The financial impact of a divorce tends to be one of its more overlooked consequences. For women in particular, what happens next after a divorce can be especially devastating to their financial security. It’s a phenomenon known as the “divorce gap,” and was first documented in a study that showed divorced were more likely to see their income fall by a fifth and stay that way, whereas divorced men were more likely to see their income rise by a third.

But according to a new study published in June this year by the Center for Retirement Research at Boston College, there’s a way for divorced women to their retirement: having their own home.

The study also found that formerly married but currently divorced women have historically been more financially secure than single women who have never married. The Center for Retirement Research attributed the critical factor on home ownership, noting that divorced women are more likely to own a house than single, never married women.

But while these results speak volumes of just what it takes for women to survive a divorce in terms of assets and finances, many divorce lawyers and financial advisors are concerned that it might encourage divorcing women to insist on keeping the house in a separation even when they don’t have the means to continue paying the mortgage, pay taxes, and maintain the property, all while paying for all their other living expenses.

In other words, keeping the house is not necessarily the best move in all divorce cases.

The researchers, however, note that while the study specifically mentions home ownership as a factor for moving on from a divorce in a more financially sound position, they added that there’s a broader point to be understood. It’s that divorced women tend to benefit from receiving a fair share of any marital assets, compared to never-married women who can only depend on themselves when saving and accumulating assets to fund their retirement.

But there’s an important catch.

The reason the report specifically mentions a home is because of its illiquid nature. In other words, assets that divorcing women accept in the settlement should be kept intact until retirement. And it’s much easier to do that with a house, which also offers the benefit of building equity. But for other assets converted into cash for retirement savings, the researchers note that there’s a high risk of women dipping into their savings for other expenses, whether it’s a holiday or a child’s college tuition.

The report also adds that when it comes right down to it, regardless of gender, marrying and staying married is still the best decision from a purely financial standpoint. The study also reveals that overall, women benefit from an equitable division of assets with the help of their lawyers.
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Parental alienation in a Texas child custody case can escalate this already contentious part of a divorce, which has long been associated with parents trying to make each other look bad, into a level where one parent manipulates a child or children to reject the other parent without a valid cause.

While parental alienation has always happened in bitter divorce battles involving children, only recently have family courts in Texas begun to take notice and take action when this happens, as they realized that this could profoundly harm the child or children caught in the middle of a child custody case.

What is Parental Alienation in Texas?

In a formal sense, “parental alienation” happens when one parent intentionally manipulates the child (or children) to cause him or her to reject the other parent without a valid cause. In many cases, a parent will vilify and demean the other parent in front of a child, causing him or her to share the feelings of hurt and anger, which then strains the relationship between the child and other parent.

Why Does Parental Alienation Happen?

Oftentimes, parents intentionally or unintentionally alienate the other parent because they sincerely believe that having custody is what’s best for their child or children. Other times, parents will smear each other out of spite over the divorce or out of fear that their ex-spouse will cut them out of their child, or children’s, lives.

Under the Texas Family Code, the Court, which will always act in the best interest of the child, will try to ensure that both parents are equally involved in their child’s life. But the problem is that identifying parental alienation can be a counterintuitive process, as any judge or juror would tend to assume that children who dislike one parent must be doing so because of a valid reason. Assumptions would then point to abuse or neglect at the hands of the alienated parent.

Consequences of Parental Alienation

Conditioning a child to hate one parent through propaganda can be extremely harmful to a child’s development, as well as his or her emotional and mental well-being. For all intents and purposes, manipulating a child to believe that one parent has been abusive or unloving is tantamount to child abuse.

But as family courts continue to realize the reality of parental alienation, the burden of proving its existence during a child custody battle will ultimately fall on the shoulders of a capable family law attorney.

If you feel that you are being alienated from your child, a Texas divorce attorney will help you by recommending and facilitating these measures:

Calling in mental health experts to assess the psychological state of the child and your relationship with him or her
Seeking custody modification to move the child to a neutral dwelling
Seeking custody arrangements that let you maintain contact with the child
Requesting the court to order therapy as intervention
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For many couples, planning for divorce might as well as be hoping for the worst to happen to their marriage. But just like life insurance, planning for a divorce is something you’ll thank yourself for doing when the need for it actually arises. And with 40 to 50 percent of marriages in the United States ending in divorce, the chances of it happening to you are not exactly out of the realm of possibility.

