Estate planning and California divorce: a checklist to avoid disaster

Often, after the time, expense, and emotional upheaval of California divorce (as well as moving, adjusting to life as a single person/parent, dealing with tightening finances…etc. etc.), the last thing on anyone’s mind is estate planning.  Yes, it’s one of the things on the list of things to do…later, when you have time.  When you’re emotionally ready to think about it.  Right?  Well, the reality is that just post-divorce IS the best time to do estate planning.  Why?

1. Because it’s on your mind since you’re working to get the rest of your life in order.
2. It’s critical to get your ex-spouse off of your accounts and as your beneficiary.  You really don’t want him/her inheriting from you, do you?
3. It’s really not that hard, and in fact rather than being draining or difficult, can not only be empowering but help you to really feel like your life has restarted.

Here are the key estate planning items you need to take care of post-divorce (and note you probably can’t do these during your divorce due to the ATROs):

1. Create a new (or initial) living trust and will to protect your assets and your beneficiaries.
2. Cancel any old estate plans.
3. Sign a new power of attorney for asset management.
4. Sign a new health care advance directive power of attorney.
5. Designate the guardian for your children should you pass away.
6. Get new life insurance to meet your (and your children’s) needs.
7. Update the beneficiary on your life insurance, retirement accounts (401Ks, IRAs, etc.) and other payable on death (POD) accounts.
8. Make sure your assets are retitled in your name only.
9. Let people know you’re no longer divorced, like banks, health care providers, and other trusted advisors so no one gives out personal or confidential information inadvertently.
10. Talk to your parents about estate planning, the importance, and how it will help everyone if they create an estate plan (it helps them to leave a legacy and saves you the additional intense difficulty of probate).

Doing these simple tasks will help you to feel stronger, in control, and empowered to take on life’s next challenge.  What are you waiting for? Make an online appointment by clicking here.

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Financial issues in California divorce

Since we’re talking about California divorce this week, I thought I’d add a note on finances, since they seem to be at least one of the top reasons for divorce. Untangling your financial lives can be really tough, even out of court.  Here are some things to consider:

During divorce:

Tax implications – what are the tax implications of your filing status as you go through divorce?  What are the implications of your asset division?

Expert fees – what are your attorney/accountant/child custody evaluator/financial advisor fees going to be?

Support – there are tax implications to paying and receiving child and spousal (or family) support in California. If you just take the highest/lowest amount because funds are tight, you may be in trouble later.

But the divorce process is just the beginning.  You also have to consider the financial aspects of your post-divorce life.  You need to consider these things as soon as possible, and not wait until it’s happened.

Post-Divorce:

Cost of living adjustment – here’s still the same bills, but only one of you is paying them.

Change in auto/home/health insurance costs

Increase in “combined” costs.  Did you share a Netflix account?

Lower savings and discretionary income due to the tightened financial belt.

Loss of assets in the divorce – that retirement home may be gone.

Needing/getting new employment – what do you do if you’ve never worked?

Reduced retirement income or savings – you may have thought you were set for retirement…now what?

The theme for this week seems to be planning.  Planning is you’re thinking of divorce, and planning if you’re in the process of divorce.  Don’t let the process or anything that happens in the process to take you by surprise.  It doesn’t have to if you know what to look for and where to look. Need more help? Click here to make an online appointment.

How to prepare for divorce

Is there anyone out there anymore who doesn’t know someone who is getting divorced or thinking about it?

The first question on anyone’s mind is what will happen? The most common concerns are about money – rent, bills and health insurance – as well as children. Where will they live? How will we share custody? What are my rights?

Basically, you want to know: what do I need to know NOW so that the process is easier, smoother, and I don’t get in trouble?

Sadly, it can seem nearly impossible to find out this information. If you go to see a lawyer, he or she will spend most of the time trying to convince you to pay out thousands of dollars in a retainer. Trying to find relevant, informative, accurate and current information on the internet is like trying to sort sand on the beach.

So, what can you do? One solution is to consult with an attorney, but say up front that you only want information and do not intend to retain. That can work sometimes, but not all lawyers are equal, and the information you get can be of varied usefulness. You can research on your own – for example, Nolo Press has some GREAT resources. Be sure you stick with state-specific information, however, since state divorce laws vary widely. You can check out my FREE 7-day divorce series on how to save money when getting divorced. Or, you can try family law coaching, which is what I do.

