Amazon Fairness and Divorce, Oh My!

For anyone who can’t let go of that “Money=Happiness” thing, just read and be kind of glad that you don’t have so much money that God borrows from you.

The divorce fairness issue that Jeff and MacKenzie Bezos don’t have to worry about

https://www.cnn.com/2019/01/11/opinions/divorce-unfair-bezos-opinion-cohen/index.html

Post Divorce Portfolio Balancing Act

Post Divorce Portfolio Balancing Act - Peace Talks Mediation Services - divorce, finances, investments, taxes, divorce mediation  credit: https://www.pe.com/2018/11/24/its-time-to-right-size-your-portfolio-here-are-some-tips-to-get-ready-before-2019/All investors review their investments annually, and in light of the market’s recent volatility, it would be wise to review your investments soon as the new tax laws may affect your strategies. “Rebalancing” may be in order if your portfolio’s asset allocation no longer meets your current long-term objectives.As always, you should consult with your tax preparer and financial advisor to ensure that whatever changes have occurred in your life are reflected in your fiduciary’s overall plan.

It’s easy to see why PeaceTalks relies on the teamwork dynamic of involving tax and investment specialists in all our mediations. From the start couples build individual strategies as the assets are divided until a settlement agreement is reached and they sign off to their mutual satisfaction. We refer people, when necessary, from our group of trusted associates and we work seamlessly with whomever a client trusts.

The following has been excerpted from and article in The Press-Enterprise by Terry Parker. Look over these ideas and see if something might aid you in your preparation and planning. If you have a question please contact the office anytime.

Tax-Loss Harvesting
Are you holding an investment that has lost value since it was purchased in your taxable portfolio? Intentionally selling this investment at a lost to reduce your tax liability is called tax-loss harvesting. The capital loss realized from this transaction can be used to offset capital gains, reducing your tax liability.

Give the Gift of Cash
Do you want to give a gift of cash? In 2018, you can give a gift of cash up to $15,000 to as many different people as you want without incurring the gift tax. The $15,000 is a per-person limit, not a total limit. Gifts up to this amount—called an annual exclusion—are not reportable on your tax return. A husband and wife can each make a $15,000 gift, giving as much as $30,000 to as many people as they choose each year.

Qualified Charitable Distributions
At the end of 2015, lawmakers approved a permanent measure allowing individuals who are 70½ years old or older to make qualified charitable distributions (also known as QCDs) directly from their individual retirement accounts (IRAs) to their favorite qualified charities.

Teri Parker is a vice president for CAPTRUST Financial Advisors.

Click here for link to full article

A Potential Tax Move For 2018 Divorce

As the commercial says “I’m not a tax advisor and I didn’t stay at a Holiday Inn Express last night…” but a piece by Dan Caplinger from The Motley Fool might have a useful idea for your situation. There’s a link at the end to the whole article.

Tax strategies is something that PeaceTalks always has addressed by at least one, if not more, professionals in all of mediation cases to ensure that both parties are able to optimize their assets after the settlement is reached.

There’s one big change that won’t hit taxpayers until the beginning of 2019. It won’t affect everyone, but for the many people in the U.S. who are divorced, changes in how alimony payments get taxed could have a huge financial impact, given the roughly $10 billion in such payments that get made every year. With divorces running between roughly 800,000 and 950,000 annually since 2000, there are millions of people who might be able to benefit from some last-minute tax planning — if they can cooperate effectively.

What the tax law did was to change this treatment starting in 2019. For those who get divorced in 2019 or later, all payments between divorced spouses will be treated identically. There’ll be no tax impact from any payment, meaning that the receiving spouse won’t have to include payments as income, and the paying spouse won’t get to deduct anything. That’s a whole lot simpler, and it solves some potential fraud issues. But it does remove a planning opportunity for divorced spouses who are willing to work with each other.