If you’re in the middle of a divorce, careful planning is key to a speedy and hassle-free resolution. And contrary to what you might think, divorce planning happens before, during, and after the divorce, and, ideally, with the help of your family law attorney. Here are a few things you need to know when planning for divorce.

Make Up Your Mind

If you’ve yet to file for divorce, now is as good a time as any to decide if this is really the right choice for you. Divorce is stressful, painful, and expensive. It represents a dramatic change in your life that will affect your emotional well-being and finances. This is a decision that should never be taken lightly.

Do Your Homework

There’s a lot work that needs to be done, so do your research. Not only are there different divorce timelines to consider, the divorce process itself can vary between states. In Texas, fo example, either spouse must have been a resident of the state for at least six months before filing, and must have lived in the county of filing for at least 90 days. While a divorce attorney is not technically necessary, going without one could lead to costly mistakes.

Take Time to Set Goals

What do you intend to accomplish with your divorce? More importantly, what are your goals in terms of your personal and financial life? A divorce is likely to throw a wrench in any 5-year plan, so it’s important to re-align your goals during and after your separation.

What’s Best for the Children?

When it comes to child custody in Texas, the Court will always have the child’s best interests in mind. You and your spouse will likewise have to think about what makes sense for your children. Is 50/50 or joint custody the best option? Should the mother keep the children? Perhaps something unorthodox like taking turns living with the children in the family home (while the other spouse lives in another home) could be what’s best for the family.

Assemble Your Team

Aside from a reliable Texas divorce attorney, your team can also be composed of a therapist, a financial advisor, and an accountant (for your taxes). Most people make the mistake of treating their attorney as their therapist, but they are ultimately specialists in matters concerning the law, not the heart.
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College is more expensive than it’s ever been, so it’s not surprising why thousands of college graduates are still struggling with student loan debt years after finishing school. But according to a new report, the problem of exorbitant student debt has gotten so bad that it is now causing marriages to end in divorce.

While financial problems have long been identified as a primary cause of failed marriages, a report by Student Loan Hero is perhaps the first to pin marital distress on student loan debt—a problem most commonly associated with the Millennial generation.

The report states that 13 percent of divorced borrowers blamed their student loan debt for the failure of the marriage.

Unfortunately, this trend may only become more prevalent in the years to come.

How Bad is the Student Loan Problem?

It’s estimated that more than 44 million Americans carry the burden of tens of thousands of dollars in student loan debt, contributing to an incredible national total of $1.5 trillion. But not only has the percentage of students borrowing money for college increased over the last 10 years, the amounts they’re borrowing have also grown steadily in recent years. The Student Loan Hero report points out that graduates from the class of 2017 were saddled with an average of $39,400 in student loan debt.

It’s no surprise why many couples feel they’re being held back by this amount of debt, as it can affect their financial and lifestyle decisions, such as when they can get a home or when they should have kids.

Student Debt Affecting Family Decisions

And true enough, millennials are taking longer to buy homes and get married because they want to be financially secure first—a feat easier said than done when you have a small mountain of debt nagging at you.

A New York Times survey published in July this year also found that of the respondents who said they didn’t want children or felt unsure about having children, 13 percent blamed it on having too much student debt. And of those who had or expected to have fewer children than planned, almost 50 percent said it was because of financial pressure/instability.

The results of the Student Loan Hero study echo those of the Times survey, indicating that 46 of respondents took their time to start a family because of student loans. In addition, one-fourth of the respondents admitted to keeping their student loan debt a secret from their partners, while 36 percent said they lied about it.

The problem of student loans and its effect on divorces needs to be further established, but one thing is clear—it has exacerbated the financial and marital issues that many couples around the country have long faced.
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A couple in Texas is considering filing for divorce to change their marriage status just so they can afford the medical bills of their six-year-old child.

Married for nine years, Maria and Jake Grey have arrived at the conclusion that a separation could be the most practical solution for their family. Their daughter Brighton suffers from a rare disease called Wolf-Hirschhorn Syndrome, a genetic disorder that causes delayed growth and development, impaired vision and hearing, seizures, heart problems, and kidney problems among others. The condition demands 24-hour care and expensive medical bills.

The Greys reportedly spend as much as $15,000 per year out of their pockets (representing 30 percent of their income) on Brighton’s health care needs—that’s on top of their health insurance. Because Jake, an army veteran, pulls in around $40,000 annually, the Greys are unable to qualify for Medicaid.

