Posted by John Faggio on Mon, Feb 13, 2012 @ 11:22 AM
Before I start, I would like to tip my hat to my New York colleague, Jeff Landers. Jeff recently published a super divorce blog in Forbes Magazine, The Six Personal Traits That Help Women Successfully Survive Divorce. That blog inspired me to review my divorce financial planning cases for strategies that resulted in positive outcomes for my female clients.
Rationale over emotions
This is the one area where many of my female clients "lose it." They are surprised with their husband's business-like approach to negotiations and fall deeper into hurt, anger, and despair. I have been in collaborative meetings and asked the wife "what do you want from your husband (financially) to move forward? The response is many times "I do not know."
To be successful in your negotiations, you must "contain" your emotions and deal with them with a mental health specialist. Take time needed to work through the emotions. If you're going to lose your cool during a meeting, ask for a break. Postpone meetings if it's a particularly bad day. Do everything you can (see the steps below) to become a formidable co-partner of the marital pie.
Educate, coordinate, delegate, but do not litigate
Read, take classes, Google, and set up initial consults with professionals. Good information goes a long way in leveling the playing field in negotiations. The goal is to make the best well-informed, rational decisions that you can make.
Choose your divorce team and make sure that everyone is coordinating their activities for one purpose-safeguarding you and your family. Make sure that you play to the strength of each team member, i.e. legal issues- attorney, financial issues-CPA/ CDFA™, and emotional-mental health. Each team member should also be delegating applicable issues to the other team members, as well.
Sometimes, litigation is necessary, but it is the one process that can destroy the family and put you into bankruptcy. Mediation or Collaborative Practice can be great alternatives.
Manage and focus
My most successful clients did not step away from the process. When at team member was to take an action (meeting, phone call, etc.), they would follow up shortly after the due date to make sure that the process was moving along.
It took a while, but when my client focused on the future (and not on her husband's past or current antics), the decision process and settlement moved rapidly. She survived the process and is thriving in her own financial future.
Divorce is one of the most difficult situations that anyone can face. Being well-informed, rational, focused, and involved will help any woman overcome her unique challenges in the divorce process and move into the future with her best foot forward.
John Faggio is a CPA, a Certified Financial Planner™Professional and Certified Divorce Financial Analyst™. He works with individuals and couples, and assists divorce attorneys in developing creative solutions to financial divorce settlements.
Email or call John today at 410-740-3141 for an initial, flat-fee consultation.
Posted by John Faggio on Thu, Feb 02, 2012 @ 02:57 PM
Determining your Maryland divorce filing status and how you will file your 2011 tax return is one of the most critical decisions that you will make early on in the divorce process.
In our Second Saturday class, "What Women Need to Know about Divorce," I review the filing options that divorcing individuals have:
- If you have lived apart for the last six months of the calendar year, you may qualify for Head of Household (HH) status; you could alternatively file as Married Filing Separate (MFS), or continue to file jointly
- If you were legally divorced by 12/31, you can file Single or HH (if you qualify)
With the tax filing deadline being April 15th, why is this decision so critical at this stage of the process? If you have been a stay-at-home Mom and your husband files your tax return electronically, your right to file as you want and possibly your only negotiating leverage will be taken away from you in one keystroke!
Electronic Filing of your tax return does not require the signatures of both spouses. All that is required is the Personal Identification Number (PIN) of each spouse that was provided when you first filed electronically. So if your spouse needs for you to file jointly (to save taxes), your opportunity to negotiate this point is lost. You will also be liable for any additional tax, interest, and penalty that may be assessed by the IRS in the future.
What can you do to avoid this situation? Even if you have no income, discuss this situation with a CPA. You can then assess what your tax liability may be, and with your attorney, determine whether you should file MFS or HH now. This preserves your right to file and maintains your leverage to negotiate. Once the settlement is final, you can amend the return and file jointly, giving your spouse the tax savings that was originally asked for. The key to this tactic is that you can switch from MFS or HH to filing jointly, but you cannot switch from filing jointly to another separate status.
John Faggio is a Maryland Divorce CPA and Certified Divorce Financial Analyst™. He provides financial divorce services to domestic law attorneys, individuals, and couples in Howard, Anne Arundel, and Montgomery Counties.
