The New Age of Divorce Financial Planning

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Divorce is a time of great emotion, transition, and planning.  Your client may be the initiator of the divorce or the party who is on the receiving end of notice – but either way, the financial union is soon to be over, and your client will need expert financial guidance.  Most likely, you will need to provide advice, either by outsourcing to an experienced divorce financial planner or by acquiring new skills yourself.

Divorce financial planning is an evolving niche practice in which financial advisors work with clients and allied divorce professionals before, during and after divorce.  A divorce financial planner is a fee-only practitioner who charges an hourly fee for unbiased and objective financial expertise.  Like a NAPFA-Registered Financial Advisor(TM), a divorce financial planner places the clients’ interests first and provides comprehensive financial planning that guides individuals to a reasonable, practical and workable outcome.  Combining a CFP(r) with additional certification, a Certified Divorce Financial Advisor ™ is trained specifically in the financial issues of divorce and has an interdisciplinary knowledge of practical standards and state divorce laws.

Divorce financial planning is similar to financial planning, but with the added challenges of highly charged emotional and unique divorce laws of the jurisdiction in which parties live.  A divorce financial planner works within a legal setting, as we supplement the efforts of the legal professional in litigation, mediation, or collaborative divorce.

Our skills might be called upon from the outset of the divorce process (or even in the preparation for a divorce), at any point during the process, or post-divorce to assist with implementing the terms of the agreement.  Therefore, it is important for the planner to define the scope of the engagement and the tasks to be performed, and to have all parties acknowledge and confirm that agreement.  (The tasks may change over time, as new needs arise.)

A divorce financial planner can help a client with these tasks as well as others:

  • Gathering, organizing, and preparing documentation of income, expenses, assets, and liabilities:
  • Preparing financial reports within the context of divorce laws specific to a state;
  • Providing ongoing financial education, guidance, and analysis throughout the divorce process;
  • Making and explaining projections for the long-term impact of financial decisions and related tax implications; and
  • Assisting the client with post-divorce asset transfers, estate planning, and development of the long-term financial planning goals.

In a divorce, each party experiences a significant shift in their financial situation.

Without assistance, the changes that occur can greatly affect a client’s financial well-being. That’s why a divorce financial planner will help a client answer questions such as:

  • How much house can I afford?
  • How much life insurance do I need?
  • How do I prioritize which debts to pay first?
  • How do I protect my credit rating from my spouse’s negative actions?
  • Is the spouse’s share of a pension limited to the amount of earnings during the marriage only, or will it be increased by work after the divorce?
  • What are the guidelines for dividing assets during a divorce?
  • What does it mean to hide assets, and how do we find the assets?
  • How much may “fault” for the divorce influence a financial settlement?
  • What are the tax implications of child support, alimony, or unallocated support?
  • How do I plan for the unexpected? How do I plan for my future?
  • What are the financial priorities post-divorce? Is there a checklist of common tasks?

A divorce financial planner is the point person for pulling all of the historic information together, as well as for making specific financial recommendations that enable an individual to move forward post-divorce with a sense of confidence and security.  Ultimately, a divorce financial planner can educate clients, manage their financial expectations, ensure they make well-informed decisions, give peace of mind that the settlement is practical, and increase the clients’ satisfaction with legal process.

ASSN. of Divorce Financial Professionals Host Conference in September: Discount for NAPFA Members:

Obtaining the skills to be an effective divorce financial planner can require specialized training, continuing education, knowledge on how to use specialized software, and pertinent credentials and designations. These have been defined by the Association of Divorce Financial Planners (ADFP) for those aspiring to do this work in any legal setting.  The mission of the ADFP (www.divorceandfinance.org) is to heighten awareness of the benefits of divorce financial planning so that it becomes an integral part of the divorce process and to establish protocols and standards for divorce financial planners.

To learn more about divorce financial planning, attend the 10th Annual Conference of the ADFP on September 21-22 at the Doral Arrowwood resort in Ryebrook, NY. NAPFA members will be offered the ADFP membership rate for conference registration.

Secrets and Lies

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Marital secrets, forged signatures and warring spouses – molehills, not Madoff, plague most financial advisors.

By Janice Fioravante
July 1, 2012

Financial planners are still trying to live down Bernie Madoff’s mayhem. FINRA may be named to regulate investment advisors. Most wealth managers, though, aren’t wrestling with Ponzi schemes or additional scrutiny. Advisors’ burdens often center on the deceptions, frauds and blunders wrought by their own clients.

Potential land mines can nestle in unexpected places: the seemingly stable marriage of longtime clients, a small inheritance or the tax returns of retirees.

The biggest troubles, many advisors say, arise from messy divorces. “There are times when one of the parties in a divorce will willingly divert assets, and that’s when I go into full gear,” says Lili Vasileff, founder and CEO of Divorce & Money Matters of Greenwich, Conn., an RIA firm that focuses on the financial ramifications of the demise of marriages.

Clients may try to deceive a spouse or advisor by making deceptive or fraudulent statements in property settlements, even though admissions made in such documents are signed under penalty of perjury. Sometimes documents are forged.

What can an advisor do to uncover falsehoods in a document? “The first thing is to get a full credit report,” Vasileff says. Such reports have helped her discover second mortgages and liens. Clients, she warns, may feign surprise, denying the signatures are theirs.

WAR OF THE CLIENTS

Sometimes it’s not fraud, but the tenor of relations that can make advisors’ lives agony. One of the toughest situations for any advisor is when married clients become enemies.

“In divorces, we work for both spouses,” explains David Hultstrom, president of Financial Architects in Woodstock, Ga., which has $30 million in assets under management. The firm’s standard contract asks the client to acknowledge that spouses are considered a single entity.

Any information provided by one partner must be shared with the other, and authorization by one partner is considered an agreement by both. “In a case where we think a spouse may be unaware of something that affects him, we will tell him about it,” Hultstrom says.