In particular, there are two situations in which it’ll be important for couples to act before the end of 2018. First, if you’re in the process of divorcing, the timing of the final divorce agreement will be crucial. Specify alimony payments and get divorced on or before Dec. 31, and you’ll have the option to effectively transfer taxable income from a spouse in a higher tax bracket to one in a lower tax bracket, saving on taxes overall. That in turn can make it possible for the paying spouse to make larger payments while still ending up ahead on an after-tax basis. On the other hand, if you wait until Jan. 1 to get divorced, that option won’t be available any longer.

Second, if you’re already divorced but the original agreement didn’t include an order for spousal support, the law is ambiguous about how a subsequent order would get treated. Those who already have a spousal support order by the end of 2018 can retain the current-law tax treatment even if that order is modified in or after 2019. But there’s at least some risk that a request for a first-time spousal support order would be treated as first having occurred in 2019 or later, taking away the option of having old-law tax treatment.

Finally, the new law does give divorced spouses who would prefer the new tax treatment to govern their pre-2019 divorce the option of agreeing to adopt the new rules. That’s not necessarily a time-critical issue, as this election can be made at any time. But if circumstances have changed and it makes sense to treat payments between divorced spouses as having no tax impact, it may be that the sooner you do so, the better.

As always, if you or a friend is in danger of missing the December 31st deadline, call the office and we’ll see if we have any available resources in our network that might help.

Click here to read full article

Taking Stock In Your Divorce

In light of the changes in the tax laws and the recent roller coaster volatility in the stock market it might be prudent to talk with your financial advisor about whatever investment assets are attached to your settlement agreement. You can also get feedback and updates related to other nest eggs that are not part of any divorce settlement, which is nevera bad idea.

The division of investment assets can be gnarly and painful so people are getting creative in settling these issues through trading, and exchanging their respective interestsin a mutually agreeable fashion. So identifying and getting a valuation, along with guidance, about your asset options will only aid you in making any changes before the December 31St deadline.

I’ve included some tips from veterans in this field that echo ideas that we’ve heard in our discussions at PeaceTalks with our financial associates.

Splitting Retirement Accounts

To understand the value of a retirement account, you need to know how withdrawals will be taxed. In general, there are 2 main types of retirement accounts: traditional and Roth.

In a traditional account, contributions are made before taxes—or you get a tax deduction for the amount contributed if it has already been taxed. Contributions to a Roth account are made after taxes are paid but the benefit is that withdrawals of earnings and contributions in retirement are not taxed.1

Bottom line: $100,000 currently in a Roth is worth more than $100,000 currently in a traditional retirement account simply because of the different tax treatments in each type of account.

Taxable Investment Accounts

When it comes to taxable investments, it’s not about the value you see on your statement, but what you get to keep after taxes.

In general, when dividing investments in a divorce, couples may have options: One option would be to sell investments and divvy up the proceeds. This can have tax consequences. Alternatively, you can generally split the investment holdings. For instance, if 100 shares of stock are part of the marital property to be divided in half, one party gets 50 shares and the other party gets the remaining 50 shares. The IRS allows divorcing spouses to each keep the same cost basis and holding period for an investment they already own. Cost basis is the price at which the investment was originally purchased. Holding period is important because profits from the sale of investments owned for a year or less are taxed at your ordinary income tax rate, while investments held for more than a year are taxed at lower long-term capital gains rates.

Assuming your investment has appreciated, you will end up with less than the sale price—because you have to pay taxes on any gains over the cost basis. Exactly how much will depend on your tax rate, holding period, and cost basis, which can vary for a single investment if you bought shares over time. So, if you’re dividing investments equally, it’s important that the cost basis is divided equally as well—your financial institution or Fidelity representative should be able to help with that.

Of course, other important things to think about with regard to investments are the future prospects for growth or income, your own tolerance for investment risk, your financial needs, and your timeframe for investing.

