Divorcing? Here’s What You Should Know About How it May Affect Your Trust

Trusts vary in their structure, funding, and terms, so it’s hard to know how divorce will impact your trust without review. It’s safe to say, without question, your trust (and really your entire estate plan) should be reviewed during your divorce to prevent unforeseen negative outcomes.

The impact of a divorce on your trust can depend on:

The Trust’s Structure

Trusts frequently name the spouse as a trustee and beneficiary. In divorce, clarify your wishes in regards to these provisions. Even if you want to keep each other in your financial plans going forward, the trust should be amended appropriately after your divorce is complete, so your intention is clear.

Whether It’s Revocable or Irrevocable

If it’s revocable, changing the terms of the trust is easy, but you may have to wait until after your divorce is final to do it due to “orders” that go into effect when you file for divorce that prevent you from moving assets. If your trust is irrevocable, it might be necessary to petition the court to change the trustees, and the trust assets themselves may or may not be part of the divorce judgment.

Your State’s Laws on Community Property

Divorcing parties sometimes attempt to shield assets in trusts to keep them out of the pockets of the soon to be ex. When done surreptitiously, this could significantly complicate the divorce. Even when the assets in a trust are separate property, the income from the trust might still be considered for child support and alimony purposes.

Trusts can be affected by divorce, so you should take steps to protect your trust and your intentions. If you are ready to take that step, meet with us for guidance.

As your Estate Attorney we can help you navigate your divorce so your assets, including those held in trusts, remain under your direction and control.  Our Family Wealth & Legacy Planning Session guides you to protect and preserve what matters most. Before the session, we’ll send you a Family Wealth & Legacy Inventory and Assessment to complete that will get you thinking about what you own, what’s most important to you, and what you can do to ensure your family is taken care of.

This article is a service of Gratia P. Schoemakers, Estate and Business Attorney. We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Family Wealth & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 832.408.0505 to schedule a Family Wealth Planning Session and find out how to better protect your family.

How to Buy Life Insurance Like a Pro

Life insurance is a purchase only made once or twice in a lifetime, so it is common to be unaware of the ins and outs of policy protection. The potential pitfalls are significant, however, so review the following tips before purchasing a life insurance policy.

Get the Right Type and Amounts

Life insurance policies are generally sold by highly commissioned sales people or by order takers. In either case, you need to be sure you are in the know, before you buy, lest you get sold a policy or amount you don’t need, or you overlook the types and amounts that are right for you. We can help you make objective decisions about your insurance needs, with no commissions payable to us, so you know you’re getting our 100% on your side analysis.

Don’t Name a Minor as a Beneficiary

If you’ve named a minor child as a beneficiary, or even a secondary beneficiary, after your spouse, you could be creating double trouble. First, your life insurance would have to go through a court process and subject to the control of a financial guardian, and then second, whatever is left would be distributed to your minor child when he or she turns 18.

You can easily avoid this by naming a trust as beneficiary of your life insurance, thereby keeping your life insurance out of court and ensuring your child doesn’t receive control until he or she is ready. Plus, then you get to decide who takes care of the life insurance money you are leaving behind, until it’s distributed to your child. And, you can even build in protection against your child’s future divorce, or any creditor issues.

Term Insurance to Fund Divorce Settlements

If you receive child support and alimony, insist that your spouse have a  term life insurance policy to guarantee you are able to collect on your settlement, even if your ex-spouse dies while still paying out your divorce settlement.

Compare Quotes for Whole and Term

Experts suggest most people only need life insurance to cover their working years and while they raise a family. Term life insurance is typically affordable and covers you when you need it most. Permanent insurance is best when you know you will have estate taxes to cover OR if you want to use insurance as an investment vehicle with guaranteed returns, but often big commissions to make up in the early years of the policy. One of the services we provide to our member clients is to review all insurance policies, both in place and those being considered, to provide objective evaluation before you buy.