Ken Waltzer, president of Kenfield Capital Strategies in Los Angeles, says that individual assets are separate property. That knowledge helped him negotiate the split of an unmarried lesbian couple, exacerbated when one partner sued the other.

“Both remained clients, but when one wanted to know the assets of the other, I told her that I couldn’t divulge any information,” he says. “As a fiduciary, I cannot divulge one client’s information to another. Once the couple split, they were separate clients. This would be true even if they had been married.”

Divisions over inheritances also can make an advisor’s peaceful practice hell. The mother of one of Waltzer’s clients died, leaving the client with an inheritance he didn’t want his wife to know about. This can be common, the advisor says, especially in second marriages when one spouse wants to ensure that children from the first marriage inherit the money.

INHERITING TROUBLE

Inheritances can create nests for indiscretions, even fraud. “The complexities of the probate process and estate administration provide opportunities for fraud, and planners need to be especially vigilant,” says Thomas Tillery, vice president and co-founder of at Paraklete Financial in Kennesaw, Ga., a firm that advises other wealth managers, attorneys, CPAs and private banks.

In the process of gathering client data, Tillery says, he discovered a client was moving money into his personal account from a trust account. The client, an estate executor, thought he deserved to be compensated for his work. Tillery believed the client was acting fraudulently and terminated their relationship.

“The other inheritors needed to know what was happening,” Tillery says. “Thousands of dollars were being moved from the estate account and into a personal account. I couldn’t continue to work with the man,” he adds.

Tillery and other financial planners stress the importance of discovery. “The advisor has an obligation to learn as many facts as possible in order to make correct recommendations; otherwise, you could end up in litigation,” he says.

 

WHEN DILIGENCE IS DUE

David O’Brien, president of O’Brien Financial Planning in Midlothian, Va., says that planners ignore such due diligence at their peril. “If a prospective client can’t provide full financial information to a fiduciary planner, the RIA firm shouldn’t take the client on,” he says.

“We work in a transparent manner and must expect the same from our clients. I think the liability to us is too great to represent a client who may be holding back information,” he says.

Advisors can make mistakes in the early days of setting up an advising shop, when they are most eager to acquire clients, says J. David Lewis, president of Resource Advisory Services in Knoxville, Tenn., with $70million in assets under management. Early in his practice, Lewis says, he felt that two clients hadn’t been honest in their intentions.

“Twice, I had women start client relationships where their husbands were very unresponsive in providing information needed for financial planning,” he recalls. “I cobbled together as much as I could in creating net worth statements and reports. I was paid, but later, because of the ways these relationships evolved and ended, I believed, and still believe, these women’s unspoken agenda was for me to help them gather information for divorces they were planning.”

 

QUESTIONS FOR BOTH PARTNERS

Sometimes red flags are obvious. David Diesslin, president of Diesslin & Associates in Fort Worth, Texas, recalled when a couple came into his office for an introductory session. The husband owned a successful business. “I’d gotten 80% of the information I needed and thought that it had been a wonderful insight session,” he remembers.

“In my normal process, I ask questions of both partners.” As the meeting ended, the husband asked if he could return the next day because he needed to speak privately.

At that meeting, the husband disclosed that he and his wife led separate lives and that he kept some matters entirely from his wife – one being that he was supporting another woman. “At that, I closed my notebook,” Diesslin says. “I told him that I work for both spouses and it’s not going to work. They didn’t become clients. You wouldn’t keep employees if you doubted their word or experienced a loss of trust, and it’s the same with clients.”

View Original Article on: http://www.financial-planning.com/fp_issues/2012_7/fraud-deception-married-couples-financial-planners-2679519-1.html?pg=2

Financial Planning Empowers Divorcees: Interview

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Financial planning in preparation for divorce can be an overwhelming and intimidating process. Lili Vasileff, CFP, president of the Connecticut-based Divorce & Money Matters and president of the Association of Divorce Financial Planners, is a pioneer in an industry that she believed was not addressing perhaps the most intimidating question facing women going through a divorce: “What do I do now?”

She founded her company in 1993 to empower women with the knowledge and tools they would need to successfully navigate their divorce. “What existed then, and what continues to exist,” she told Millionaire Corner, “is a lack of focused resources for individuals going through this transition. (When I started my company) it was clear that women, typically, were  inexperienced, and less knowledgeable about finances, and had very few resources to tap into to gain that knowledge and a better understanding of the decisions she was being called upon to make.”

Working with women who had little experience about their finances, formulating goals or creating a budget (and in some extreme cases not even knowing how to open a bank account), Vasileff was motivated to fill a void left by divorce attorneys. “They were, appropriately, focused on the legal side (of the divorce),” she observed, “dotting the i’s and crossing the t’s. But no one was giving these women a financial planning roadmap. Many were in a state of paralysis, fear, or trauma, and didn’t know how to proceed. I thought that was a huge injustice.”

Here, according to Vasileff, are some of the most common financial planning mistakes women should avoid:

·         “Don’t let the attorney make decisions for you. They are experts in the legal process, but not the experts on your life. They don’t know your goals, fears, or preferences. They navigate a legal process to make sure (the divorce) is fair and ethical. They don’t tailor it to the individual. Women need to participate in those discussions and decisions.”

·         Not understanding tax implications of decisions women are called upon to make.

·         Not projecting forward how your expenses will change and incorporating those changes into your settlement. “If, for example, you lose health insurance,” she noted, “you’ll have to purchase it through COBRA. That expense is vastly different from what you currently pay. “

·         Hang tough. In an adversarial divorce involving children, Vasillef said, she has seen women beaten down over issues of visitation and custody. “It’s a scare tactic,” she said. “By the time talks get around to finances, women are drained of energy and forfeit their financial wellbeing for the sake of their children.”

What can women do prior to the divorce to put themselves on more solid footing? Vasileff recommended:

·         Make copies of all financial records and statements. “This is good practice for everyone,” Vasileff noted. “If something happened to your spouse, would you know where your life insurance policy is? You should have this information on handy anyway, like a first-aid kit.”

·         Make a list of assets.