Tax Consequences of Investment Asset Allocation

In addition, periods of market volatility stand to impact capital gains and losses generated from investment assets. The former can create a tax liability (e.g. where a holding is sold for more than its purchase price), whereas generally speaking the latter results in an asset (e.g. where a stock’s sales price is less than its purchase price, thus creating an offset against present or future capital gains).

In high net worth divorce cases often involving millions of dollars of investment assets subject to substantial market gains and losses, it is important in periods of market volatility to recognize that certain holdings may carry positive or negative tax consequences to the litigants. In these circumstances, it is good practice to consult with financial advisors and accountants at even this micro level of asset allocation to ensure that assets and liabilities are being apportioned and allocated as the litigants contemplated, and to avoid an unintended result of one spouse being allocated a vastly disproportionate share of capital gains or losses.

Divorce Last Minute Loophole

For anyone that is still facing the December 31 deadline for filing here’s some possible relief from some of that anxiety.

A lot of people have come to Peace Talks worried, in part, about the alimony change in the new tax laws and what they have to do by December 31 to maximize their benefits going into 2019. There may be a way to avoid spoiling your holidays by having to deal with a mountain of paperwork. It’s not for everybody but it may work for you and Peace Talks can help you determine if it’s the right option for you.

These are some highlights from an article by John Fiske a veteran with 30 years of mediation experience. You’ll need to consult someone to verify that this strategy could work for you and at Peace Talks this is part of what we do every day.

“We can only imagine the conversations we will be having in December with clients who call us looking for a divorce and learn they have less than a month to write a separation agreement if they want to preserve the ability of the payer of alimony to exclude the payments from his or her taxable income.  

What if we could write a simple “placeholder” Separation Agreement to be executed before the end of this December, wherein one or both spouses agree to pay a defined amount a month to the other as alimony subject to an agreement of modification which defines all the terms of their divorce, including the alimony agreement, in a Separation Agreement to be filed in court in 2019 for approval?”

“Section 11051 of the TCAJA reads as follows: The amendments made by this section shall apply to any divorce or separation instrument executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.”

“Since Section 11051 states that any divorce or separation instrument executed before December 31, 2018 is not affected by TCAJA and such an Agreement may be modified after that date, all that is needed is the signed Separation Agreement.”

“So the clear language of TCAJA does not require court approval or a divorce filing in court before December 31, 2018 if you have a written separation agreement that preserves the alimony exclusion. This step appears to satisfy the federal statute and gives people time to work out a sensible Separation Agreement without ruining their holidays.

Based on this analysis I will be suggesting to my mediating clients that if they want to have taxable and excludable alimony in their Agreement they consider writing a simple divorce or separation”

“You should sleep better knowing that you need not take away any remaining holiday spirit and activities in order to rush to sign more than a Separation Agreement before the end of 2018.”

Read the entire article here

Divorce and IRA’s – Watch Your Assets

Understanding different types of retirement assets, and the costs and taxes associated with each, when liquidated, can help you make informed decisions. Always consult with your financial and tax advisors during the decision making process especially before a liquidation.

To help ensure that you reach an agreement that is equitable to both of you, it’s important to know what you have now and understand how your agreement could impact your income, and lifestyle years after the divorce. You can’t direct the investment process for social security but you should be overseeing and getting advice about your IRA’s.

To understand their value, you need to know how withdrawals will be taxed from both traditional and Roth accounts. In a traditional account, contributions are made before taxes, so you get a tax deduction for the amount contributed if it has already been taxed. Contributions to a Roth account are made after taxes are paid but withdrawals of earnings and contributions in retirement are not taxed. We, of course, might see more changes to the tax code.

As an example, right now, $100,000 currently in a Roth account is worth more than $100,000 currently in a traditional retirement account simply because of the different tax treatments in each type of account.

This can be really complicated, especially when you have to deal with corporate 401K accounts. If this is something that needs attention in the life of your family and you need a suggestion please call the office and we’ll be happy to talk with you about some professionals we trust.