Email or call John today at 410-740-3141 for an initial flat-fee consultation to put your divorce on the right path.
Posted by John Faggio on Tue, Jan 10, 2012 @ 09:44 AM
I have seen a recurring pattern in many Maryland divorce property settlement negotiations. Whether it is a Collaborative, Cooperative, Litigated, or Mediated case, these mistakes do nothing but delay the inevitable and increase the costs of the divorce.
Holding on to the garden hose
A divorce attorney told me about a case where the spouses were trading property and rapidly coming to divorce property settlement. Literally, the last item to be disposed of was an extremely valuable (I suppose) piece of household equipment-the garden hose. Feeling that she had been "hosed" in the process, the wife kept the negotiations going for hours.
I use the garden hose now as a metaphor for common issues, e.g. the last $50 of alimony payments, the property settlement date, the bookshelf, etc. I always encourage my clients to be cost-effective in their negotiations, look toward the future, and buy a new hose.
Assuming/Asserting re-employment
In determining Maryland alimony and child support, attorneys and their respective clients are quick to assume that an unemployed spouse can be quickly re-employed or employed for the first time (i.e. stay-at-home spouse). I've been involved in cases where husbands maintain that the stay-at-home mom can make a six-figure income even if she has been unenployed and out of the job market for twenty years!
The national unemployment rate is still over 8%. Newpapers have reported that some employers are not interested in hiring the unemployed. There are a rash of college graduates that have the knowledge, skills and staying power that are more attractive to potential employers. This stance, once agains delays settlement and increases the cost of divorce.
Starting from the Net
This is one of my pet peeves and a real time waster - basing monthly support upon the bi-weekly pay stub. Take your pick as to the reasons why this is not an accurate picture of a spouse's income - taxes are being over/under-withheld, the paycheck may include voluntary deductions for retirement, etc., the tax effect of alimony has not been determined, and the pay is not annualized (bi-weekly equals 26 times divided by 12 not two times monthly).
Assuming either spouse can refinance
Refinancing the family home is not easy as it once was. The documentation required and criteria for income, home value, the debt-to-income ratio, etc. have all been modified. Pre-qualification of the purchasing spouse must be done prior to any negotiation or time and fees will be wasted.
Ignoring tax factors
Although there are no taxes on property transfers incident to a divorce, income taxes affect most post-divorce financial issues including the sale of the one-time family home, alimony, retirement plan withdrawals, basis of property received, and professional fees incurred to obtain the divorce.
John Faggio is a Certified Divorce Financial Analyst™ and a Maryland divorce CPA specialist serving Howard, Montgomery, Anne Arundel, and Baltimore County. Email or call John at 410-740-3179 to avoid making critical mistakes in your divorce settlement negotiations.
Posted by John Faggio on Mon, Dec 12, 2011 @ 11:48 AM
A Divorce in Maryland can be very expensive. It can leave either spouse at risk for financial disaster, including bankruptcy. Advance divorce financial planning will greatly improve one's chances of an equitable settlement.
These practical measures can take to minimize your costs or, at least, keep them under control:
- Do not get stuck on the small issues. A stall in the negotiations will generate unnecessary and substantial legal bills. If your major needs and objectives are met, and you both are displeased with the results, the settlement is likely a balanced one.
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Get informed! Organize your records and collect information about all of your finances, in particular, what you own, what you owe, and the family budget.
- Don’t forget overlooked assets such as Frequent Flyer Miles, season tickets, club memberships, and timeshares. Sometimes these little items can actually be gems in bringing the settlement to closure.
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Read a book, take a class, or do some other research on the divorce process, even if you plan to use a mediator or attorney. Knowing how the process works translates into dollars saved, as professionals do not have to explain details at their hourly rates.
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Absolutely obtain the best advice you can afford. I tell my clients to look at fees as an investment in their future. Someone who is not specialized may charge less, but may also make irreparable mistakes or take twice as long to prepare documents. Divorce is a special situation that requires advanced training. Do not represent yourself in court!
John Faggio is a CPA divorce specialist, a Certified Financial Planner, and a Certified Divorce Financial Analyst (CDFA)™. Email or call John at 410-740-3141 for an initial, flat-fee, consult to learn how to avoid the pitfalls, and control the costs of your divorce.