·          Obtain credit reports on yourself and your spouse. “Sometimes, when people go through a divorce, (the credit rating) holds the biggest surprises.”

·         Pay down as much debt as possible.

·         Set aside a rainy day fund with enough money to cover at least two or three months of expenses.

Money, Vasileff said, is the primary issue in divorce. “Couples need to communicate about money; not just about how much there is, but what their goals and values are.”

The prolonged economic downturn has only complicated the process, with some couples postponing their divorce because their assets are underwater, or there are the needs of aging parents and so-called “boomerang children” returning to the fold to consider.

Now, more than ever, Vasileff observed, “financial literacy is not just for divorce. “For men and women, whether they divorce or not, she emphasized, “information is power.”

 

 

Lili Vasileff, president of the Association of Divorce Financial Planners shares financial planning dos and don’ts
Article |            | By Donald Liebenson

How to Provide for the Kids Post-Divorce

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By: Elizabeth Alterman

Published on CNBC.com http://www.cnbc.com/id/46797194/page/2/ on May 7, 2012

If you think providing for your children after divorce is basically about diapers, dentistry, and diplomas, you’re in for a life of surprises.

 

Whether you’re supporting preschoolers or those who have returned home after college, experts say preparing for any scenario and putting everything in writing is the best way to defuse potentially explosive situations in the future.

Helene Bernstein, a Brooklyn-based divorce attorney with more than 20 years of experience in family law, says even small items can cause big problems.

“Little things that couples argue about and they don’t think of is who pays for the children’s clothing? Does the clothing travel with the child? Who pays for the birthday gifts? They get expensive. When they’re little, they go to a lot of parties,” Bernstein says.

Other considerations such as orthodontia or therapy, should the child need them, are important to take into account. If a child is diagnosed with a medical condition, parents should think about how they would handle treatment and the possibility of unreimbursed medical expenses.

“When a child has attention deficit disorder a lot of people disagree on whether medication should be administered, and that’s a really big thing,” Bernstein adds.

The lawyer and mediator recommends that parents renegotiate their agreements every few years because children’s needs change as they get older. One thing she advises clients do immediately is change their beneficiary information.

Growing Pains

Lili Vasileff, certified financial planner and president of the National Association of Divorce Financial Planners, in Greenwich, Conn., says that while basic child-related expenses are included in a budget intake form that is part of divorce negotiation, many people don’t think to plan beyond their child’s current age.

“If you’ve got a 3-year old, when they’re 16 they’ve got driver’s ed, auto insurance, or the prom,” Vasileff says. “Bar mitzvahs, or let’s go a bit farther, college applications are like $250 a pop, and who’s going to pay for the child traveling to go see those colleges? All the things that are prospective, that occur on an if-and-when basis, are generally left unaddressed. It’s up to the parents to discuss how to address those costs. Leaving it open results in a lot of misunderstanding, miscommunication and acrimony.”

Jeff Landers, founder of Bedrock Divorce Advisors, LLC, agrees. He says if a child has been taking violin lessons or gymnastics and the money is there, most courts will try to maintain the status quo for kids. However, there are plenty of gray areas within those extra-curriculars that can cause trouble.

“You can choose an $8,000 summer camp or go to the Y. If you talk just about the nature of the expense but not the character of it, then you’re setting yourself up for all future arguments which the child realizes that they’re the cause of, and that is very, very difficult,” adds Vasileff. “Unless you’re working with an expert during this process who can really pull the threads on each one of these areas to help you think in the future or at least has enough experience to say, ‘these are the things that can come up,’ how are you going to address these things head-on when they happen?”

Jodi Paige, a divorced mother of two, says she and her ex-husband agreed on the number of enrichment activities that will be covered and have a contingency plan in place for dividing expenses beyond that number.

“I pay for the first two classes and then anything else that they want to do, my ex pays 50 percent of the cost of that,” says Paige. “The state guidelines are pretty low, so if you live in an area where classes are more expensive, make sure your agreement reflects that.”

The College Years

While big-ticket items such as college tuition may seem fairly straight forward, the devil is in the details, say financial planners who specialize in divorce.

Landers says it’s essential to ask what’s included because if you don’t negotiate it up front, then “good luck trying to get it after the fact.”

“Is room and board included? Is a computer for the child’s use included in that? Does it include traveling back and forth?” Landers says. “You really need to get into the nitty-gritty details, and I’ve seen some agreements that will state, ‘I will pay for a state school but if the kid wants to go to a private school or an Ivy League, not my problem.’ A parent may say I’m not going pay unless the child maintains a 3.0 GPA, since it’s not a legal requirement, it’s very much up to the negotiations between the parties.”

He adds that some agreements may include a “cap,” whereby a parent will be on the hook for no more than the state university charges.

Paige also recommends including a stipulation that if one parent’s finances significantly improve, the amount contributed toward college be raised accordingly.

“Situations change, and everything needs to be very much spelled out,” she says.

The Boomerang Generation

Vasileff points out that even after paying for college, many parents are still supporting their adult children.

The good news, she says, is under Obama healthcare, coverage continues until age 26. But parents usually don’t think about is who is going to pay for an adult child’s healthcare should he or she be unemployed.

Vasileff says the boomerang generation, the group of adults who return home to live, poses a whole new set of issues for divorced parents.

“When you have adult boomerang children who come back to live with you, how do you set the rules? Are they supposed to pay rent; are you supposed to pay for their groceries?” she asks.

According to a U.S. Census Bureau report, the number of men ages 25-34 living with their parents grew from 14 to 19 percent between 2005 and 2011; the number of women rose from 8 to 10 percent.

While most people to some extent address the cost of college, Vasileff says few plan for those kids who take a year off or return home without any plans to leave.

Second-Family Complications

Experts agree that counseling for all parties also bears consideration. Providing the least disruptive environment possible is also important.