Money, Debt and Divorce

Dividing Debts in Divorce

One of the bad surprises that we see in the divorce process is the amount of money that is owed by both parties as individuals, and as a couple. This can be gnarly and painful and needs professional help to ensure accuracy. A person’s responsibility for any debt the couple has incurred during their marriage can only be properly addressed when you know how much you owe and to whom.

At PeaceTalks we suggest you order your credit report from each of the three credit reporting agencies: Equifax, Experian and TransUnion. Your credit report will reveal what is owed including joint accounts with your spouse.

Once you identify which debts are shared and which are in your nameonly, you need to prevent them from growing any larger while you’re getting divorced. It’s best to cancel shared accounts leaving one card in your name in case of emergencies.

Now it’s time to decide who will be responsible for what debt. Here are a couple of examples of strategies that PeaceTalks suggests for dealing with debt in a divorce.

If you have assets you can sell, pay off the debts now.  You won’t have to worry about his/her portion of the debt, and you can start again, debt-free.

One can also exchange an equitable amount of debt for assets from the division of your property. This is another example of where mediation can be a much faster and less expensive process for reaching a satisfactory agreement.

If you think you might have overlooked something in preparing for your divorce please contact the office with your question.

Divorce Lawyer Secrets

Peace Talks, by definition, gives people the opportunity to talk about everything that is relevant to reaching an amicable agreement. This applies, as well, to all the legal advisors that come to our mediation table. We get to listen to the perspective of the lawyer in many different types of divorce situations representing a wide range of individual styles. Many of these lawyers have shared personal “secrets” about advice they offer, and techniques they employ, that help ensure the best results for a client. If anything you see provokes a question about your situation please contact the office to find a time to talk that is mutually convenient.

“Don’t think assets in your name can’t be claimed by your spouse in a divorce. “Almost all assets are divisible, including airline miles.”

“It’s going to cost more money”. More often than not, the costs will often be higher than your lawyer’s original estimate.

Contested divorces cost anywhere from $15,000 to $30,000, which is the primary reason for the suggestion of mediation.

“Solo practitioners may not be able to give you the level of attention you need from your lawyer and costs may compel you to live very frugally, necessitating some dramatic cuts in expenditures”

While it is dispiriting, to “downsize” it’s better totemporarily cut corners in your lifestyle than miss opportunities in getting a faster, favorable outcome.

“Lawyer fees may be negotiable.” This doesn’t mean an attorney will always be willing to lower their fees, but for mediation cases there is usually a different fee schedule.

“If your divorce is uncontested, then you may be able to perform several parts of it on your own.” This means that you and your spouse agree on child custody, spousal support, child support, visitation, and division of property. This would be the ideal circumstance for mediation.

“You may still decide to retain an attorney, but their role will be limited to the navigation of court procedures.” The mediation team handles the paperwork to save time and money.

“An initial retainer fee does not equate to the actual cost of handling a divorce matter”. It is only an advance on work undertaken by the attorney and does not represent the thirty thousand dollar threshold reached by most divorce cases.

“That you should meet with multiple attorneys”

One secret your divorce lawyer doesn’t want you to know is that it is extremely beneficial to have multiple consultations. As with all partnerships it has to be a good fit and you have to sit down with someone to decide that for yourself. We have introduced many clients to people they eventually selected for representation.

Notes On Divorce and Tax Changes

This article by Dr. Halem seemed very timely as we hit the Labor Day weekend and all too soon will be staring Halloween and Thanksgiving in the face. I really liked what she said about keeping you informed after your mediation is finished.

Here are a few highlights and a link to the entire article along with reminder that help is available if you get stuck with a question.

The Tax Reform Law Impacts Families

By Dr. Lynne C. Halem from Mediate.com

Dr. Lynne C. Halem is the director at the Centre for Mediation & Dispute Resolution in Wellesley, MA

Helping you stay informed, even after mediation has ended, is a central part of CMDR’S long-term mission.

