Page 12 - 8 June 2012

DIVORCE
The financial issues surrounding divorces.
Divorce expenses are typically not deductible because they are considered personal expenses.
Billy Peterson, CFP ® Peterson Wealth Services, Inc. 877-470-4002 www.petersonwealthservices.com
by Billy Peterson
I’m not sure if there has been a study done on the divorce rate of couples in the horse industry but I’m betting it’s above the national average. Perhaps it’s
the time required away from home, the lack of days off and vacations that lead one or both spouses to a broken emotional connection. Maybe the industry participants are so wrapped up in the horses that their spouse sometimes feels neglected. Maybe there are some other really good excuses. I know we have all heard our share of juicy and even soap opera-ready backside stories. We never think our marriage will end in divorce, but all too often it does.
This phenomenon intrigued me enough that I
did some research and found that there is actually a certification program for financial advisors who wish to deepen their knowledge on this issue. I spent a year and a half studying, testing and working on complex case studies in order to become a Certified Divorce Financial Analyst (CDFA). I can now say I have some educated insights to be able to help individuals deal with the financial and emotional pitfalls of divorce.
When seeking a divorce you should become familiar with the major topics: legal fees, marital property versus separate property, alimony, debt, retirement plans, property settlement, taxation and budgeting. Child cus- tody and child support is a critical issue for those with children, and social security for those eligible.
LEGAL FEES
Consider whether a simple amicable arrange- ment is likely or whether attorneys should be hired. Attorneys generally charge $150-200 per hour and require up front retainers of $2,500-5,000. If you have a particularly complex case with lots of assets and liabilities or you feel that your spouse’s settlement proposal is unjust you should seek counsel.
Divorce expenses are typically not deductible because they are considered personal expenses. However, you may deduct any money paid for advice related to the tax consequences of your divorce or securing income (IDFA). These items include fees
for advice on securing or collecting alimony and the tax consequences of property and payments received, essentially the services that a CDFA provides.
PROPERTY CLASSIFICATION
Property must be classified as either separate prop- erty or marital property and your state of residence makes that determination. Community property
states are Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin. Property settlements are not deductible.
CHILD CUSTODY, CHILD SUPPORT AND ALIMONY
These are the most emotionally charged issues in a divorce. Child custody is typically determined by a judge by placing primary importance on the best interest of the children. Custody can be classified as physical or legal and can be awarded to one or both parents. Most states have child support guidelines and the single largest factor in determining the base support is the number of overnight stays the child or children have with the receiving spouse.
These orders can be modified when there is a substantial change in circumstances (income, hard- ship, remarriage, etc.) Alimony is based on one party’s need and the others ability to pay. This topic also leads to conflict and is best handled by considering both the short and long term financial impact for both spouses.
PROPERTY DIVISION
Who keeps the martial residence? Usually it’s the wife as she was probably more emotionally attached and spent more time in it. But can she afford to keep it? There may still be a mortgage. Will fighting for this asset instead of say, 50% of a pension or a lump sum buyout of 50% of a business be worthwhile?
I spend a good deal of time assisting clients in this area. Dividing retirement plans and debts, valuing property, finding hidden assets and structuring equi- table property settlements are extremely important elements in determining a fair settlement.
TAXATION
Child support is not deductible by the payer or taxable to the payee. Alimony on the other hand is. Often times one or both parties are unaware of how this could be structured to either help or hinder them from a tax stand point.
BUDGETING AND FINANCES
Dividing one household into two will absolutely require more cash flow. Usually married couples don’t stick to a budget but after a divorce or separation, budgets are critical. A number of tools are available on our website to help you.
10 SPEEDHORSE, June 8, 2012
FINANCIAL FORUM