“We got an apartment and for the first nine months, my ex-husband and I went back and forth and the kids stayed in the house,” explains Paige, who’s been divorced since 2006. “It was important for them not to leave their safety zone and we got a feeling for how tiring and crappy that was. It’s a good perspective thing for parents.”

Vasileff also recommends parties discuss what would happen in the event that one or both parents have new families, which she says is something very few people think about unless one party already has a serious new partner.

Paige suggests discussing what will be left to the children after the parents are deceased, especially if children from new marriages enter the picture.

“Don’t leave things vague. Things change, especially when a person gets a new significant other,” Paige says.

While no one can see into the future, anticipating expenses and deciding how to divide them can make things a lot less contentious down the line.

Advisors Name Favorite Actively Managed Mutual Funds

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April 24, 2012

 

By Karen DeMasters

 

Each financial advisor who manages mutual funds for his clients has a  favorite or two that fulfills a specific goal in their clients’  portfolios. Financial Advisormagazine recently asked several advisors to reveal their favorites. The advisors, who report they are satisfied with the expenses compared to the returns, have been using some of the funds for many years.

Bob Mecca, CFP, of Robert A. Mecca & Associates LLC in Hoffman Estates, Ill., wants funds that have a relatively low risk as measured by beta and other factors, do not mirror indexes, have historically outpaced the competition and have been in the top quartile of mutual funds for a period of time.  Mecca publishes a weekly e-mail commentary called Mecca on Money. 

Mecca says he likes low-risk funds, especially in the current market environment, and he wants ones where the fund and the manager have been around for a long period of time.

One of his favorites is the Vanguard Wellesley Balanced Fund, which is comprised of about 60% bonds and 40% stocks. Since its inception, the fund has done relatively well with low risk. It invests mostly in large-cap value companies.

At the same time, Mecca notes that he has all types of clients and not all funds are appropriate for everyone.  He has his special ‘Mecca 40′ funds, which have historically outpaced index funds with relatively low risk.

David Loesser, CFP and president of The Estate Planning Group in Washington’s Crossing, Pa., has three favorite funds he feels make a good mix in his clients’ portfolios.

Doubleline Total Return Bond Fund is a relatively new fund but the manager, Jeffrey Gundach, has been around for a long time and Loesser likes his track record.

“We like it because it has low standard deviation and little volatility. It is conservative, so it’s excellent for a core holding in a retirement portfolio,” he says. Templeton Global Bond Fund, managed by Michael Hasenstab, is another that Loesser likes for its diversifying value. It holds debt in foreign countries and has a low correlation to the stock market, he says.

Finally, MFS Emerging Market Debt Fund is good because it uses bonds from emerging markets and is still moderately correlated to the S&P 500, Loesser says.

Different mutual funds have different purposes, and Lili Vasileff, CFP, registered investment advisor and founder of Divorce and Money Matters in Greenwich, Conn., says she judges funds by their performance relative to their peers and relative to the stock market.

She has three she feels are a nice mix for her target audience, divorced women. The Yachtman Fund has a conservative allocation and modest appreciation. It is a large value fund that does not have a lot of turnover.

She also likes the Janus Triton Fund, a small growth fund with higher turnover. “It tends to favor up-and-coming growth companies and faster-growing companies and can counter the large-cap fund,” Vasileff says.

Vanguard Prime Cap Fund is another she likes because it is one of the highest-rated Vanguard funds. It is a large growth fund with a long history and low turnover. “It is fairly middle-of-the-road conservative,” she adds.

Leuthold Core Fund moves in and out of sectors when necessary, which makes it one of the favorites for James Holtzman, CFP, an advisor and shareholder with Legend Financial Advisors in Pittsburgh.

“I have been using this fund for 15 years. It is not overly expensive, has a good standard deviation and a good return,” he says. “Leuthold is good at giving advisors information on what they are doing and they will close [a fund] if it becomes too big and unwieldy.” It is an aggressive fund with a diverse mix of large-, small- and medium-cap investments.

Another fund Holtzman likes is Ivy Asset Strategy, which is mostly large cap and is fairly aggressive.  The fund changes holdings frequently but is good at informing advisors on its activities, he says. It has the ability to hedge its bets and sell when it needs to.

Sam McFall, investment analyst and investment officer with Bryn Mawr Trust in Bryn Mawr, Pa., says his firm recently added BBH Core Select Fund to some of its clients’ portfolios because it invests in mega-cap companies that will not be impacted as much by the cyclical nature of the market.

It has a strong track record for good returns and can be the anchor for U.S. large-cap exposure, he says.

The firm also recently added Legg Mason Brandywine Global Opportunities Bond Fund to its mix because it is a high-quality fund that is truly global, iand includes U.S. debt, McFall says.

“By bringing in a high-quality fund of this type, you may lose a little on the return but you reduce risk. We are looking for small boutique managers who add value to our portfolios,” he notes.

The third fund in the mix is Wasatch Emerging Markets Small Cap, which he says is an unusual fund because not many are dedicated to small caps in emerging markets.

“Emerging markets are going to be the global growth area to come and this fund targets consumer sectors rather than technology,” McCall says.

Original Article: http://www.fa-mag.com/fa-news/10722-advisors-favorite-actively-managed-mutual-funds.html

Finances and the newly single

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Original Article on https://retirementplans.vanguard.com/VGApp/pe/pubnews/DivorcedWomen.jsf

The divorce proceedings may be over and the papers signed.

But for many, divorce brings a new challenge: Figuring out how to handle the financial decisions—on everything from budgeting to investing—that may have been handled before by their spouse.

What steps should the newly divorced take to get a grip on their new financial situation? To find out we interviewed Lili A.Vasileff, a Certified Financial Planner™ professional based  in Greenwich, Connecticut, and president of the Association of Divorce Financial Planners.*

Ms. Vasileff writes about financial issues in divorce on many professional blogs, and on her website, DivorceMatters.com.*

Question: What are some important first financial steps to take after divorce?

Ms.Vasileff: First, try to get a handle on your cash flow. That can start by re-examining your budget because the post-divorce world will be new for you, one in which you will have different assets, debts, expenses, and income streams.