Posted by John Faggio on Thu, Nov 10, 2011 @ 09:10 AM
Maryland ranks as one of the states with the highest number of Federal employees with approximately 260,000 at the end of 2010. With the national divorce rate still hovering around 50%, it stands to reason that a significant number of Maryland Separation and Divorce Agreements (MSA) will cover at least one Federally-employed spouse.
In most cases, divorce professionals fully cover all the basics:
- What is their total compensation in terms of salary and bonuses?
- What is the spouse' classification - CSRS or FERS?
- How much Creditable Service do they have?
- What are their projected pension benefits at retirement?
- What is the balance in their TSP?
- Who is covered under their health plan?
- How much Life Insurance do they have through their employer?
What is many times overlooked is an employee’s participation in the
Voluntary Contribution Plan(VCP). This Plan is only available to CSRS and CSRS-offset employees. The maximum contribution is 10% of the employee’s basic pay that is invested an account that earns tax-deferred interest. At retirement, the employee can either withdraw the entire amount, transfer to an IRA or increase their pension benefit.
If an employee is currently contributing to the Plan, the contribution will show up the bi-weekly wage statement. But suppose the employee stopped making contributions years ago? What if the spouse was a Federal Employee but is now employed in the private sector?
A Federal employee can go online to see what their benefits are. They can also contact OPM and see if they ever filed Form 2804 (Application to Make Voluntary Contributions. I am just not sure how many spouses going through divorce will voluntarily do this work.
This is a situation where working with a divorce team consisting of an experienced divorced attorney and a Certified Divorce Financial Analyst (CDFA™) would be a prudent decision. If the CDFA™ discovers a $50,000 Marital Asset that otherwise would not have been exposed, their fee “(squeeze) would certainly be worth the juice.”
John Faggio is a CPA, CFP, and CDFA™ with extensive experience in Federal Employee Benefits. Email or call John at 410-740-3141 for an initial, flat-fee, consult to learn about the pitfalls associated with the divorce of federal employees.
Posted by John Faggio on Thu, Nov 03, 2011 @ 07:17 AM
In most Maryland divorce cases that I have been involved in, divorce attorneys refer to available Guidelines to give them parameters for assessing possible alimony amounts and term.
The two Guideline tools readily available are those produced by the American Academy of Matrimonial Attorneys (AAML) and what is commonly referred to as the Kaufman Guidelines. Neither of these guidelines carries any weight in the Maryland divorce cases; however, I have seen more reliance upon them in the last few years by attorneys and mediators. The question is how much reliance should professionals place on these Guidelines?
In September of this year, the state of Massachusetts passed alimony reform. The significant change in that state law is the “sunset provision,” which put term limits on how long alimony can last.
There are several categories of alimony-
“Rehabilitative” – limited to five years but can be extended for “compelling circumstances
“Reimbursement” – for marriages of five years or less and is not modifiable
“Transitional” – also for marriages of five years or less, and limited to three years
“General Term” – for the ex-spouse that is “economically dependent”
As stated in Maryland Divorce and Separation Law, there are eleven statutory factors that Trial Judges must consider when awarding alimony, including the ability to be self-supporting, the time needed to educate or train, the standard of living that the parties established during the marriage, and the duration of the marriage. This is the reason why most divorce attorneys refer to court-ordered alimony as a "crap shoot."
The Kaufman Guidelines require approximately five minutes to complete. Consideration is given for the age of the Claimant (receiving spouse), length of marriage, ages of children born of the marriage, and respective incomes. The AAML Guidelines take even less time as all that is required are the spouse’s respective incomes and years married.
Faggio Financial has compiled a comparison of the term limits of the Massachusetts Law and the Guidelines referred to above in its Alimony Guideline Comparison White Paper. Seeing as these Guidelines can affect the financial future of the entire family, the results of the comparison are extremely important to divorce practitioners. In many cases, the difference in alimony term (years to be paid) recommended could have a 50% swing in either direction.
You can download the white paper for free here.
Faggio Financial LLC is Central Maryland's only exclusive divorce financial planning practice. Email or call John today at 410-740-3141 for an initial consult regarding your alimony or property settlement issues.