But there’s a solution, albeit a drastic one. If the couple were to divorce, Maria’s marriage status would change to a single, jobless mother of two, which, in turn, would make her eligible for state assistance. And while the family has tried to apply for state assistance in the past, they would be part of a huge backlog of tens of thousands of people, most of who have waited several years for relief.

This kind of financial planning is by no means new. The expansion of Medicaid under the Affordable Care Act (also known as Obamacare) provided health care coverage to all kinds of adults. In particular, it helped couples where one spouse was healthy and the other sick, ensuring that the sick person’s health care would not bankrupt the couple of their assets or make it difficult to keep their health insurance.

And so, some couples would seek a “Medicaid divorce” or a “medical divorce,” separating legally so that one partner could enroll in Medicaid and the other person could still keep their assets, whether it’s the family home, the car, or retirement. This option certainly has its appeal—it’s a vast improvement over drawing down on your home equity or retirement accounts until they run out.

Usually, couples who have filed for a Medicaid divorce stay together and continue to care and love one another—the divorce was only on paper. Still, this plan would still involve spending money and possibly cause family unrest. There’s also uncertainty as to whether a court would even approve this kind of divorce strategy.
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The Tax Cuts and Jobs Act of 2017 (TCJA) will have sweeping effects on how individuals and businesses file their taxes in 2019 and onwards, with ramifications affecting even family law. If you’re in the middle of a divorce or are considering one, it may be in your best interest to wrap up your separation this year as the federal tax code could affect the tax liabilities of divorcing spouses.

Tax codes are already complicated enough—the last thing you want is to deal with tax issues and divorce at the same time, which is why it’s important to steer clear of complications while you still can. Below are more reasons to act this year and minimize the tax pain from the TCIA.

Reduced Alimony Taxes

Spousal maintenance will undergo significant changes in 2019. At present, alimony payments are deductible by the paying spouse and taxable to the receiving spouse. This means that receiving spouses can pay lower taxes by reporting alimony as income, while payors can deduct it from their tax returns. This is important, because the tax deduction can save as much as 50 percent in taxes for high-earning individuals in high-tax states.

Going forward, however, alimony will neither be deductible by the supporting spouse or taxable to the receiving spouse. This might seem like good news to the recipient, but this will likely have the effect of hurting the supporting spouse, resulting in less alimony paid. With the new tax law, the government intends to raise more than $6 billion in taxes over the next decade—that’s over $6 billion less in the pockets of divorced spouses.

By finalizing your divorce in 2018, the tax rules for alimony payments will remain as-is for the duration of your agreement. And even if you modified your divorce agreement in the future, your deductibility and taxable status will not change unless stated otherwise.

Higher Taxes on Your Home

The family home tends to be a hot-button topic in many divorce situations; the new tax law will only make discussions on what to do with the family home after a separation more complicated. For starters, the law reduces the deductibility on property taxes, as well as the amount of mortgage that can qualify for interest deduction. This has the effect of making homeownership more expensive.

Selling your home will also be more expensive. While married, you can accrue up to $500,000 in capital gains without tax consequences. When single, however, this amount falls down to $250,000. In other words, you need to decide whether to sell the home before finalizing your divorce.

Prenup and Postnup Agreements

Couples who have signed a pre-nuptial or post-nuptial agreement should take the time to review their agreements this year as the law may end up rendering some points they have agreed to moot. For example, alimony provisions affected by the new law may necessitate a re-negotiation.
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The Supreme Court has ruled that a Minnesota law that revoked a former spouse’s insurance beneficiary designation after divorce does not violate the contracts clause of the U.S. Constitution when applied to a life insurance policy before the law’s enactment. Justice Elena Kagan and seven other justices sided with the adult children of a deceased Minnesota man in their majority opinion in Sveen v. Melin. Justice Neil Gorsuch dissented.

Case Background

In 1998, Mark Sveen of Minnesota named Kaye Melin, his wife at the time, the primary beneficiary of his life insurance policy. The couple divorced nine years later, but Sveen never removed his ex-wife from his policy.

In 2002, Minnesota amended its state probate law to include insurance designations in the “revocation-on-divorce” statute, making it one of the 26 states that have adopted such laws, which are based on a 1990 amendment to the Uniform Probate Code. As Justice Kagan pointed out, the law assumes that failure to change an insurance beneficiary after a divorce is likely caused by inattention instead of intention.