Here are some tips to get you started:

1. Scan or copy your important documents, like tax returns, bank and credit accounts, retirement and 401K statements, mortgage statements, house and car title deeds, etc.
2. Change your powers of attorney before you file. You may also consider severing your joint tenancy.
3. Get all the most sentimental items out of your house, particularly if they are breakable and/or you have a spouse prone to angry outbursts.
4. Courts like to continue the status quo, so if you plan to make a change (go back to school, change your children’s school, start medical treatment, get braces for your children), then start that before you file for divorce.
5. Talk to a lawyer so you know your rights in your specific situation.
6. Consider getting a post office box.
7. Understand what the date of separation means so you don’t hurt yourself by filing too early or too late.
8. Prepare mentally. Deciding on getting the divorce is not the hard part. It’s only the beginning. Consider going to therapy, even if you think you don’t need it. If insurance covers it, it couldn’t hurt.

Financial Advisors & CDFA in California divorce

I met with a financial advisor today, and he has the designation of being a CDFA, or “Certified Divorce Financial Analyst.” He is an expert with working with people who are divorced, getting a divorce, or thinking about it.

The more I think about it, the more I think that it’s critical for someone who is divorcing to have the support of a financial advisor. Take the situation when you’re dividing accounts. Say you have an account with Schwab and an account with another broker. They each have roughly the same amount of money in them, so you and your soon-to-be-ex decide to each take one account. But does anyone look at the projections for the accounts? What if one account is doing poorly and one is doing really well? Attorneys aren’t trained to make those kinds of evaluations. This is a reason to see a financial advisor – especially a CDFA – if you’re getting a divorce, or even thinking about it.

Another reason: Generally, I saw in my practice that in most couples, one spouse was ‘in charge’ of the money in the relationship. They handled the bills and expenses, did the taxes, and dealt with the CPA or financial advisor. Often, the other spouse had not a clue what the couple had, leaving the decisions up to the other. While this is (I think) a reasonable marital division of labor, it causes big problems for the spouse in the dark when the issue of divorce comes up. Suddenly the spouse who doesn’t know anything has to take a crash course in finances, household budgets, and the like. He or she also probably wants nothing to do with the couple’s advisors, as they’re likely to go with the person they’ve been dealing with all along. This is where a financial advisor can mean the difference between struggling and flourishing.

Finally, and you may know this about me, I am a planner. I do estate planning and feel it’s absolutely essential that EVERYONE has an estate plan – SOME kind of plan – and if they have children or a house, it becomes urgent. But that’s another story and another blog. The same is true for financial planning. Right now, you’re at Point A in your life. At some point, you want to get to Point B. How are you going to do that, financially? What if you don’t even know what your Point B looks like? You find these answers by utilizing the help that’s around you, and in this case, it’s a financial advisor.

I am spending some time in the next few weeks talking to several CDFAs, and I’ll pass along the pearls of wisdom I learn. I meet with them so that I can feel comfortable referring my clients to them.

Property and debt division in California divorce

California law provides for an EQUAL division of any and all property and debt acquired during the time of your marriage. Exceptions to this are inheritances, which are separate, as well as student loans, which are separate debts. Note that if you are unaware of the acquisition of the property or debt, then this does NOT exempt you from the equal division. So, this means that if your spouse acquired credit card debt in the amount of thousands of dollars that you knew nothing about, you still have to share the payment of that debt with your spouse at divorce.

Also, note that title to the property is not the relevant issue, but rather the time you acquired the property. If you have a car, for example, that you bought while you were married but only put the husband’s name on it, then that car is still community property and subject to equal division.

Finally, “equal division” does not mean that we are dividing each and every asset, one by one. What we’re doing, rather, is dividing the value of your property. For example, if you have a house with equity in the amount of $100,000 and the wife has a community property pension in the amount of $100,000, then the husband can take the house in exchange for giving up any right he has to his wife’s pension. Generally, if one spouse can afford to keep an asset, then the court will not order its sale.

Protecting your finances in a separation or divorce

One of the most difficult aspects of divorce is the financial aspect.  Suddenly, two households need to be maintained with the same income as what maintained one household before the separation.  In addition, there are court filing fees, attorney fees, expenses for getting a new home and new ‘stuff,’ and many hidden expenses, such as the expense for taking time off work for court hearings, expenses in increased insurance, for example, and the list goes on.