Posted by John Faggio on Thu, Sep 01, 2011 @ 06:26 AM
The saying goes, “everything is negotiable.” I haven’t found that to be true when it comes to Maryland divorce costs. Prior to the economic decline in 2009, most divorce professionals, including divorce financial planners, would not negotiate their fee, and pretty much “the sky was the limit” for fees in highly contested, litigated cases. But that was when the divorce rate was greater than 50% and individuals had little concern about their future employment or their investments (real estate and retirement).
Consumers have learned from experienced friends or relatives that paying excessive divorce fees is truly throwing your money away. Divorce attorneys now tell me that times have changed. Prospective clients shop for rates, give attorneys a “pot” to work with, or tell attorneys to “get it done” as fast and as inexpensive as possible. Is it time for a “sea change” regarding fees for all the professionals?
A committee of the Howard County Collaborative Professionals has been reviewing the structure and costs of Collaborative Divorce cases. Their mission is to make the process more cost effective. Being part of this committee, I can tell you that serious consideration is being given to making part of the process subject to a fixed fee.
Fixing a fee is extremely difficult for divorce professionals. We never know how long the tasks will take; how long one side or the other will hold out; how many meetings will be needed; what will “come out of the closet” midstream, etc.
Taking the construction project approach, Faggio Financial is pleased to announce that we now offer two alternatives to our traditional hourly rate engagement. Similar to unexpectedly finding a bearing wall, we will issue a “change order” if a client's needs exceed the package that they sign up for.
Our Lite and Plus programs include varying amounts of meetings, phone calls, and reports, and cost accordingly. If our client’s needs change, we will give them a quote to “move the wall” and finish the project. Exclusions and provisions are provided in our program downloads.
John Faggio is a Maryland Divorce Financial Planner. If you are going through divorce or know someone who is, email us or call John today at 410-740-3141 to discuss how to gain control of your divorce costs.
Posted by John Faggio on Mon, Aug 22, 2011 @ 09:13 AM
I’ve seen it time and time again. When divorcing spouses sign divorce agreements without the guidance of an experienced Financial Divorce Specialist, the result can be significantly higher income taxes and unnessary penalties for either or both spouses.
Many times, the Maryland Separation and Divorce Agreement (MSA) does not address significant tax issues, its terms are based upon old tax law, or possible tax traps, e.g. the Alternative Minimum Tax or restrictions on mortgage interest are overlooked.
Significant tax dollars can be lost if these issues are not addressed correctly:
- Use, possession, and eventual sale of the family home
- Filing status – can one or both spouses claim Head of Household?
- IRS criteria for filing Single or Married Filing Separately
- Withdrawals from retirement plans prior to age 59 ½
- Child Tax Credit and credits for education and dependent care
- Alimony vs. mortgage interest and tax deductions
- Sale of Home capital gains exemption reduction
- The deductibility of home mortgage interest with two homes
There are many more “traps,” but there are also significant financial issues that need consideration.
Often the Agreement calls for one spouse to refinance and purchase the “out spouse’s” interest in the family home. With the “new normal” in today’s economy, refinancing can be extremely difficult or in some cases, impossible. Ideally, the buyer–spouse should be working with a mortgage consultant during the process to identify the refinance criteria and prevent future surprises.
Since any refinancing considers future income, you can see how the support issue could work in tandem with this action. In any event, the clause regarding the disposition of the home should include details about the choice of realtor, the calculation of the sales price, any potential reduction in the listing price, and the trigger for automatic sale or buy out.
When dividing retirement funds, not every fund needs to be divided. Most Company Plans must be divided by a Qualified Domestic Relations Order (QDRO) that can cost $500 per Order. On the other hand, IRAs do not need a QDRO; therefore, the agreement should allow for the equalization in the most practical, cost-effective manner.
Any one of these issues could cost either spouse or their children thousands of dollars over time. A Certified Divorce Financial Analyst CDFA™ is comprehensively trained in the financial and tax issues of divorce. Their recommendations can be invaluable and the cost of their input can be an excellent investment in both spouse's financial future.