Child Tax Credit:
For children under 17, single parents earning up to $200,000 can receive a credit of $2,000 per child. This is a major improvement. Prior law limited parental earnings to $75,000 and provided a credit of only $1,000 per child.

529 Education Plans:
The new law allows parents to draw up to $10,000/year from 529 Plan(s) for pre-college private schooling or, say, tutoring. There is still no limitation on the amount of money to be drawn from 529 Plans for qualified college expenses.

Other Education Provisions:
You can still deduct student loan interest of up to $2,500/year. The Lifetime Learning deduction is also still in effect.”

Click here for full article

Tax overhaul may throw a wrench in your Prenup

by Stephanie Maloney

An article by Ben Steverman (Bloomberg News) from Sunday’s LA Times dealt with some tax-related issues that are going to affect a lot of divorced couples and their respective families. It’s an extremely informative piece that’s well worth the read.

I wanted to highlight a few things he brings up that are directly related to why people, in the right sort of circumstance, are turning to alternative ways of dealing with divorce issues to avoid going to court.

The changes end the deduction for alimony and open new avenue to court challenges. Prenups often contain provisions about how much a partner would pay in alimony, also known as spousal support. The agreements can be thrown out if judges deem them unfair, or signed too quickly or under duress.

Now the tax revamp offers another avenue for challenges because courts probably will have to consider how the law has changed since the contracts were created. Starting in 2019, payers no longer will be able to deduct their alimony payments.

For divorcees in the top tax bracket, the change could mean they, in effect, pay double in post-tax costs compared with what they agreed to in their Prenups. 

It’s fair to say that Prenups have become more popular in recent years as younger Americans delay marriage, and the divorce rate has skyrocketed for people over 50, who often use Prenups if they remarry. More than 60% of divorce attorneys said they had seen a rise in the number of clients seeking Prenups in the previous three years, while just 1% reported a drop, according to a 2016 survey by the American Academy of Matrimonial Lawyers.

If agreements aren’t amended to factor in the tax changes, it will be up to divorce attorneys to settle — or judges to decide— whether the amounts or formulas still stand for couples who divorce starting next year.

Even if both parties agree to an adjustment in alimony, they’ll need to agree on exactly how much to cut the payers’ obligations. Divorcing couples could end up hiring rival accountants as expert witnesses to sway judges.

“No one knows the outcome of that kind of dispute,” Linda Ravdin (Pasternak & Fidis) said. “When you go to court, it’s like rolling the dice.”

 Ultimately, the change could hurt alimony recipients. Payers could plead with judges to revise their obligations given the new law — a valid legal argument given that many Prenups specifically mention that the payments are intended to be deductible.

Divorce attorneys already have been warning that killing the alimony deduction could make splitting up more acrimonious.

Keeping Faith With Your Hopeful Charities

by Stephanie Maloney

Keeping Faith With Your Hopeful Charities - Divorce Mediation - Sherman Oaks, CAI saw this piece and was shocked. Bryan McQueeney is the chief executive of the nonprofit Ride On Therapeutic Horsemanship in Los Angeles and he sums up nicely some of the unfortunate possibilities.

The new tax law, according to estimates from the Council on Foundations, will drain $16 billion to $24 billion a year from the nonprofit sector going forward. At a time when discretionary government services are diminishing, and as deeper cuts are contemplated, the role of nonprofits in filling the holes in the social safety net is becoming more essential.

The problem is that while the Tax Cuts and Jobs Act preserves the deductibility of charitable contributions, it restructures the system so that millions will lose incentives to give.  It is undeniable that the reward for giving will go down and the cost of giving will go up.

Here in California, the effect of the new law will be particularly painful. The tax reforms limit the deductibility of state and local income and property taxes to $10,000. This is a high-tax state, and many residents’ state and local tax bills will far exceed this limit. The loss of this valuable deduction will leave them with less to give to their favorite charity.

