel wonderfully solvable in comparison to that. The 11th pitfall is: Not developing your career. We didn’t ask how many of you work outside the home. I would imagine that a lot of you do, but I also imagine that a lot of you have jobs rather than careers. Wouldn’t it be nice to have something that makes you really excited to get out of bed in the morning and go and do it and get paid for it? As long as you’re reinventing your life, this is a good time to figure that out. And finally, the 12th Pitfall is: Not getting good advice.Get the best advice that you can afford. But let me tell you, the attorneys that charge $700 an hour aren’t better than the ones charging $450 an hour. They’re just busier, so they were able to raise their rates. You don’t need a busy attorney. You need an attorney who is responsive to you; who listens to you; who, when they get a phone call, conveys that to you; who, when they get paperwork from the other side, communicates it to you. An attorney you feel comfortable with representing you in court. If you need referrals to attorneys in town, I can certainly give those to you. If you’ve been given referrals and you want to know something about them, if I know anything about them, I can let you know. So, give me a call at the office and I will tell you what I know about those attorneys. We can talk.If you need to see me, I’d be happy to meet with you. My fee is $___ an hour. [Insert brief description of how you would work with someone, what they would get, and how you are compensated.]We are now out of time for this formal presentation. We’re going to take a break until about 12:15. There are refreshments out the front. We are here to answer questions, so come on up and ask us. ................
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