If you are contemplating divorce or in the process, email or call John Faggio now at 410-740-3141 to take advantage of our fixed-fee initial consult. Many times, this consult can uncover the issues above that are pertinent to your situation.
Posted by John Faggio on Wed, Jul 06, 2011 @ 12:19 PM
Faggio Financial is pleased to announce that its Second Saturday class "What Women Need to Know About Divorce," will resume in the Fall. The classes will be held at the Howard Community College and can be found in its non-accredited course catalog.
John Faggio, divorce financial analyst, is joined in this 4-hour program by a local divorce attorney and mental health practitioner. The program reviews all the legal, emotional, and financial issues women face in the divorce process. Since its inception in 2005, the class has received a 99% favorable rating from participants. Look at what past participants have to say:
“Great workshop that provides the different aspects that women will be facing during a divorce.”
“A must take for all women married, separated, engaged!”
“Wonderful seminar—feel more empowered and positive”
The typical class syllabus covers these areas:
Legal Issues
- Overview of the legal process and alternatives, e.g. mediation and collaborative divorce
- How to keep the lid on the legal costs
- How to protect yourself legally and financially
- Child custody, Maryland alimony and child support
Emotional Issues
- Helping your family cope with separation
- Dealing with the hostile spouse
- Boundaries
Maryland divorce financial planning
- Steps you need to take for an equitable divorce settlement
- What do to with the house - property settlements
- Tax issues of divorce - Alimony, Maryland child support,and property division
- Getting to retirement funds without penalty
The class is an excellent supplement for those who already have representation. Family Law Attorney Margaret (Meg) Oliver is a frequent presenter at the class. She says “This is a must for women going through separation and divorce. It is wonderful to see women empowered by the Second Saturday program as they gain knowledge about their rights and responsibilities and an understanding of the court process and other non-adversarial processes available for families in crisis. I am happy to be a part of this program.”
The classes are scheduled for September 10th and October 15th, from 8:30-12:30. The cost is $55 for Howard County residents and $65 for out-of-county residents. Faggio Financial provides a link directly to the College Website for registration.
If you are a woman who is contemplating divorce, starting the process, or are "stuck" in negotiations, you will not want to miss these classes. Email or call Maryland Divorce CPA John Faggio today at 410-740-3141 for more information or an initial, flat-fee consult to put your on the right track.
Posted by John Faggio on Mon, Jun 27, 2011 @ 12:31 PM
I first learned how critically important Divorce Financial Planning was in my own divorce in 1999. At that time, I had no specialized training and emotionally, I was focused strictly on getting through one day at a time.
Years later, I discovered that many people could use a special type of independent divorce advice, properly given by specially trained financial advisors. I took my original training to become a Financial Divorce Specialist from Carol Ann Wilson, a pioneer and nationally recognized expert in divorce financial planning. I was subsequently certified as a Certified Divorce Financial Analyst (CDFA™.) in 2009. So what does a divorce financial planner do?
First of all, we are not attorneys nor do we give legal advice. That’s the bright line difference between the two disciplines. To obtain the CDFA™ (Certified Divorce Financial Analyst) designation, you have to pass a four part course offered exclusively by the Institute for Divorce Financial Planners™.
These courses comprise the legal, financial, and tax issues of divorce. In the final course, canditates are given several case studies where they must use their creative resources to help couples with various financial needs. They must then write sample reports to attorneys summarizing the case and offering recommendations on how the individual’s or couple’s needs and interests can best be met.
So, although we have training in divorce legal issues, we focus on creativity and how one or both spouses can financially survive after divorce. Our emphasis is on the technical financial issues that we are trained in and how our clients can avoid financial crisis that typically comes from divorce.
Divorce Financial Planners can help you find the answers to these questions:
- Am I going to be (financially) ok after the divorce?
- Are there other options for an equitable settlement?
- Can we afford a college education for our children after the divorce?
- Will I be able to retire?
- Can I/we afford to maintain two residences?
- How do we handle our debt?
- What's at risk, financially?
- How do I budget for the future?
- How much support do I need? How much support can I afford?
- What does all this mean to me, tax-wise?
If you are going through the divorce process and have any of these questions, email or call John Faggio now at 410-740-3141 and safeguard your and your family’s financial future.