Don’t Overlook Living Benefits

A living benefits rider could allow you to access funds if you were diagnosed as terminally ill or with a chronic and debilitating condition.

If you are ready to purchase a life insurance policy that works for you, start by sitting down with an  Estate Attorney. As your Estate Attorney, we can walk you step by step through creating a financial plan that will help you provide for your family no matter what. At GP Schoemakers, PLLC, we offer Family Wealth & Legacy Planning Sessions that help you protect and preserve your wealth for future generations. Before the session, we’ll send you a Family Wealth & Legacy Inventory and Assessment to complete that will get you thinking about what you own, what matters most to you, and what your wishes are when you die.

This article is a service of Gratia P. Schoemakers, Estate and Business Attorney. We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Family Wealth & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 832.408.0505 to schedule a Family Wealth Planning Session and find out how to better protect your family.

Recently Divorced? Here’s Why You Should Put Aside Your Differences Come Tax Season

Divorce can wreak havoc on your finances. But what many divorced couples don’t realize is that they can expect to face recurring financial challenges during tax season for years after the divorce is finalized. While divorce is often adversarial, leaving both spouses with animosity in its wake, tax season is an opportune time to put aside those differences and cooperate to reach a mutually beneficial outcome.

Filing taxes in the midst and even after divorce can be complicated. Even after a divorce, many couples retain financial ties in the form of ongoing support, shared assets, lingering retirement plan divisions, and tax breaks, all of which can significantly affect tax liability. You can avoid another bitter battle by sitting down with your ex-spouse—and ideally a trusted lawyer—to discuss a few key issues.

Will You File Jointly or Individually?

Couples in the midst of a divorce can file “married filing jointly” or “married filing separately.” Each filing status has its pros and cons, so you should only make this decision after consulting with a lawyer and a tax advisor.

Couples with a divorce finalized before the New Year have to file separately, so consider delaying the finalization of your divorce until after December 31st if you’d like to reap the benefits of filing as a married couple.

Whatever you do, don’t wait until tax season to decide how to file, and don’t decide without consulting with your spouse. Coordinating your filing status can be advantageous to both parties if you plan ahead.

Who Claims the Children?

This is another important issue worth determining before tax season. Typically, the divorce judgment will include a stipulation on who gets to claim the children and the associated credits or deductions. Many couples choose to take turns by alternating years or each claiming one (or more) child individually . But if you don’t already have this determined in a court order, you might need help determining which parent has the most to gain one way or the other. In general, primary custodial parents have the right to claim the children, however in the case of shared custody, that right can fall in either direction. Likewise, divorcing couples that are filing separately will need to make this decision, but it is best first to figure out whom the claim will benefit the most before you decide.

How Will You Handle Dividing Your Assets?

Not all types of property divisions are tax friendly. Make sure you consult with a lawyer before you put your property division in writing to ensure the spouse who receives the assets is not met with an undue tax burden come tax season. This is more of concern for couples in the midst of a divorce, but divorced couples can run into issues about jointly held assets (such as the family home), too. And failing to include a stipulation regarding jointly owned assets in the judgment can create trouble.

The spouse who retains residence of the family home doesn’t necessarily get to claim all the tax benefits, especially if he or she is not financially responsible for the home. Cooperation is essential in this matter. The division of retirement accounts can also affect your taxes. Make sure you file a Qualified Domestic Relations Order to divide plans without penalty. Liquidating the accounts to divide them will result in penalties and a higher tax liability.

How Will You Characterize Support?

Orders for alimony (also called spousal support or spousal maintenance) and child support are common in many divorces. Child support has no bearing on tax liability and cannot be deducted. Alimony, however, is a little more flexible. Alimony is typically taxed as income to the receiving spouse and a deduction for the paying spouse, but the wording in your judgment can affect this. Work with a lawyer before you finalize your divorce to ensure your alimony order will be mutually beneficial to you and your spouse.