Consider tracking your spending for three months, whether you used checks, credit cards, savings, or cash. From that spending information, you can extrapolate to estimate your total annual spending.

Segregate your expenses into three pots: Those that are fixed, those that are variable, and those that are discretionary. Consider covering your fixed expenses first, your variable ones next, and your discretionary expenses next.

The next step is to identify all possible sources of money coming in, which may include alimony and child support.

Deduct your expenses from your income and calculate whether you have excess or a shortfall. If you have a shortfall, consider reducing expenses. If you have a surplus, think about adding to your savings.

Also consider growing an emergency fund, in cash, to cover three months’ worth of expenses, if necessary, or for a short-term goal, like taking a vacation to decompress after your divorce.

If you are thinking about investing extra money rather than just putting it into a savings account, keep in mind that investing is for larger, long-term goals—at least five years away—such as retirement, college, new home.

Keep in mind that investing comes with risks.You can lose money as well as earn it. Investing, however, also provides a greater opportunity for earning a higher rate of return over the long term than you can earn through savings.

If you have any debts, pay off the most expensive first, including credit cards and other debts that have a high interest rate.

It is also important to consider updating your estate documents as soon as possible after divorce. Make sure you have a new will, power of attorney, and updated designations of beneficiaries on your financial accounts and insurance policies.

Question: If you haven’t had responsibility for your family’s finances, how can you learn how to handle finances on your own?

Ms.Vasileff: Talk to your banker about savings and checking accounts. Even ask the banker to teach you how to balance a checkbook, if you haven’t done that before.

Consider consulting a financial planner to help you set goals, pay off debts, plan for retirement, and do so in a comprehensive fashion.

The websites of leading investment companies, such as Vanguard, have a lot of sound information written in plain everyday English for beginners.

How do you go about handling credit issues?

Ms.Vasileff: Begin by establishing your own financial identity: If you have not established credit for yourself, consider doing so now.

If you are unsure about your credit worthiness, you can run a free credit report from all three principal credit rating agencies—TransUnion, Equifax, and Experian*—by applying online.

If you have no credit in your own name, you can start by applying for one major credit card or a credit card from a major department store.

If you haven’t had a checking account, consider opening one.

Applying to refinance your mortgage or get a new one will also add data for your credit rating.

If you are going to be renting, the landlord may do a credit check and that may help establish your credit worthiness.

Question: Where do goals such as paying for a college education and retirement fit into the budget?

Ms.Vasileff: One of the things you may have to consider doing is finding a balance between saving for different goals, such as a child’s education, and saving for your own retirement.

The harsh fact is that you probably will not be able to do both completely. But keep in mind that your child will have more opportunities for financing college through subsidized government loans, private loans, scholarships, work study, and grants than you will for financing your bills when you retire.

In this economy, it is prudent to save for yourself. You must plan for your own nest egg and add to it to grow it.

Take advantage of your employer’s retirement savings plans and contribute as much as possible. Your employer may match your savings, so the total contributions are greater over time and grow on a tax-deferred basis.

Best yet, the contributions are usually on a pre-tax basis, thereby reducing income taxes on your earned income.

If you are already contributing the maximum to your retirement plan, or your employer’s profit sharing plan, you may want to consider investing in any supplemental savings plans your employer may offer. Depending on your income, you may be eligible to contribute also to your own individual IRA.

After all that, if you find you can save for college, consider options such as custodial accounts for minors, college savings plans, education IRAs, and standard savings accounts, etc.

Question: If you are near retirement what strategies should you think about?

Ms.Vasileff: If you are covered by an employer retirement plan, read the description of the plan and its terms to understand your options for electing benefits at retirement. Find out about the plan’s trigger dates for making investment decisions as well as payout decisions, including when you can make changes each year.

Be aware similarly of key trigger dates for initiating Social Security benefits, or for drawing on IRAs or annuities, if you have them.

You may be entitled to collect spousal benefits based on your ex-spouse’s Social Security record, and those should be analyzed along with your own Social Security and pension benefits to maximize total income for yourself.

If you have been awarded part of your ex-spouse’s pension, you need to keep informed about the trigger events for initiating the distributions. It could be your own age or when your ex starts to get them.

When you are retired cash flow becomes an important factor. You need a certain amount of cash flow for expenses, and at the same time, ensure you don’t outlive your assets.

At this stage, too, you may want to consult with a consultant to help you with investment and withdrawal decisions.

Question: Anything else you should pay attention to?

Ms.Vasileff: Revisit your beneficiary designations on all financial accounts and real property to make sure they are up to date and that you have named your new spouse and/or your children as beneficiaries, if that is what you now wish.

Editor’s note: To update your beneficiaries, log on to your Vanguard account, click My Profile, then Beneficiaries.

Notes

Ms. Vasileff’s opinions are not necessarily those of Vanguard.

Photo by William W. Good

Vanguard recommends you consult a tax professional.

All investing is subject to risk.

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New York City’s First Divorce Expo: 3 Ways to “Start Over Smart”

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Thursday, March 29, 2012 at 12:40 PM

posted by April Daniels Hussar on http://www.self.com/health/blogs/healthyself/2012/03/new-york-citys-first-divorce-e.html

First comes love, then comes marriage, then comes … well, sometimes the happy ending you had in mind doesn’t quite work out.  But that doesn’t mean there isn’t life after divorce, or that it can’t be a step to another, truly happy ending.

This weekend in New York, several thousand people are expected to attend the city’s first Divorce Expo.  Taking place at the Metropolitan Pavilion on March 31 and April 1, “Start Over Smart” aims to help those contemplating or going through divorce by giving them the information and answers they need.  The Expo also intends to provide inspirational ideas about how life can begin anew after a split.

Presenting experts include everyone from lawyers and therapists to style advisers, plus some big names like New York Times best-selling author and life coach Cheryl Richardson and TODAY show Financial Editor and Adviser Jean Chatzky.  And yes, on Saturday night, there will be a mixer for attendees.

