Divorce

Tax ALERT – What to Know For Year-End Planning

Posted on Dec 24, 2017 in Divorce, Health, Taxes

As holiday lights twinkle around me and passersby bundle up against the cold, Congress was hard at work pushing their tax reform bill through the legislature. Their stated goal was to simplify the tax system, stimulate the economy and create jobs.

There’s no simplification here, and economic stimulus is dubious, but there are a few things you need to know now if you want to do some 11th hour planning, especially if you have been itemizing your deductions:

Mortgage interest – Interest on mortgages taken out on 12/15/17 or later is deductible only up to $750,000, down from the current $1,000,000 of mortgage debt
Second Homes – This mortgage interest deduction is available for a personal residence and one other home
Home equity loans – The deduction for home equity loans and lines of credit is repealed; interest on up to $100,000 of this debt was deductible
State and Local Taxes (SALT) – Deductions for these taxes (including sales taxes in states with no income tax) combined with property taxes are capped at $10,000
PLANNING NOTE: You can pre-pay property taxes in jurisdictions where this is allowed. You can check here to see if you can accelerate a property tax payment in King County, WA and the San Francisco Bay Area:
King County, WA: https://www.seattletimes.com/business/real-estate/king-county-dont-prepay-your-property-taxes-now-to-avoid-tax-hit-next-year/

SF Bay Area:  http://www.sfchronicle.com/business/article/Faced-with-loss-of-deduction-more-Bay-Area-12448244.php
You expressly cannot prepay 2018 state and local income tax.
Medical Expenses – The threshold for this deduction is 7.5% retroactive to 2017 through 2019 – then it goes back to 10%.
Charitable Contributions – You now need substantiation for ALL charitable contributions, but the limit on what you can deduct has been increased from 50% of Adjusted Gross Income (AGI) to 60%.
Miscellaneous Itemized Deductions – These deductions are currently subject to a 2%-of-AGI threshold, but are eliminated entirely after 2017:

  • Moving expenses (except for the Armed Forces)
  • Moving expense exclusion (for expenses paid by employer)
  • Unreimbursed employer expenses (you file a Form 2106 for these)
  • Qualified bicycle commuting ($20/month)
  • Personal casualty losses (EXCEPT if in a disaster zone)
  • Safe deposit box fees
  • Tax preparer fees
  • Investment advisory expenses
    PLANNING NOTE: You may want to ask your tax preparer if you would benefit from paying their fee before 12/31/17, while you can still take a deduction for it. Likewise, for your investment advisor. Here is a quick chart to give you an idea of the total of these miscellaneous expenses you must have before even have a deduction:

AGI = $50,000, 2% = $1,000

AGI = $100,000, 2% = $2,000

AGI = $250,000, 2% = $5,000

AGI = $400,000, 2% = $8,000

Note: Any of you with AGI over $313,800 (Married Filing Jointly) / $261,500 (Single) will start to see your Itemized Deductions also reduced by the Pease limitation.

Alimony – Marital support paid to an ex-spouse has been deductible by the payee and includible on the return of the recipient. For new divorce settlements, alimony is no longer deductible after 2018. Note: this change is a revenue raiser: Almost always the person paying alimony is in higher bracket than the recipient.

Obamacare – Despite what the President has stated about repeal, technically the Affordable Care Act (ACA, aka “Obamacare”) is still on the books, as is the individual mandate. The individual mandate has NOT been repealed, but penalty for not having coverage equals 0% after 2017

In my view, the Trump Tax Plan is bad, though not as bad as it could have been based on earlier proposals. Some workers may see a little relief for a couple of years, but the big wins go to public companies and the wealthiest Americans.

It is also unlikely the President will sign the bill into law before the end of the year. By waiting to sign until 2018, cuts to Medicare and Social Security that are part of this package won’t impact voters until after the 2018 mid-term elections.