If you’re divorced and need financial guidance, consider sitting down with us. As your Personal Family Lawyer®, we can help you strategize your tax filing for maximum benefit this tax season.

This article is a service of Gratia P. Schoemakers, esq. We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. Begin by calling our office today to schedule a Family Wealth Planning Session.

Estate Planning and Divorce: Incapacity, Death and Alimony Considerations

If you are considering a divorce, it’s critical to understand the impact of your divorce on what would happen in the event of your incapacity or death, either during the divorce or after.

Unfortunately, most divorce lawyers do not give any thought to incapacity or death, simply because they do not have training on these issues specifically and it’s not at the forefront of their minds when they are advising you through your divorce.

So, that means you may need to be the one to bring it up.

When you do, here are some things for you to keep in mind:

  1. As soon as you file for divorce, automated “orders” go into effect that will limit what you can do with your assets during the divorce. These are generally called Automatic Temporary Restraining Orders or “ATROs” and they impact how you can change prior estate planning documents and what you can do with future estate planning decisions while your divorce is in process. 

    Talking with your divorce lawyer about these issues (or making an appointment to meet with your Personal Family Lawyer®, if we have created your estate plan, before you file for divorce) is a wise choice.

  2. If you have already filed for divorce, you may want to revoke any existing powers of attorney and health care directives giving your soon to be ex-spouse control over your assets and your medical decision-making if you were to become incapacitated, as well as execute what we call a “divorce will”, which is a “temporary” Will that would cover the disposition of your assets in the event of your death during your divorce. 

    Again, talk to your divorce lawyer about these temporary documents that can be executed while you are in the divorce process, and then ensure he or she is coordinating with us on your behalf to get these documents prepared and signed.

  3. Be sure to update your “temporary” during divorce estate planning documents once your divorce is final, and all asset dispositions have been handled, to take into account your new reality.

There are many ways to get divorced. The traditional litigation/fight oriented divorce could require years of litigation, and a division of assets based on legal rights, rather than your specific needs and desires.

Alternatively, there is a movement today towards “conscious uncoupling” in which you and your spouse collaboratively tailor the outcome of your divorce to meet each of your specific needs and desires, as well as the overall impact on your family.

With this method, instead of having a judge make all the important decisions in your divorce, you can make decisions that are right for you. This is especially helpful when dealing with alimony.

Alimony, also called spousal support or spousal maintenance depending on the state, is financial support paid to the non-income earning spouse during the divorce proceeding and after the judgment.

Alimony can be paid a number of ways. Most commonly monthly, over a predetermined period of time. Durational payments carry the benefit of a steady income for the recipient but can be modified under certain circumstances, leaving some uncertainty, but also room for continued communication about what’s needed over the non-income earner’s life as well as what’s possible over the lifetime of the income earning spouse.

With a conscious uncoupling process, the needs of each spouse can be revisited over time.

Because monthly payments (and a continuing relationship) aren’t right for every family, alimony can also be paid in a lump sum. This is also referred to as alimony buyout.

Lump sum alimony either in the form of a cash buyout or a disproportionate property division is not subject to modification or termination, so it creates a finality to the relationship that isn’t there with a continuing monthly payment.

If you do decide on continuing monthly payments versus a lump sum alimony payment, it’s critical to ensure that those payments would be able to continue in the event of incapacity or death of the spouse paying alimony. In that case, please talk with us about insurance options to guarantee the alimony. As well as ensuring that the spouse paying alimony has properly handled those payments in his or her estate planning documents.

If you decide on a lump sum alimony, be sure to update your estate planning to reflect the new assets you now will have titled in your own name. We can discuss trust planning options to ensure those assets stay out of Court, if and when anything happens to you.