The Tax Cuts Act simultaneously raises the standard deduction to $24,000 for a married couple. For millions, it will no longer make sense to itemize, and that too means fewer charitable gifts: You can only deduct donations if you itemize.

For those who want to give, it is more important than ever to donate with your heart and your mind. Get to know the charities that interest you. Pick a cause that’s close to your heart, whether it’s answering an urgent call to help victims of disasters or supporting long-standing needs.

We know we can’t change the world, but we can change lives.

Interest Rising In Credit Rates

by Stephanie Maloney

Interest Rising In Credit Rates - Divorce Mediation - Los AngelesOnce in a while, something related to my previous incarnation in the investment world catches my attention, especially when it relates to the credit markets.

A piece in The Washington Post by David Lynch shed some light on important recent developments in the economy, particularly affecting consumers, as we moved into the second quarter.

Here are a few things David points to that are relevant to most of us, especially those people that are young and maybe first-time users of a credit card. Including, of course, our kids.

“For most of the past decade, as the U.S. economy marched through the second-longest expansion in its history, Americans enjoyed a rare trifecta: soaring stock values, cheap loans and consumer prices that rarely rose”.

” Consumer prices by a key measure are rising at their fastest point in seven years, mortgages and business loans are becoming more expensive, and after peaking in late January, the Dow Jones industrial average is now roughly flat on the year.

“The result is that Americans have to spend more money on staples, pay more to borrow money to buy big-ticket items such as cars and homes, and are seeing less growth in their investments. These factors will probably pinch Americans particularly during spring and summer when home-buying and driving peak.”

But today’s rising borrowing costs will hit an economy loaded with debt, meaning that people and businesses will have to spend even more on interest payments. Corporations outside the finance industry at the end of last year owed creditors more than $49 trillion.

Rising consumer prices have not been a significant problem for years. That may be about to change as the Commerce Department reported that prices, excluding food and energy products, rose at a 2.5 percent annual clip in the first three months of 2018.

It’s not difficult to “do the math” and figure out that a lot of us are going to have to make adjustments and make the time to talk about any major expenditures or purchases while conditions are still somewhat favorable.

Banking on the Post Office

Banking on the Post OfficeThere was a piece by the LA Times contributor David Lazarus the other day about the possibility of a “Postal Bank”. NY Sen. Kirsten Gillibrand introduced legislation to allow the Post office to conduct banking services such as checking and small loans.  All at reasonable rates and that’s the problem.

This idea has been beaten down before by the lobbying of the “short-term” loan industry. Since it would give low-income consumers a cheaper alternative to a safety net and cash management system it represents a threat, not a benefit.

The US Postal Service, Lazarus reminds us, is losing money on first-class mail delivery; not the third-party package deals that are actually a main source of revenue. Being able to offer banking services would provide recurring revenue that Postal Service needs along with an option that would greatly benefit customers. There are many parents that would love to have their kids learn about financial responsibility without the fees incurred by using a large bank.

I will pass along any further information about how to support this piece of legislation.

Don’t Overtax Yourself & Do It Now

by Stephanie Maloney

Don’t Overtax Yourself & Do It NowThe new tax legislation will necessitate adjustments for many people dealing with alimony payments-both paying and receiving.

When you start to factor in things like tuition and college debt you get a sense of where your strategy needs to shift in order to maintain sufficient protection for your assets.

Your tax advisor is going to be swamped with requests from people worried about the deductions they have relied upon for some real relief before April 15Th. You can get a head start by assembling whatever (receipts etc.) you posses as well as your various investment and interest 1099’s and charitable contributions.

The more you can do before the tax appointment is more time the accountant can take to make certain you get all the deductions you are entitled to receive. You may even need to change your W-2 status to match the new money dynamics of the altered tax structure.

If you do need to make some changes it might maximize the process to do it as soon as possible. We’ve worked with some great advisors if you need some referrals.