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Starting the Financial Conversation: Moving In

Posted on Oct 3, 2015 in Divorce, Planning, Relationship

Five Things to Do Before You Move in Together

  1. TALK! Talk about your financial expectations in the relationship. Talk about how you are going to handle money. Who will pay for what?  Will you split expenses fifty-fifty?  Or according to how much each earns?  Have you shared complete financial information? Or do you want to keep certain things private? (I would recommend an open book relationship.)
  2. Talk some more: Whose name is on the lease/mortgage? What will happen if someone loses his/her job? If one of you ends up moving out?  Now is the time when you want to consider how to protect and care for each other, to consider a range of future scenarios, even those that seem remote.
  3. Frame your money conversation around how you will agree to protect and support the other in all ways — emotionally, physically, and financially — through your anticipated life transitions. It’s fair to also talk about what’s yours, but start with the easy stuff.  Retreating into self-protection can set you up for a defensive response, closing off a conversation before it gets started. If you can stay open to listen to your intended, your conversation can reveal what you value.
  4. Educate yourself about how to share and/or protect assets with your partner.  You may unwittingly create community property or a third party interest in separate property if you’re not careful.  If you get married and later divorce, the time living together could be factored into what would be considered a meretricious/common law relationship.
  5. Find a facilitator, whether an attorney, or couples counselor, faith-based advisor or secular guide. An objective party can be helpful not only for the necessary financial conversation, but to help you communicate and manage other negotiations you will have as time goes by.

It can be difficult to have these conversations, but if money conflicts are at the root of the majority of couples’ crises, don’t you owe it to yourself to tackle the questions that will help you establish a strong foundation from the beginning?

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If I Had a Million Dollars…Would I Be Rich?

Posted on Sep 19, 2015 in Divorce, Investments, Planning

Once I was in a Starbucks with my friend Marie. We were both working at the coffee giant, in the Finance department, and using our employee discount for lattes. The people-watching was free.

Marie grew up in Seattle and knew who-was-who in town. While we were talking she nodded to someone leaving the store carrying two enormous coffees. He was big and tall, wearing jeans and a windbreaker, not a designer brand on him. He looked like a truck driver. “That’s Phil Condit,” she said.

At the time Condit was Chairman and CEO of Boeing, then the largest aerospace company in the world and employer of over a quarter of a million people. Today there are lots more CEOs who wear jeans and hoodies, but back then you could say Condit didn’t look like a CEO, or a multi-millionaire.

In their ground-breaking study, The Millionaire Next-Door, Thomas Stanley and William Danko revealed what America’s wealthy really looked like and offered some guidance for how to accumulate wealth. The bottom line was, in fact, a bottom line: often those who “looked” the wealthiest – living in the upscale neighborhoods, wearing the designer duds, eating in the toniest restaurants, and taking the posh vacations – were actually poor, at least in terms of their bottom line, their financial net worth.

One path to poverty, despite high incomes and great resources, is often the pursuit of image. Wealth is distinctly different from stuff. But we can see stuff. We can show off stuff. We can drool over other people’s stuff. We are often comparing ourselves to others, to this image of wealth and success, and it gets in the way of actually being wealthy and financially successful. But how do we know how we’re doing, given what we have to work with?

ARE YOU WEALTHY OR ON YOUR WAY?

Stanley & Danko came up with a formula to determine whether you’re wealthy. Their formula combined two strong determinants of wealth — age and income — into a simple standard against which you can evaluate how you’re doing. Basically, the higher your income, the higher your expected savings, and the older you are, the more you should have saved.

Here is the rule according to Stanley and Danko:

 Age x Realized Pre-Tax Annual Household Income (all sources[1])

Divided by 10

= Expected Net Worth

[1] Excluding inheritances

You’ll note any family money through inheritances or trusts is not included in this metric. From their research, 80% of millionaires are first generation wealthy.

How do you stack up? Let’s look at a couple of examples:

Age                        =             55

Income                 =             $50,000

Expected NW      =             $275,000

Actual NW           =             $325,400

Congratulations! You are on your way to truly building wealth.

 

Let’s take another example:

Age                        =             35

Income                 =             $250,000

Expected NW      =             $875,000

Actual NW           =             $325,400

 

Hmmm. You may have to adjust your lifestyle if you want to really build wealth.

Stanley and Danko further divide their participants into quartiles. If you’re in the top quartile, you are a Prodigious Accumulator of Wealth (PAW). You have accumulated the expected net financial worth given your age and current earnings. Stanley and Danko found that PAWs are frugal, living in modest homes and driving inexpensive cars; they are investors, savings nearly 20% of their household income annually; when they spend they will spend on education. PAWs emphasize building wealth.  Having twice the expected net worth places you squarely in the top quartile.