For the legal and financial guidance in negotiating a divorce that works for you, come in to meet with us for a Family Wealth Planning Session, if you are not already a client, so you can get clear on what you own, and what would happen to what you own, in the event of your divorce. And, if you are already a client and considering divorce, please contact us so we can help you consider your options and find the right lawyer or lawyers to support your process through the divorce.

As your Personal Family Lawyer®, we can guide you in creating a comprehensive financial plan that protects and preserves your wealth while meeting all your financial obligations. Before the session, we’ll send you a Family Wealth Inventory and Assessment to complete that will get you thinking about what you own, what matters most to you, and what you want to leave behind.

This article is a service of Gratia P. Schoemakers, Personal Family Lawyer®. We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love.

Call our office to schedule a time for a private conversation about your family wealth via a Family Wealth Planning Session, where we can identify the best ways for you to ensure your legacy of love and financial security for your family.

Family Business Options When Dealing with Divorce

If you co-own a family business with your spouse and you are facing divorce, a likely concern is how your business will be handled through the separation proceedings.

The good news is, it’s really all up to you. And, so much of it depends on the legal counsel you have representing you.

Much of how this situation is handled depends on your desires and your ability to work together, so make sure you find a lawyer who is committed to supporting both of you to get what you want, rather than who is focused on a win/lose paradigm that will simply end up costing everyone more and only making your legal team rich.

Your divorce can either be seen as a huge opportunity to uplevel your business or it can be a time to walk away and let go, knowing that you can start over and create something new on the other side.

That said, there are three main options available to you: continue to own the business together, allow one owner to buy out the other, or sell the business.

If your dissolution or legal separation is amicable, you communicate well, and you fundamentally trust each other, you may decide to continue co-ownership of the family business together. Some couples split duties, allowing one of the partners to manage the business while the other acts in an administrative role or even steps out of the operations altogether, and receives dividend payments based on company profits. Significant benefits to continuing co-ownership are that neither partner is divested of his or her interest and, in most cases, complicated business valuations are avoided.

The remaining two options—a buyout and a sale—would both necessitate a valuation of the business.

Business valuation establishes the fair market value of the business for the purpose of defining the marital estate. You need to know the value either to divide the business or to establish a selling price.

If you decide to go this route, contact us so we can make a referral to a business valuation expert we trust.  It is important to use a professional who is familiar with businesses in the same general industry as yours and, if possible, agree on a single shared evaluator as dueling experts– situations in which each party hires his or her own expert–are not uncommon in this area and can get expensive.

After the valuation, one spouse may buy out the other, or you may decide to have a business broker sell the business to an entirely new third party and split the proceeds of the sale.

Here’s the key: make sure you are working with legal counsel who is focused on a win/win/win outcome that doesn’t just consider how you can get as much as possible, but who focuses on the best possible outcome for all involved, including you, your spouse and the company as a whole.

Taking an approach that is focused on how much you can get will ultimately mean less for everyone because you’ll spend far more on valuations and legal fees when you could be using that capital to create more overall wealth for you, your spouse and the company and be splitting an overall bigger pie than what will be left after you try to take a bigger piece.

If you are married, and working together, and considering divorce, contact us before you contact litigation counsel. If we cannot help, we will refer you to divorce counsel we trust to support the most efficient, life and business enhancing resolution and you’ll save a tremendous amount of time, energy, and money in the process.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you lay out how you want to handle a family business in the unfortunate event of a divorce or legal separation. We also offer a LIFT Start-Up Session,™ which includes employment structuring, financial, and tax systems you need for your business. Call us today to schedule a time to have a conversation!

 

Financial Myths About Getting a Divorce

If your marriage is on the rocks, one of your many worries is probably the impact divorce will have on your financial life. We can support you with a thorough analysis of your assets and understanding of the financial impact of a divorce, but first read these three widespread myths of the financial impact of divorce.

My Money Is My Money, and Your Money Is Your Money

Some people believe that if they keep the money they earn in separately titled bank accounts, it is “their money”, but this may or may not be true

Whether your money is “your” money in the context of divorce depends on state law, how the money was earned, whether it was inherited and whether you live in a community property state or not.

