Post Divorce Portfolio Balancing Act

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.

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

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.