If you are in the bottom quartile, with Actual Net Worth less than Expected Net Worth, you are an Under Accumulator of Wealth (UAW). By contrast, UAWs have a higher propensity to spend and tend to live above their means; their emphasis is consumption.

Stanley and Danko summarize the difference between the two cohorts as looking rich, rather than being rich. One of their millionaires from Texas described the former as having “a big hat, no cattle.”

As outlined in detail in the book, the authors note seven factors they saw consistently in their prodigious accumulators. The Top Two factors are:

  1. They live well below their means
  2. They believe that financial independence is more important than displaying high social status

One other thing: the Millionaire Next Door married once, and remained married. (A whole other topic – more on this another time.)

You have more control over building wealth than you may feel, and having an objective benchmark on how you’re doing is critical to tuning out the noise and working with what you have. Wealth is more often than not the result of hard work, perseverance, discipline and (you guessed it) planning.

Skip the big hat, go for the cattle.

Thomas Stanley passed on in 2014. For more on Stanley’s research, check out http://www.thomasjstanley.com/

http://www.nytimes.com/2015/03/07/your-money/paying-tribute-to-thomas-stanley-and-his-millionaire-next-door.html?_r=0

The Barenaked Ladies explain the challenge to become a Prodigious Accumulator:

 

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Mad Men. And Surprisingly Not Angry Women.

Posted on May 21, 2015 in Divorce, Uncategorized, Women

SPOILER ALERT: This post contains several spoilers for AMC’s Mad Men series finale.

For several nights last week I was catching up with the rest of you on the trials and travails of Mad Men in time for the series finale. For years I avoided watching the Emmy-award winning show: Who wanted to relive the awful way women were treated in the late 50s/early 60s, especially in an office environment? But a good friend with style and an eye for mid-century design worked in advertising as a copywriter and was a fan of the show. She, along with the hype around the finale, persuaded me to tune in.

Over a four-day marathon, I covered the ten or so years of the series, which coincided with ten of the more tumultuous years of change in the U.S. I was surprised to find I preferred the first few seasons set in the early 1960s: the world just looked better, cleaner, and more orderly than in the later seasons of the early 1970s, with sideburns and tie dye and slightly sloppy clothes (and some would say, sloppy morals).

But as we all know, looks can be deceiving.

These years were just on the edge of my personal history: I was born two weeks before President Kennedy was shot, and as an adult I wondered what my mom must have thought, having only immigrated to the States in 1952 and now with a baby girl, civil unrest and what must have seemed like chaos everywhere. We went from pill box hats to openly pill-popping in a very short time.  We often forget how far we’ve come since.

So we see Mad Men begin with the introduction of a new woman to Madison Avenue: Peggy Olsen. Sincere, ambitious, slightly naïve. I related to Peggy. The other women of the series – Joan (statuesque office manager), Betty (blonde and beautiful wife of Don Draper, former model, now mother of his children) – never settled into the stereotypes they might have. They all struggled with what we now call work/life balance.

But in this era, the choices were few. In one episode the men mock how the young women in a focus group about cold cream only wanted to know if the product would help them find a husband. The reality of the time was that there were few other options: before the 1970s, a woman could be fired if she was pregnant (the Pregnancy Discrimination Act of 1978 changed this), she couldn’t get a credit card without a husband to cosign (changed by the Equal Credit Opportunity Act of 1974), and could be forced to retire at 32 (Pan Am’s requirement for stewardesses, changed by the Civil Rights Act).

At the end of the Mad Men run, the women found contentment we might not have expected. Joan chooses love of career over romantic love, Betty chooses honesty and her education over the image of perfect domesticity, Peggy chooses career – and finds love that fits into that choice. The strength it took for the women to make these choices — and other difficult ones along the way — given the obstacles of their time, was for me the real draw of the series. The women focused on what they really wanted, and went for it, despite the odds. Fairer sex indeed.

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When Your Partner Has a Secret Life

Posted on Apr 18, 2014 in Divorce, Family, Relationship

In the aftermath of the Boston Marathon bombings, many turned to the dead bomber’s widow for answers. What seems impossible for some to believe is that she knew nothing of her husband’s plans. How could she be so close and not know?  Here, a year later, I can offer my perspective from my own experience.