To obtain accurate predictions, rely only on information provided by an attorney or certified financial divorce analyst licensed in your state of residence.

After the Divorce, Both Parties Will Enjoy the Same Standard of Living

When there are plenty of assets to go around, both parties are able to enjoy the same or similar standard of living they did before the divorce. However, many American families do not own adequate assets to allow this to happen. Therefore, although many states include the “standard of living” as a factor to be considered in spousal and child support, the economic realities are that it costs more to support two households than it does to support one.  As such, it is often the case where neither party enjoys the same standard of living after a divorce.

A Nonworking Spouse Will Get Alimony for Life

While it is usually true that nonworking spouses can receive some amount of alimony, the time period is often limited to that necessary to allow the person to get back on his or her feet. This type of alimony, usually known as spousal support, is defined by the laws of the state in which the divorce occurs.

Unless the marriage was very long and one of the spouses is not working, it is unlikely that permanent spousal support will be awarded. Usually, a judge will award temporary or transitional alimony to allow a nonworking spouse to obtain a job or an education with which he or she can become self-supporting. In short, spousal support cannot be relied upon forever.

This article is a service of Gratia P. Schoemakers, Personal Family Lawyer,®  who develops trusting relationships with families for life.  If you need to prepare for the financial impact of a divorce, it is wise to consult with an experienced lawyer who is trained to provide you with accurate information about the laws in your state. Contact us today to schedule an appointment to discuss your future and we’ll identify together how to best prepare for you and your family.

How to Divorce-Proof Your Business

Whether it is due to the high unemployment rates that hit several years ago or the entrepreneurial itch Baby Boomers are now scratching instead of retiring, many married people have started their own businesses. Moreover, these businesses could be put in jeopardy if the owners divorce.

If you own a business, it is probably your largest single financial asset.  If you divorce, your ex may be entitled to half of your business.  If you started the business during the marriage, it could be considered marital property that is fair game in a divorce.

Here are some ways you can divorce-proof your business:

Prenuptial agreement – One of the best ways to protect your business from divorce is to start before the marriage takes place.  In executing a prenuptial agreement, you and your soon-to-be-spouse should be represented by separate attorneys.  Then you both decide what property should be treated as separate, what property will qualify as marital property and how the marital property will be divided in case of divorce.

Buy-sell agreement – Married couples who jointly own a business can execute a buy-sell agreement that outlines what happens to the business should a divorce or death of one spouse occur.  A well-crafted buy-sell agreement will determine how ownership interests are to be transferred, a way to determine the price for the sale or ownership transfer and a way to pay for the purchase of an ex’s ownership interests (i.e., life insurance, cash, loan, etc.).

Trust – There are several trust instruments available to shield a company from the potential adverse effects of a divorce.  If you wish to protect your business interests from a potential divorce and pass those along to your children, you can have your business established right from the beginning in an irrevocable trust that shields your business assets from your divorce as well as your children’s potential future divorce.  Since the business assets are placed in a trust governed by a trustee, they are no longer considered yours — and therefore protected from an ex-spouse or any other creditor.

If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your LIFT™ (legal, insurance, financial and tax) Foundation Audit.

5 Steps to Protect Your Business From a Divorce

With the U.S. divorce rate at around 50% for first marriages and even higher for second marriages, a divorce’s impact on the fate of your business should be cause for concern.  The best thing that business owners can do is take preventive measures to ensure their companies will not suffer from a divorce – either your own or a business partner’s marriage breakdown.  Here are 5 preventive strategies:

Prenuptial agreement – prenups are becoming more popular as baby boomers divorce and remarry late in life, after significant assets have already been accumulated.  You can designate your business as separate property in a prenup if it existed prior to your marriage.  You must have independent counsel to make a prenuptial agreement valid, so don’t try to use one lawyer for both parties.