One of the ways to protect yourself is to talk to both an attorney and a financial advisor.  Both should be qualified and be working to help you and not trying to get more money out of you.  If you educate yourself on the legal process and financial planning, you can make better decisions throughout the process. This will help you in the long run.

In addition, make sure you change the beneficiaries on your life insurance, retirements, and other payable-on-death accounts.  Do you really want your ex getting your money? Similarly, update your estate plan to reflect your new circumstances. Note, however, that in California, once the Petition has been filed and served, you may not change your estate plan during the divorce/separation action without permission from your spouse or a court order.

Finally, do an assessment of what you have.  Assemble your life insurance, bank/stock account documents, retirement accounts, debts, etc., and put them all in one place.  Knowing what you have can be the first step in determining where you’re going and how to get there.

Ancillary issues in divorce: Insurance

The divorce process is long, difficult, and can be complex.  At the end of it, most clients/litigants/parties just feel relieved it’s over and don’t want to think about any aspect of the whole process anymore.  This is a dangerous place to be in, regardless of how natural it is after such an ordeal, because many loose ends can ultimately remain loose and come back to hurt you and your family.  We’ll focus on insurance today, but there are other loose ends in terms of financial/college planning, estate planning, and taxes that should also be addressed post-divorce.  With regard to insurance, if you’re getting divorced or have just become divorced, you should:

1. Update the beneficiaries on your life insurance.  The same is true for any of your other payable on death (POD) accounts or retirement accounts, 401Ks, etc.  You don’t want your ex to get the money should something happen to  you, do you?
2. Look into health insurance plans and cost.  If you are covered under your spouse’s health insurance plan, once you are divorced, you can no longer be covered by that plan. So you will need to look into COBRA, if that is available, or look into getting your own plan.  This can be a lengthy and difficult process, in California can dramatically affect support calculations, and be shockingly expensive, so the earlier you look into this and are prepared, the better.
3. Update/change your home and auto insurance.  Most couples will separate their auto insurance, which may mean losing a multiple car discount, and may also lose a combination discount if your home insurance is bundled with your auto insurance. Speaking of home insurance, you want to make sure you update that if one spouse moves out of the family home.  Your best bet is to talk with an experienced insurance broker who can help you.  A broker is better than a captive agent (State Farm, Nationwide, etc.) and much better than trying  your luck online.

These are the main insurances to worry about. Some couples will have to work with long-term care policies or other kinds of insurance, and each circumstance varies depending on the individuals and family involved. But it’s very important not to leave these loose ends untied at the end of a divorce, regardless of how tired you are of the process.  The best way to deal with these things is to have professionals working for you, who make the process easier.

Dividing a business in California divorce

When one spouse has a small business, it can become a difficult issue to divide at divorce.  Everything the couple acquires during the marriage is community property, so if the business was started after the marriage, then the business is community property and must be divided in divorce.  Generally this means that the business is valued, and the spouse working in the business buys out the interest of the other spouse.  It is the value of the business that is generally the point of contention in the divorce.  Further complicating things is when the business was started before the marriage and continued during the marriage, as the amount of growth in the business during the time of the marriage must be valued and divided – with the same attendant conflicts over how to determine this value.

Often, it is the non-working spouse (by non-working, I mean not working in the business. This spouse may very well be working, but not as an owner of the business in question) who believes that the business is worth a great deal more than the working spouse thinks.  Since there are dozens of ways to value a business, this can  become a war of the experts in divorce court.  In addition, a business can be derailed by the distraction of the divorce as well as the ultimate financial payout.

There are ways to avoid this, but generally they involve planning.  First, you can create a pre-nuptial or post-nuptial  agreement that provides for the division of the business in the event of divorce, and at least can specify how the business will be valued so that this is an argument you can avoid.  Life insurance can be used as a protection against both the death of the working spouse or in the event of a divorce.  In business, we buy insurance to protect injuries on our property, for our employees, and for our potential legal liability, but forget that we may need insurance in case we are unable to work or are in the process of divorce.

Every small business owner should take steps to protect themselves, their business and their family in the case of divorce or death.  A financial advisor, divorce and estate planning attorney can help.

