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

Quotes From Divorce Veterans

There was an article in the Sunday LA Times by Ben Steverman of Bloomberg News with some very clear advice from some divorce professionals that have been doing this for a long time.

His article was written before the fires started devastating the lives of thousands of our fellow Californians. PeaceTalks and every other mediation group I know of will help with emergency paperwork in concert with any attorneys to get something in place by December 31St. Everyone will do their bit. Good luck.

When a rich couple splits, divorce attorney Lowell Sucherman gets blunt:

“Look, I’ve been doing this for 50 years,” he says early in the negotiations. “I know how this case is going to come out within a few dollars.” Find a fair way to settle quickly, he says, and you can save enough in legal fees to send your kid to college. Or you can fight tooth and nail, he adds, “and I’ll send my grandchildren to college.” His warnings work only some of the time.

 Michael Stutman, a partner at Stutman, Stutman & Lichtenstein in Manhattan, said he’s seeing more feuding couples open to negotiation as the alimony deduction deadline looms.

“When you’ve got people pretty close to an agreement, the specter of losing that benefit is pushing people together.”

Stutman is handling a divorce for a real estate mogul, and it’s taking a long time for two skilled forensic accountants to untangle the family’s holdings. The couple is “beside themselves” with how long it’s taking, he said.

Peter Walzer of Walzer Melcher, a law firm in Los Angeles. said:

“Still, there may be a workaround. If a settlement agreement, which often includes alimony terms, is reached by the end of this year, many divorce lawyers said, that would probably be sufficient to still get the alimony tax break. But that isn’t airtight, and there could be issues if the agreement is altered in the future.”

Chris Chen of Insight Financial Strategists, a firm specializing in post-divorce financial planning said:

“The difference between getting a divorce finalized this year and waiting until later is significant, especially among people with high incomes.

A chief executive living in New York City who is divorcing a stay-at-home mom would pay about $35,000 in child support for their two young kids. If he makes $1 million a year and agrees to pay her $360,000 in alimony, the 2019 rule change could cost them about $23,000 annually in higher taxes, according to an analysis by Chris Chen of Insight Financial Strategists, a firm specializing in post-divorce financial planning.”

The alimony change puts even more year-end pressure on divorce lawyers, judges and clerks. It’s not clear whether courthouses will be able to handle the extra crush of paperwork.

“They’re going to have a hard time processing all these judgments” said Peter Walzer.

Just to be safe, lawyers are getting paperwork in as soon as possible.

Link to full article here

New Tax Law Prompting Flood of Accelerated Divorces

New tax law prompting flood of accelerated divorces as Dec. 31 deadline looms

David Garrick, The San Diego Union-Tribune

The term “accelerated divorces” got my attention yesterday when an edited version of this article appeared in the Los Angeles Times. The indications, from 2018 first-half data, are that there may be even more of a scheduling problem than was anticipated.

Attorneys and judges are scrambling to finalize a flood of accelerated divorces prompted by new federal tax laws that eliminate the spousal support deduction starting Jan. 1.”

Even if your situation does not involve spousal support, you may be affected, as that mutual benefit prompted a rush of divorce filings before June 30, because a divorce can’t be finalized in California until at least six months after proceedings begin. In response, San Diego Superior Court officials say they expect an increase in divorce cases, and have begun clearing a backlog of judgments so they will be ready.

The article doesn’t go into mediation but one time that it can come in handy is when a quickagreement is necessary:

“There is also a caveat to the Dec. 31 deadline to finalize divorces. Through a process called bifurcation, a couple can agree on the spousal support portion of the settlement and get it approved by a judge even if other parts of the divorce remain unsettled.”

The article is worth a read and if you are concerned about something please contact us and we’ll tell you if there’s any way we can be of help.

Link to full article here

Divorce and the 2018 Tax Law Change Snapshot

I came across this exchange with Jim Tankersley who covers economic and tax policy for The New York Times and Ailsa Chang from NPR. Jim gives a nice summary of the dynamics involved that are driving financial advisors to get a strategy in place for all their clients that are party to a divorce settlement before the end of 2018. He also points out that the men do not have as much to lose with the new deal.

There’s a link at the bottom to the whole conversation but here’s a few examples of how Jim lays it out:

CHANG: So the couples that will be most impacted by this are those wealthiest ones in the top tax bracket.

TANKERSLEY: Absolutely because it means the most for them because they’re getting the biggest break from their taxes ’cause they pay the…

CHANG: Right.

TANKERSLEY: …Highest marginal income tax rates. 

CHANG: And I can imagine most couples that have severely disparate incomes – it’s usually the woman who earns less. So this tax law change will probably have women bearing most of the cost.

TANKERSLEY: That’s what divorce lawyers and tax professionals and financial planners have been telling me – is that, yeah, it’s largely women who receive alimony. And particularly with wealthy couples, it’s largely women who leave the labor force to take care of kids or for whatever reason. And women earn less in the economy for the same work than men do. This is a potentially big loss for women…

CHANG: What was Congress’ rationale for getting rid of the alimony tax break?

TANKERSLEY: This is a way to raise revenue for the government. So by closing this loophole, they’re going to get more money in taxes, and therefore they help offset some of the enormous other costs of the rest of the tax bill.

 It’s also, again, a drop in the bucket of a $1.5 trillion tax cut.

To read the full interview click here

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.

Don’t Overtax Yourself & Do It Now

by Stephanie Maloney

The 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.