Justin A. Reckers can be reached at:

Tweet This Post

53% of Judges reported they had seen an increase in cases. The most common increase was foreclosures at 61% followed by domestic relations (read divorce) cases at 49%. The report states “There has long been an ackowledged link between the economy and divorce rates, as economic issues tend to put the greatest amount of pressure on a marriage.”   

Judges were asked if they had seen a change in representation in their court-rooms in 2009. 60% reported seeing a greater number of self represented parties. 62% of these judges believe not having an attorney negatively impacted the outcomes for self represented parties. The judges unanimously noted failure to present necessary evidence as the most common problem. Close to 90% noted the negative impact of procedural errors and more than 80% noted ineffective witness examination and failure to properly object to evidence. Several judges even noted that pro-se litigants were not able to offer an enforcable order even after winning at trial.

The survey offers incredible insight into the self represented litigant and their effect on the court system from using more resources of court staff to slowing procedures to compromising the integrity of the court. Read a story on the findings in the American Bar Association Journal and the full text of the survey here.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

Tweet This Post

Colleagues of mine, Jim and Tony Dunne of Dunne and Dunne Family Law, recently won a reversal of an interesting property division issue on appeal to the Fourth Appellate District of California. The case was certified for publication and Filed December 1^st 2009. Following is my summary of the details and important points.

The couple, Tatia Buie (Wife) and Walter Neighbors (Husband), were married in 1999. During the marriage, Husband purchased a 2001 Porsche 996 using a check written from Wife’s bank account. Wife’s bank account held funds derived from the sale of her separate property residence. Husband argued the $60,000 expended for the Porsche was a gift since the purchase occurred in close proximity to his birthday. The family court agreed with Husband at trial and actually awarded the Porsche to him as his Separate Property.

Ms. Buie disagreed with the Family Court decision and appealed contending 1) the Porsche was community property and 2) that she was entitled to reimbursement under section 2640 for the use of her separate property funds to acquire the Porsche on behalf of the community.

The appeal court ruled there was no transmutation from community property to Husband’s separate property citing there had been no express declaration of intent to gift the property to Husband. Transmutation of real or personal property is not valid unless made in writing by the spouse whose interest is adversely affected. According to the appeal court, there are sections of California code that allow for gifts to be made from spouse to spouse without express written documentation but they must be a “tangible article of a personal nature” and not be “substantial in value”.

The appeal court found 1) that there was no evidence of a written document stating intent to gift the Porsche and 2) the automobile did not fall under the definition of “tangible article of a personal nature”. They did not discuss the issue of substantial value in their decision but I imagine it would be easy to convince the court a Porsche carries substantial value.

In short, the Court of Appeal concluded the Family Court had erred in awarding the Porsche to Husband as his separate property and therefore must be included as community property.

Ms. Buie went on to argue that she should be reimbursed as part of the division of the community estate for her separate property funds used to purchase the Porsche since it was confirmed as a community asset. Section 2640, subdivision (b) provides: “In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source.” I am often hired to provide the necessary tracing to prove or refute such a claim. Wife was able to prove that 100% of funds used to purchase the Porsche were her separate property and the Court of Appeal ruled she had a right to reimbursement of the separate property funds under section 2640. They did not render opinion as to how much the reimbursement should be. That is a question for another day.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

Tweet This Post

69% of Certified Divorce Financial Analysts said they had seen clients who could not afford to get divorced because of recession-related financial problems.

When asked to assess the difference that current economic conditions have made to the number of new divorcing clients coming through their doors, 39% say that the recession has not affected the number of cases, and 25% say that the recession has increased the number of new cases they’re seeing (these numbers compare with 43% and 19% respectively the previous year.

The most common reason cited for an increase was the clients’ desire to reduce the cost of their divorce. Other common responses included:

• Economic climate is straining marriages
• People are exploring the financial feasibility of being able to divorce before they file or see an attorney
• An increase in mediated and Pro Se divorces using CDFAs as financial neutral.