The Expo is the brainchild of the mother-daughter team of Francine Baras (a clinical social worker with an advanced degree in child psychiatry and parent guidance) and Nicole Baras (a divorce and family mediator). “As trained divorce mediators, we saw a need to help epopel gather correct information when going through a divorce,” Baras told HealthySELF.  “There is so much overwhelming information and a lot of it is not accurate.”

Baras and her daughter were writing a simple how-to-get-divorced guide when they heard about a divoce expo in France. “We flew to Paris, spent two days iwth the expo organizers and we were sold,” she says.

Who should attend? “Men and women who are thinking about a divorce, going through a divorce or who have just completed the process,” says Baras Feuer. “There is something for anyone, in all stages of the divorce process.”

What can you expect at Start Over Smart? According to Baras Feuer, each of the approximately 100 speakers and exhibitors has been curated by the founders and an advisory board. “The Expo will represent four pillars,” she explains, “building a community, keeping the cost of a divorce down, minimizing the impact of a divorce on your children and reinventin oneself.”

There will be several featured workshops and panel discussions throughout the weekend targeted to crucial divorce-related topics, including the Top 10 Parenting Mistakes, Same Sex Divorce, Reinventing Your Style, Be Your Own Handyman, Blending Familieis & Co-Parenting with Your Ex, plus book signings, makeovers, dating advice and career counseling.

Above all, Expo founder Baras says she hopes people come away from the event armed with information and a brighter outloook.  “Less anxiety, a clearer understanding of thier options, help with theri finances, help with their children and a connection with others who are experiencing the same things,” she says.

Speaking of finances, on the of the Expo’s presenters Lili A. Vasileff, CFP, CDFA, president of the national Association of Divorce Financial Planners and co-author of Ultimate Divorce Organizer: The Complete Interactive Guide to Acheiving the Best Legal, Financial and Personal Divorce, says money is one of the things people worry about the most when it comes to divorce.  According to Vasileff, the biggest mistake you can make in a divorce is letting your emotions drive your financail decisions.

Here are 3 of her top financial tips for being smart about your start-over:

1. You are your best advocate. No one, not even your attorney, understands your needs or goals better than you. Do not let someone else make your decisions without you understanding them.

2. Remember, your attorney is a legal expert, not a financial expert.

3. Three things that people often fail to do, but must: Examine your long-term financial projections, develop a post-divorce financial plan and insure your divorce settlement.

And remember … you will have another shot at your happy ending!

For more about the expo, visit http://startoversmartny.com

Breaking Up Is Hard to Do – Especially with Annuities

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Attorneys often split contracts  in divorce settlements, unaware  of the potentially costly impact

March 18, 2012

When a client came to his office bearing her new divorce decree, adviser Dale Russell became the bearer of bad news.

During the divorce proceedings, the couple’s lawyers decided that their chief financial asset, a $500,000 variable annuity inside one of their individual retirement accounts, was to be split among the two. But that Solomon-like decision was made without the attorneys’ awareness of its dire financial consequences.

Splitting the variable annuity meant that Mr. Russell’s client had to pay an 8% surrender charge and a 10% penalty for an early withdrawal from the IRA.

For Mr. Russell, vice president of Gallo & Russell Inc., the experience is hardly uncommon.

With nearly one in two marriages ending in divorce, financial advisers who deal with divorcing couples often face complex problems connected with untangling annuities that are in the pool of shared assets.

With divorce attorneys typically unaware of the nuances of annuity contracts and the various ways insurers treat contracts in the context of divorce, and with advisers typically out of the loop when settlements are hammered out, the problem lands in the lap of advisers.

“In the case of my client, there wasn’t much I could do in the way of alternatives,” said Mr. Russell, who hadn’t been consulted before the couple began preparing for the split.

“This was essentially the only asset they had, and instead of my client’s getting the $250,000 she expected, she’s getting almost $50,000 less,” he said,

“It’s a big problem, said adviser Lili A. Vasileff, president of Divorce and Money Matters LLC and president of the Association of Divorce Financial Planners Inc. “Most attorneys think these annuities can be divided, and don’t wait for the consequences.”

Couples who work out divorce agreements on their own are even less likely to consider the financial consequences of splitting an annuity, and typically face surrender charges and loss of accrued living or death benefits due to excess withdrawals.

What makes annuities peculiar is the fact that they usually are not liquid in the immediate term, and each contract has its own rules on how it can be divided.

CONTRACT TERMS

Contract terms vary wildly among insurers, with some prohibiting partial tax-free exchanges into other annuities, which potentially could be a way to apportion an annuity in a divorce. Exchanges into a new annuity, however, generally involve the beginning of a new surrender period.

Ideally, an adviser would intercede early in the split, analyze the shared pool of assets and communicate with life insurers about the annuities. This would also entail ensuring that if an annuity split involved a partial Section 1035 exchange, the division would be performed without the risk of taxes.

“I had an incident with an accountant who thought the client would pay thousands more in taxes because the contract was split,” said Barbara Shapiro, president of HMS Financial Group. “We called the annuity company and they assured us that the division was nontaxable because it was incident to divorce.”

Ms. Shapiro added that when dividing annuities in this manner, she takes the extra step of noting in bold print that the transfer is nontaxable because it is in the context of a divorce — just to be safe.

It pays to be attentive to these details, advisers said, as insurers adhere strictly to the terms of the divorce decree.

“If the court says the contract needs to be split a certain way, we have our hands tied,” said Brian L. Kunkel, national director of advanced planning and solutions at Prudential Financial Inc.

“If the client calls us, we can outline the options available to comply with the court agreement and still be as contract-friendly as possible,” he said. “If people just process the agreement, then we merely follow the instructions.”

In most cases, a divorce decree absolves the attorneys involved from responsibility for any financial consequences.

If a court order of divorce specifies how an annuity is treated, then the liability on the attorney is mostly eliminated, even if there is economic harm to the client, said Steven B. Caruso, partner at Maddox Hargett & Caruso PC.