According to the amendment law, the dissolution or annulment of a marriage rescinds any revocable beneficiary designation made by a person to that person’s former spouse. Sveen passed away in 2011, four years after separating from his spouse, who was still the primary beneficiary on his life insurance policy. The problem is that Melin and Sveen’s adult children, both filed claims for the policy’s proceeds.

While a federal judge ruled in favor of the children, a three-judge panel in the Eighth Circuit reversed the decision last year, arguing that retroactively applying the 2002 amendment to Minnesota’s revocation-upon-divorce law to Sveen’s life insurance policy violates the U.S. Constitution’s contracts clause, which prevents a state from meddling with contractual agreements.

According to U.S. Circuit Judge William Benton of the Eighth Circuit panel, what is most important are the policyholder’s rights and expectations, not the interests of the beneficiary.

High Court Steps In

Sveen’s children, however, took their case to the United States Supreme Court, arguing that Melin was automatically removed as a beneficiary on their father’s life insurance when the 2002 law was applied to the policy. The High Court reversed the Eighth Circuit ruling in an 8-1 decision.

“Three aspects of Minnesota’s law, taken together, defeat Melin’s argument that the change it effected ‘severely impaired’ her ex-husband’s contract,” Justice Kagan wrote. “First, the statute is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. Second, the law is unlikely to disturb any policyholder’s expectations because it does no more than a divorce court could always have done. And third, the statute supplies a mere default rule, which the policyholder can undo in a moment.”

What About in Texas?

Texas Family Code § 9.301 states that when you divorce your spouse, your spouse’s beneficiary status on your life insurance is automatically revoked. There are, however, three exceptions to the rule:

The divorce decree indicates the ex-spouse as a beneficiary
The person intentionally adds the divorced spouse as a beneficiary after the divorce
The former spouse receives life insurance proceeds because he or she acts as the legal guardian of the children
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Much has been said about the short-term impact of a divorce on your emotional and mental well-being. What many divorcees and people about to file for divorce fail to consider, however, is just how bad a divorce can be for their retirement readiness.

According to a report from the Center for Retirement Research at Boston College, half of American households are at risk of being unable to maintain their desired standard of living during their retirement years. The risk is worse for divorced spouses—higher by 7 percentage points.

The reason is simple, if you think about it. Couples benefit from economies of scale when they’re married, combining their incomes and splitting the costs of housing, food, and utilities. Many divorced spouses, however, are unprepared for the financial shock of continuing their standard of living now that they have a smaller income stream. This strain on their finances can also affect their ability to save for retirement.

What About Alimony?

Alimony, or spousal maintenance or spousal support, has long been the financial lifeline for many divorce spouses, allowing them to maintain some aspects of their desired standard of living. Alimony is paid by the higher-earning spouse to the lower-earning spouse, ensuring that the latter can still support himself/herself after ending the marriage.

It used to be that the supporting spouse, or the person paying alimony, could deduct this expense from their gross income for tax purposes, while the spouse receiving alimony is required to report it as income. In some instances, the higher earning spouse’s tax savings make it possible for him/her to pay more alimony.

But this could all change with the Tax Cut and Jobs Act, which removes the ability for spouses divorcing in 2019 and beyond to claim a tax deduction from alimony payments. Likewise, people receiving alimony can no longer report it as part of their income.

This has the effect of slashing the amount of money the higher-earning spouse can pay as alimony, raising the risk of the receiving spouse finding himself/herself in a worse financial situation. If this happens long enough, the receiving spouse’s ability to retire in comfort could be compromised.

Financial to Prepare for During and After Divorce

To protect your retirement readiness, there are a number of financial strategies you can look into:

Investments – if you’re a person receiving alimony, receiving a smaller amount could place you in a lower tax bracket (alimony is no longer reportable as income), which in turn, means you may qualify for a 0% tax rate on your capital gains. During property division, you can use this to your advantage by negotiating to receiving investment assets instead of the marital home. This should help you stay in a better position to retire with cash in your pocket.
The family home – Keeping the marital/family home in a state with high property taxes may be more disadvantageous in light of the new tax law, which limits state and local tax deductions at $10,000 a year. You may be better off renting a smaller home and claiming the new larger tax deduction. If you’re in your senior years, you can take out a reverse mortgage to use your equity and buy a new home.
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While the unique characteristics of a couple and their separation means that no two divorces are ever the same, many couples still make a few common mistakes when separating from one another. Whether you’re in the middle of a divorce, or still contemplating one, try to keep the following common divorce mistakes in mind to avoid unnecessary complications.