The most common reason cited for the decrease was fear: fear of the economy, job loss, losing (or not being able to sell) their homes, and of not being able to make ends meet without their spouses. Other common responses included:

• People are afraid to divorce while they’re unemployed
• Clients can’t afford to divorce until the economy improves
• Not enough money to hire a financial expert
• People just can’t afford to live apart – especially if the matrimonial home is “underwater” (meaning that they owe more on the mortgage than the house is currently worth).

22% percent of respondents said that the number of clients whose matrimonial homes were “underwater” has increased dramatically over the last year. An additional 34% said that the number had increased slightly, and 24% said that the number had remained the same. Eighteen percent of respondents do not presently have clients with underwater houses, and only 2% report a decrease in the number from the same time last year.

Sixty-seven percent of respondents said that the current housing market has forced them to come up with creative solutions to property-division problems when the matrimonial home fails to sell – or would sell for less than what clients still owe on the mortgage. This number is down from 73% the year before. The most common solution is for ex-spouses to retain joint ownership and continue to live in the house (often, he moves into the basement and she lives upstairs) until the market improves, agreeing to postpone final division of assets until after the house is sold.

Fifty-eight percent of respondents said that the current economic climate has affected the type of assets their clients wish to receive as part of their divorce settlement (compared with 63% the year before). The most common request was for liquid assets only: their clients want cash rather than stocks, investments, real estate, or retirement plans. In other words, “Cash is King.”

According to the survey, Mediation and Collaborative Divorce proved to be the most cost-effective ways for clients to process the financial aspects of their divorce in 2009-2010. Many CDFAs work in two or more models, and they were able to paint a pretty clear picture of expenses incurred by their clients in each.

“These survey results are copyrighted and are used with permission from the Institute for Divorce Financial Analysts.  www.InstituteDFA.com”

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

Tweet This Post

2)       The Government Pension Offset and Windfall Elimination Provision are federal Social Security rules that often unexpectedly reduce Social Security retirement benefits in divorce situations and may cause inequity;

3)       An apples to apples comparison may not be possible for before tax and after tax dollars from an individual brokerage account versus an IRA. Agreeing to an equal offset of accounts with different tax ramifications may result in inequity;

4)       Comparing the present value of a currently available liquid asset such as a savings account versus the future value of a non liquid asset such as a pension may result in inequity;

5)       Child contingency and Alimony recapture laws are hard to analyze and often missed in setting support awards but can cause unexpected tax ramifications of great magnitude if left without review;

6)       Unrealized capital gains that may cause future taxes should be included in estimates of value when considering asset division. Agreeing to a division where each party receives an asset of equal value but one has a large capital gain built in will result in inequity;

7)       Dependency exemptions and tax filing status may have real cash value now and in the future and can be used as bargaining chips for financial settlements;

8)       Life insurance placed as security for support payments should be positioned before a final settlement is reached to ensure a policy will be available with an efficient cost structure;

9)       Qualified Domestic Relations Orders necessary to divide retirement plans should be drafted and approved by the plan administrator prior to the divorce being final to avoid delays common post divorce;

10)   Always consider alternative dispute resolution models if available. Alternative models such as Mediation and Collaborative Divorce can save the family thousands of dollars and months or years of emotional turmoil.

11)   Consider the advantages of deferring capital gains taxes on real estate assets by using a 1031 exchange or converting a rental property to a primary residence for tax purposes.

Justin A. Reckers can be reached at:

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

Tweet This Post

How does the Collaborative Divorce Process Function?

A Collaborative Process is a lot like a Charter Airplane Service.  The “airplane” is co-owned by a highly trained, diverse group of professionals whose different areas of expertise are all required to operate the plane efficiently and safely. Collaborative clients are the passengers.  Our passengers come to us because they want to get to a different place in their relationship with each other.  As long as their destination is one of the routes we service, we are happy to take them on their journey.  There are some destinations that we will not travel to, and passengers seeking to go to those destinations will have to find another carrier. 