Determining the best way to treat an annuity with living benefits presents another series of problems.

Riders contain separate contractual provisions governing how they are treated in a divorce, and as insurers are always adding and removing riders, advisers need to be in the know. This is crucial because living benefits in an existing annuity may no longer be available on a new annuity, should the owner decide to share the asset through a partial exchange.

VALUATION EXPERT

“There could very well be an actuarial value in a living benefit that’s beyond the value of the contract,” Mr. Kunkel said. “You may want to hire a valuation expert on the annuity, especially if there’s a large discrepancy.”

It might make sense to leave the annuity intact and allow one party to keep it while the other gets something of equivalent value.

Such was the conclusion reached by Scott Stolz, president of Raymond James Insurance Group, after he was called in by attorneys to testify as an expert witness in a divorce that involved four insurers and the division of 20 annuities.

Each insurer had its own terms for dealing with divorces, and the ordeal encouraged him to begin working on a resource manual on this topic for advisers.

“There were so many policies, it was easier to come up with a combination that made sense,” Mr. Stolz said of the divorce case.

“If you have one or two policies, you have to say, “You take the annuity and I’ll take the house.’ It never makes sense to divide the annuities up,” Mr. Stolz said.

The Perfect Storm: Divorcing Baby Boomers

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By FPA Member Lili A. Vasileff, CFP®, CDFA™

Last Updated: June 6, 2011 

As Baby Boomers approach the last hurdle before the magic retirement age of 65, it is becoming increasingly newsworthy that growing legions of older Americans are untying the marital knot. With this trend for “gray” divorces, there are several challenges: dividing one household into two; re-evaluating near term retirement and estate planning goals; addressing gaps in health insurance coverages; re-examining investment decisions for longer life expectancies. It is truly a “perfect storm” where not only are your financial goals turned upside down, but planning is further complicated by emotional and psychological turmoil affecting your rational decision-making.

Every 10 seconds a Boomer turns 60 years old.1 Boomers are unlike predecessor generations in a myriad of ways. One of the most pronounced differences is that there was a shift in attitudes to more of a “me” generation focused on personal rewards and self fulfillment.

So has this attitude resulted in an increasing rate of gray divorces? Surprisingly, the answer is no. The divorce rates for seniors have remained nearly steady since the 1970s.2 The surge in divorcing Boomers actually reflects that more divorced adults are becoming divorced seniors. More Boomer women initiate divorce (66 percent) and claim satisfaction (70 percent) than men.3 The biggest fear expressed about divorce is the prospect of living alone. Interestingly, the traditional moral taboo against divorce has little effect on holding together troubled marriages.

Yet most divorced Boomers are not living alone. The number of Boomers cohabiting has nearly doubled in the last decade. What stops many Boomers from remarrying is the prospect of financial loss. Remarriage may mean giving up alimony, a former spouse’s medical insurance, a former spouse’s pension and/or their Social Security benefits. Other factors that weigh heavily against remarriage include the influences of adult children and the likelihood that one or both Boomers may be care givers and/or may provide primary financial support for ailing elderly parents.

The reality for most Boomers is that expectations will be different during retirement years and planning needs cannot be ignored or postponed during a major life transition such as divorce. A divorce financial planner can address your fears, anxieties and actual financial challenges as you approach retirement, simultaneously with specific divorce financial issues. The perfect storm is an opportunity to address comprehensive personal financial goals and allows for contingency planning by forward thinking.

Key points for you to address during the divorce process must include these subject areas:

  1. Your credit rating: Have you or your ex-spouse impaired your creditworthiness and affected the cost of your health, auto, life, or homeowners insurances? Are there any individual debts in your name such as your mortgage, car loan, or security/down payment on housing?
  2. Your individual financial identity: Are you able to qualify individually for loans, credit cards and insurances? At your age, what are the added costs to begin a fresh new financial identify?
  3. Your health insurance: Will your health insurance coverage under COBRA fall short of you qualifying for Medicare? What can you do to fill the gaps in coverage and at what cost? Can you delay the divorce to sustain COBRA until Medicare eligibility if you have health issues? In many cases, spouses with medical histories may feel either held hostage in the existing relationship or thwarted from entering a new one. Demographically, women face a higher risk of being uninsured.
  4. Social Security eligibility: Will you qualify for Social Security on your own or on your ex-spouse’s record? Be aware of the criteria for qualifying under your ex-spouse’s — stay married for at least 10 years, and remain unmarried at age 60 at time of application for benefits.
  5. Social Security strategy: Should you take your own Social Security benefits at an early retirement age and defer electing your ex-spouse’s until later age (or vice versa)? Be sure you know the criteria for disclaiming benefits, deferring until later dates, etc.
  6. Pensions: Nearly 41 percent of Boomers receive pensions.4 You need to stay informed of your ex-spouse’s employer and pension terms; notify them when you elect to receive benefits; be aware of any time or event triggers when your ex-spouse can elect that may impact your benefits.
  7. Estate plans: You need to revamp your estate plan (redo wills, POAs, health care proxy, living will, etc.) and beneficiary designations post divorce. Be sure to maximize your estate and gifting strategies. A divorce financial planner recognizes unique opportunities that may allow for greater estate tax savings otherwise unobtainable in the non-divorce setting.
  8. Future families: Protecting heirs may be an implicit or explicit goal during divorce, especially in light of remarriages, second families and adult children. The ex-spouse, one’s own children, the new spouse or partner, and estate taxes all are interrelated and require careful attention to be sure your intent and wishes are carried forward accurately.
  9. Protect and preserve wealth: Lastly, if you wish to protect assets from dissipation (either to creditors, an ex-spouse or children), a divorce financial planner can advise you of the factors by which the court weighs the consequences of actions taken by you and your ex-spouse. To avoid traps that the Internal Revenue Service (IRS) closes in on, special rules apply to alimony, child support and property settlements per a written agreement certified by the court.