Settlements that Don’t Anticipate Future the Events

One of the primary objectives in a divorce settlement is to divide marital the assets equitably, which requires a valuation of your assets and understanding each spouse’s current circumstances. But in many divorces, spouses can make the mistake of focusing too much on the present, failing to anticipate what could happen in the future.

Remember, what seems fair now may put you in a difficult situation in the future, especially when it comes to events like job loss, disability, changes in your health or your children’s health, or a depreciation in your assets. Bottom line? When negotiating a settlement, always take into account things that may happen in the future.

Unrealistic Expectations

Lifestyle changes are an unavoidable aspect of any divorce. Even if you were somehow able to negotiate to keep the marital house, get child custody and child support, and even receive spousal support, you need to be ready to make financial trade-offs in your life after marriage.

This might mean dialing back on your monthly spending, nixing the lavish annual vacation to the Bahamas, or postponing your plans to reward your teenage daughter with a car when she turns 18.

Not Paying Attention to the Details

The devil is in the details when divorces are concerned—more so if the divorce is of a complicated or contentious nature. Many would-be divorcees are often caught unaware by how exhausting the divorce proceedings can be, and how it often entails revealing details of their life they may not be comfortable sharing.

At the same time, you and your attorney need to gather volumes of data to support your claims during negotiation—something that may continue even after the finalizing the divorce. For example, if your splitting the costs of raising your children, you may be required to keep a record and share:

Tuition expenses
Doctor’s visits
Transportation
Miscellaneous living expenses

“Uninsured” Marriages

And by uninsured, we mean marriages without a prenuptial agreement. Although prenup agreements often have a negative stigma, they are a practical and realistic backup plan for protecting your interests and assets should the worst happen.

Prenups aren’t just for wealthy couples because they can help regular spouses stay together, helping them understand the repercussions of breaking up.
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When a marriage ends in divorce, it’s necessary to settle a number of issues concerning different types of property. Things can get especially tricky when individual retirement accounts (IRAs) are involved. In this case, it pays to know how to transfer an IRA properly—failing to do so could lead to a host of adverse consequences, not to mention tax headaches.

Common Questions About IRAs and Divorce

If you’re going through a divorce, or are about to go through one, you probably have these questions about IRAs:

What happens to assets like IRAs?
How are they divided?
When transferring or splitting funds in an IRA, who is responsible for taxes?

According to Section 408(d)(6) of the Internal Revenue Code, the transfer of a person’s interest in an IRA to his spouse or former spouse is done under a “divorce or separation instrument” and is a non-taxable transfer.

For qualified retirement plans, on the other hand, when a transfer is made to a former spouse after a divorce, the person’s interest in the plan at the time of the transfer is considered an account of the former spouse.

In other words, the spouse who transfers retirement assets is not liable for any taxes or penalties from future distributions. The spouse who receives the assets, however (i.e. when the plan becomes their own IRA), will be responsible for taxes and penalties from future distributions.

Are All IRA Transfers Tax-Free?

But not all IRA transfers are automatically tax-free. According to the Internal Revenue Service, spouses must present a number of documents, as defined in Section71(a)(2) of the IRC:

A final decree of divorce
A decree of “separate maintenance”
Or a document or written instrument incident to such decree

A decree of divorce is also known as a “judgment of dissolution.” A divorce decree may also come with an order to divide the IRA as part of the judgment or at any other after the judgment is entered.

How to Transfer an IRA

Although the process of transferring an IRA looks simple on paper, it is still complex enough that if you were to miss one technicality, the transfer can still trigger income tax. This is why having a divorce attorney by your side is so important.

In any case, a transfer of an IRA can be done in one of two ways:

Transferring a fixed amount or percentage of one spouse’s IRA to the other spouse’s IRA.
Setting up a new IRA to which the will be transferred

Remember that if any retirement funds are cashed out or distributed and then paid to the spouse or ex-spouse, the IRS will see this as a taxable event to the original IRA’s owner. In other words, it is crucial that any transfer of IRA funds is conducted as an actual transfer—not a distribution.
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