Postnuptial agreement – these are similar to prenups, but occur after a marriage has already occurred.  The earlier you are able to implement a postnuptial agreement, the better the chances it will hold up in a divorce action.

Trusts – using a domestic or foreign asset protection trust to protect business assets is a common strategy.  Since the business is placed in the irrevocable trust and managed by a trustee, it is considered separate property since you no longer technically own it.

Buy-sell agreement – a buy-sell agreement will specify what happens to a business in the event of an owner’s status change, including divorce.  The agreement can be used to prevent spouses from obtaining ownership or voting rights or specify a pre-determined price to buy out any ownership rights awarded to a spouse in a divorce.

Insurance – you can purchase a life insurance policy that can be cashed in to buy out an ex-spouse’s business shares.

If you are interested in learning more about business asset protection strategies, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

How to Build a Business That Endures

If you have built a successful business and plan to leave it to your heirs or business partners, doing so is not a process that just happens naturally after you retire or die.  If you don’t have a buy-sell agreement, a business succession plan, a business transition plan or a business preservation plan in place, your dream could die when you do.

Any number of factors can work against your dreams if you have not planned ahead. Your business could be valued by the IRS for more than it can be sold for, leaving your family unable to pay the taxes. If you are in a partnership, your partners may not have sufficient financial resources to purchase your ownership share from your heirs.

A properly drafted buy-sell agreement provides for numerous triggering events – death, disability, divorce, retirement, etc. — when someone can purchase your shares of the business or make sure that your shares are passed to your beneficiaries.

A buy-sell agreement is a binding agreement that is put into place before you retire or die. Depending on the needs of your business, a buy-sell agreement can be created to utilize a variety of payment options for the selling shareholder or estate.

For example, you can choose lump sum payments, conservative payments terms over 5 or 6 years, or aggressive payment terms over two years or less.  You should also make sure the company is not cash strapped with payments by providing a life insurance policy to provide the company liquidity and to implement your business preservation plan.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Divorce After 50: Common Mistakes That Can Ruin Retirement

Beyond the emotional impact that divorce can have on couples of any age that decide to split, it can have a potentially devastating effect on the retirement plans of those who divorce later in life.  Divorce after 50 usually results in a loss of income for both parties, which can mean working longer to fund a single retirement.

A recent article at Forbes.com pointed out four common mistakes made by those over 50 who are divorcing that can ruin retirement plans:

Choosing the house over other assets.  For many people, choosing the family home in a divorce is more of an emotional than a rational choice.  If the housing bust of the last few years has taught us anything, it’s that you can’t count on a house as a nest egg.  Plus, a house is likely to cost you more as well in property taxes, maintenance and unexpected expenses like a roof or furnace replacement.    So don’t automatically sacrifice retirement assets for a house until you weigh the costs.

Forgetting to consider the tax implications of retirement assets.  If you decide to divvy up retirement savings by one of you taking the 401(k) and the other taking the Roth IRA, you need to realize that these are not equal distributions.  Withdrawals from a 401(k) or traditional IRA will be taxed during retirement, while withdrawals from a Roth IRA are not taxed during retirement.  Therefore, the payout from the Roth IRA will be larger over time.

Rolling over a spouse’s retirement account into an IRA after the divorce.  If you are under the age of 59 1/2 at the time of your divorce, you have a one-time opportunity to withdraw money from an  ex-spouse’s 401(k) or 403(b) without having to pay the 10 percent early withdrawal penalty as long as those funds have been allocated to you under a qualified domestic relations order (QDRO).  If you do a rollover and need to tap the account early, you will have to pay the tax penalty.  And while it may be tempting to dip into retirement savings now, remember that you are eroding the nest egg that needs to last you for 20-30 years in retirement.

If you would like to have a talk about retirement planning, call our office today to schedule a time for us to sit down and talk.