 

Estate planning “musts” to take care of NOW

I often get asked what the most basic “must dos” or “must haves” are in estate planning.  Here is the answer:

1. Talk to an estate planning attorney.  Most, like me, offer free consultations, so you don’t have to spend anything but time, and then at least you’ll know and understand your need and risks, and be able to make informed decisions
2. Talk to a financial advisor.  See above – you only lose your time, and if you find a reputable one (your estate planning attorney should know several fantastic ones, as I do), then you can make sure that as  you grow older, you are working toward your financial goals.

Those two items will give you all the information you need.  But more specifically:

1. If you have children, decide on and formally nominate a guardian to care for them if you are unable to.  If you don’t decide?  A judge – a stranger – will make the decision for you.
2. Create a will or trust.  If you don’t decide who will get your stuff, someone else will.  You’ll also pay a lot of money for the privilege.  Again, talking to an estate planning attorney to find out your risks and options costs nothing.  Why remain uninformed?
3. Make sure you have enough life insurance.  What you think of as “enough” and what is really and truly “enough” should your spouse die may be entirely different amounts.  If one spouse doesn’t work, and the working spouse dies, wouldn’t you want to have enough life insurance to allow the survivor to take time to grieve, take care of the children, and then think about work, instead of having to worry about finding work right away?
4. Make sure your retirement and life insurance beneficiaries are always up to date.  If you’ve been married for 20 years and your life insurance names your girlfriend of 25 years ago when you pass away?  Then your girlfriend gets the money and your wife doesn’t.  Is that what you want?
5. Make sure you have long-term care insurance if you need it.  A financial advisor can help you to decide on this, and the earlier you get it, the cheaper it is.
6. Make sure both spouses know and understand the family finances, even if one spouse does the day-to-day management.  Do not get caught in a situation where one spouse dies and the survivor does not even know what accounts exist.
7. On that note, put your paperwork in order, or at least in one place.  Even if it’s disorganized in a drawer, make sure all the important paperwork, account statements, estate plan, life insurance, etc. is all in one place and easy to find.  Should you pass away, your family will be going through a rough enough time as it is – don’t make it worse by leaving a scattered financial life.

None of these items are difficult or even time-consuming, but they mean everything in the world to your family should something happen to you.  What are you waiting for?

California divorce: Dividing debt

Since yesterday we were talking about dividing personal property in divorce, today I thought we could talk about dividing debt.  Dividing debt in divorce is a big issue these days as many couples find themselves coming away from marriages without any assets at all, and in some cases, with only debt.  There are a few issues that commonly come up when it comes to dividing debt in divorce: how to handle debt during the divorce, how to handle debt of one spouse or debt unknown to the other spouse, and how debt is handled post-divorce when one spouse agrees to service the debt but both names remain.

1. In California, once the Petition is filed (for Petitioner) and served (for Respondent), both parties become subject to restraining orders preventing them from acquiring or disposing of property of debt other than in the “ordinary course of business.”  Basically, the parties should continue to service their debt and pay their bills as they have in the past, before the divorce was filed.
2. The question often arises about debt one party has incurred (and the other party doesn’t want to pay) or one party’s lack of ability to pay the couple’s debt. This is both a common and a difficult situation.  The debt is most likely to be a joint debt, whether it’s a credit card or other debt, so any non-payment is going to adversely affect both parties.  If you can pay at all?  Do pay.  Don’t harm your own credit score to get back at  your spouse – it’s not worth it.
3. Another question that comes up is that one spouse may have incurred debt, such as credit card debt, that the other spouse is unaware of.  Unfortunately, in California, any and all property and debt acquired during the marriage is community property, and divided equally upon divorce, regardless of whether it was known to the other spouse.  There are exceptions in the case of, for example, the unknown credit card was used to pay for an extra-marital affair, but this can be hard to prove.
4. At the end of the divorce, you and your spouse may agree to divide the bills, but in the case of a credit card, both names can remain on the card.  This means that if the payor decides not to pay or defaults, then the company is going to come after the non-paying spouse for payment.  This is unavoidable, as banks and credit card companies will go after anyone to get their payment.  Your recourse, as non-paying spouse, is to send the company a copy of the Judgment or Marital Settlement Agreement that says you are not liable for the debt, and that should be the end of it.  But you do want to make sure that your Judgment includes who pays for what debts so that you have this on hand should there be a problem in the future.

One final comment on joint debt and credit cards in divorce: once the papers are filed, unless you really need the cards, close them.  Do not allow either spouse to use the joint credit cards, because untangling that mess in the divorce, when both spouses use a joint credit card, is a nightmare.