In the last years of my marriage, I discovered my husband had a secret life. There had been hidden addiction, other relationships, thousands of dollars from our accounts that went missing.   It all came out slowly, painfully, over a period of years. It wasn’t until I saw the funds missing from our accounts, which couldn’t be explained away with a story, that I finally could see the truth.

But prior to that, I wanted to believe my husband. I loved and trusted him. We’d met as sophomores in college and had known each other for 25 years. And even though he’d been caught in that first lie that started the unraveling of our marriage, I wanted to believe that after that he was telling the truth. That I fell for that over and over – well, that speaks to my contribution to our dynamic. I couldn’t see some of what was going on because I didn’t want to. Other parts he hid deliberately and effectively. Other people, friends, and family were complicit in the charade because they didn’t want to believe the truth about him either.

From time to time I asked questions. And I would get answers that didn’t quite make sense. Or answers that were true – but incomplete. There were periods when I worried about my mental state. He said he’d told me something, but I was pretty sure he had not. Case in point was his description of a trip he was taking. He was going to see his brother and he’d found a hotel with a cheap local’s rate. That much was true. What was revealed after a forensic search of his credit card statements was that he made the trip with another woman (and her dog), paid for their airfare, meals and shopping from our money. The hotel with the local’s rate was a four-star resort. He could say what he’d told me was the truth. But there’s a reason they make you swear in court to tell “the truth, the whole truth, and nothing but the truth.” Slowly I began to see half-truths, omissions, and out-and-out lies.

You want to believe the people you love, especially if the truth is too painful to see. There were many times I felt something was wrong, but didn’t know what to do about it. The lesson for me was how to press for answers, how to keep my partner engaged in a difficult conversations, and at least for me, if he can’t participate in these difficult talks, to leave.

Some of the things you might look for if you suspect your partner is hiding something from you are the following:

  • Creating distance between you – My husband was pulling away from me, physically and emotionally. All long-term relationships go through ups and downs.  He also created distance by coming home consistently later than he’d said. I used to joke that if he said he’d be home at 5:30, I’d see him at 7. What I should have done is kept trying to close the distance. It might not have changed the end result, but I think the truth would have come to light sooner.
  • Things may not be what they seem – What you think you see may not be correct – actions may be subject to interpretation. I had an explanation for what was happening in my marriage: many times I was put off because my husband had work to do. He was dedicated to his job (an attribute I admired greatly) and I wasn’t going to interfere with his work. Only later I learned much of that time spent “working” was actually on-line and in person with other women, other activities that were not advancing his career.
  • Denial – My ex-husband had a difficult and traumatic childhood. That he survived it, and even thrived as an adult in his work life, was again a quality I found laudable. His family and even our marriage counselor supported his inability to talk about difficulty in our relationship as “being stoic” or “flooding”—being so overcome during an emotionally-charged time that he could not speak. His father had been a bigamist, and spent time in prison. There was no way his family was going to believe that my husband would grow up to hide things like his father. It worked to his advantage that there was no expectation that he needed to explain his actions or thoughts. That was just him being stoic.
  • Manipulation – What I didn’t see was that he used this vulnerability to get what he wanted from me, and the rest of his family. Unhappy in a city with limited career choices for me, I suggested I move temporarily to another city, apprentice in a new field, and return to start a new career. In tears and on his knees, he told me how he didn’t want us to be apart. Despite my deep dissatisfaction with my own career prospects, but not wanting to have him be so unhappy, I stayed. When I look back over our years together, I see this pattern of my wanting something, his hurt, my wanting to stop that hurt more than honor my own needs, and relinquishing my want.
  • Deep investment in the marriage – I loved and respected my husband, and I believed we are each responsible for our own happiness. Things that started off as small slights – being inattentive at a party, coming home late, using work as an excuse to abandon our Thursday Date Nights and time with family – these added up over time. But I wasn’t going to leave him over these things. We had been together since college, and I doubled down and worked harder to be happy on my own – which should have been an indicator itself of a troubled marriage.

In my case there was no terrorist plot. There was just a man who got off by hiding things from his wife. Being so close to him, at least in my case, was part of the problem. And for a long time, I didn’t want to see it. Once I did, my life made a lot more sense.

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