In summary, a divorce financial planner brings comprehensive expertise about personal finance to the divorce process and will help analyze the many dimensions of financial challenges facing Boomers who divorce. While many of never expect divorce in your later years, a divorce financial planner can help ease your anxieties and fears by carefully evaluating your goals, strategies, and options during divorce to secure the financial future you desire.

1 Selected characteristics of Baby Boomers 42 to 60 years old in 2006; Age and Special Population Branch Population Division, U.S. Census Bureau Washington D.C., 11/04/2009.
2 U.S. Census Bureau Study, 11/4/2009
3 U.S. Census Bureau Study, 11/4/2009
4 Jack VanDerhei and Craig Copeland, “The EBRI Retirement Readiness Rating”™: Retirement Income Preparation and Future Prospects”, July, 2010 Issue Brief, No. 344.

FPA Member Lili A. Vasileff, CFP®, CDFA™, is President of the Association of Divorce Financial Planners.


Divorce Retirement: Financial Advisers Face Challenges When Couples Split Later

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Divorce Retirement: Financial Advisers Face Challenges When Couples Split Later

 

Divorce Retirement

Posted: 03/12/2012  1:11 pm

By Jessica Toonkel

NEW YORK, March 12 (Reuters) – As part of the  retirement planning process, financial advisers often help  married couples prepare for the eventuality of one dying before  the other.

What few people talk about is what happens if the couple  divorces as they are approaching retirement.
Unfortunately, this is becoming more and more common. Over  the past 20 years, the divorce rate among people between the  ages of 48 and 66 has increased by more than 50 percent,  according to U.S. Census Bureau data.

“We always talk about the risks people face in retirement,  like inflation risk and health care costs risks, but very rarely  does anyone mention the risks of being single in retirement,”  said Tina Di Vito, head of Bank of Montreal’s BMO  Retirement Institute.
For financial advisers, a divorce by clients can be a  minefield of strong emotions and conflicting interests, not to  mention their shock at seeing their assets get cut in half.

But advisers say they can get their clients through this  trying time with a significant amount of hand-holding and  expectation-setting. In some cases, they may even refer them to  other financial advisers who do not have a previous relationship  with either of the clients.

PLANNING FOR THE UNPLANNABLE
While advisers agree that there is no way to plan long-term  for divorce, they can take steps to be more prepared for it.
A growing number of advisers are becoming “certified divorce  financial analysts” by taking a four-part, self-paced course  covering such issues as tax ramifications, property division and  budgeting matters.

The number of advisers who get certified annually has  doubled since 2002, according to the Institute of Certified  Divorce Financial Analysts. There are now 1,500 CDFAs in the  United States and Canada.

Having this designation can help advisers get to clients  before they have been hit by the emotional toll and financial  distress that a divorce causes because clients are likely to  come to them early in the process after seeing they are  certified divorce financial analysts.

“I was meeting so many people post-divorce who came to me  with their settlement checks asking, ‘What should I do now?’”  said Lauren Klein, a Newport Beach, California-based adviser who  got the certification. “I thought if I could get to them sooner,  I could help them avoid the litigation process.”

Often, once a couple starts thinking about divorce, the  husband, wife or both will ask the adviser what to do. This  presents a tricky situation.

If only one spouse is coming for help, advisers have to be  sure to include the other in the conversations, or else they are  opening themselves up to lawsuits down the road.

“I might help them understand what their assets are and what  the tax consequences would be if they sell certain assets, but  then I refer them on to someone else during the actual divorce  process,” said Wendy Spencer, a certified divorce financial  analyst and family law mediator.

Some advisers feel that there is too much potential for a  conflict of interest if they continue to work with a couple  during a divorce. In these cases, they often refer their clients  to another adviser just to help them through that process.
The danger with referring clients, however, is that the  adviser risks losing them.
“I would rather risk losing a (client) than the possibility  of a lawsuit from a client claiming I sided with the other  party,” Spencer said.

And lawsuits are something to be concerned about. “Most  clients coming through a divorce want to blame someone,” said  Lili Vasileff, an adviser with Divorce and Money Matters LLC and  president of the International Association of Divorce Financial  Planners. “Advisers need to make sure they have liability  insurance.”

DECISION TIME
Once clients have decided to divorce, advisers can do  several things to help them — as a couple or as individuals.
But when emotions run high, the challenge for advisers is  helping clients understand when to let go. In particular, many  clients insist on keeping the house no matter what it means for  them.

“There is this idea that winning the house means you have  won, and that is just not the case,” said Columbus,  Indiana-based adviser Warren Ward.

Judith McGee, a Raymond James Financial Services adviser in  Portland, Oregon, had clients who were divorcing; the wife was  leaving the husband for another man.

The husband “did not want to finance his house to pay her  off because he was angry,” she said. “But all he had was an IRA  and his house and some income because he was semi-retired.”

McGee convinced the client to take a loan out on the house,  rather than dip into his IRA, to pay his wife.
Advisers are instrumental in helping clients divide their  assets.

Splitting up a pension plan when the employee is still  working, for example, is not so simple, said Diane Pearson, an  adviser with Pittsburgh-based Legend Financial Advisors Inc,  which has $350 million in assets under management.

The adviser needs to determine the present value of the  pension. Then the adviser must confer with the nonworking spouse  to see if it makes better sense to receive the pension amount  now or upon the working spouse’s retirement.

Similarly, splitting up stocks requires figuring out what  the couple paid for the shares.

“Even in a collaborative divorce that is amicable, splitting  everything 50/50 can be tricky,” Pearson said.

POST-DIVORCE
An important, yet challenging priority is helping to set the  client’s expectations about his or her post-divorce lifestyle.
This can be particularly challenging if the client did not  manage the finances in the family. For these clients, who tend  to be the wives, advisers may need to do extra hand-holding,  they said.

A lot of this work has to do with knowing when a client just  needs empathy rather than advice.

“Advisers need to understand the stages of grief and that  this is a slow process,” McGee said. “Don’t give a lot of advice  too soon.”