Our passengers select their own flight crew often starting from a list of the owner-operators of the plane and ultimately selecting their specific crewmembers with the different areas of required in-flight expertise.  The passengers have a great deal of input into the flight plan. Do we take a longer, perhaps more scenic route?  Do we take a faster, more direct route? How many layovers will we make along the way? Like any good charter operator, we consider our passengers’ input and recommend a flight plan that best meets their needs while conforming to safety rules and standards of operation.  The passengers then decide if they agree with the flight plan.  If they don’t, we refer them to other carriers.

There are other variables that will affect the journey. The baggage the passengers bring with them will impact the flight.  Heavy passenger baggage may consume more fuel, slow the plane down and make the trip more expensive, but as long as the passengers understand this and are willing to be patient and bear the increased cost, the professional team can complete the journey and transport the passengers to their desired destination.   

Bad weather or turbulence may require a course adjustment.  Our passengers are always consulted about this.  If they decide they are up to it, and if we think the airplane is strong enough, we may decide to keep our seat belts buckled and fly directly through it.  Sometimes we need to land, refuel, settle the passengers’ (or our own) nervous stomachs, and re-take off when the weather has improved. 

Our passengers hire us for our expertise in flying our plane.  They expect us to be at the controls at all times, and we should be.  There is no automatic pilot on this plane, and expecting there to be leads to disaster.  We can’t expect our passengers to take the controls, as they do not know how to fly our plane- that is why they came to us.

There are rules that apply to our charter flights, and these rules must be complied with.  Our passengers are not allowed to hijack the plane to try and send us towards a non-agreed upon, or unsafe destination.  Neither passenger is allowed to grab the controls to steer us off course or put the plane into a catastrophic tailspin. When we put the fasten seat belt light on, everybody has to buckle up.  Our passengers have to help keep our plane clean.  Cigarettes or other inflammatory materials cannot be used on board.

Our passengers have to provide each other and us with all the information that we need to make sure that the journey goes safely.  There can’t be any surprises such as finding out after take off that one of the passengers did not inform of us of dangerous cargo hidden in his/her baggage.  Such things can be dealt with safely as long as we know about it beforehand.  Every flight involves some turbulence, and getting through it requires that our passengers honestly express their concerns, trust our judgment, and at times defer to our expertise about what is required to fly the plane safely.

There are risks to operating a charter airline.  Few flights go completely smoothly and not every flight ends well.  Sometimes passengers decide that they made a mistake in choosing our airline, because they really want to fly to a different destination that we can’t or won’t serve.  When that happens, we end the trip early and safely escort the passengers off our plane and try to help them find an airline that will better serve their needs. 

Sometimes one or both of the passengers are not willing to comply with our in-flight rules. Sometimes this is unintentional and merely requires further explanation to help the passengers behave in accordance with our safety standards.  Some passengers though, are just not willing to comply with the rules.  When this happens, we have to land the plane prematurely, keep it on the ground, and escort the passengers off the flight, so that we and our airplane are not put in harm’s way.  When a flight ends, even if it ends prematurely, the passengers will take their baggage with them, but the flight plan and flight records stay with the flight crew. 

Ours is a very elegant aircraft, and it requires a great deal of mindful maintenance.  The passengers have to help us keep the inside of the plane clean, but it is our responsibility to keep the plane operating safely and smoothly.  This requires a great deal of coordinated effort during each flight. Sometimes clients may question whether or not the crew needs to do so much work during a flight, or whether or not each crewmember is really needed, but when it comes to flying the plane safely, ultimately those are our decisions to make. It is important after each flight concludes, that we get together with each other to debrief about the flight and talk about how we can improve our service and improve our airplane.

So how does Collaborative Process function?   The clients define their destination and together with their chosen professional team decide if the process is the right vehicle for them to reach their destination.  The clients own their final settlement decision-making, and they own their behavior, but the process, “the airplane” is owned by the professional team.  Our clients step into it at the start of their journey and step out of it at the journey’s conclusion.  Above all else it is the responsibility of the professional team to maintain “the airplane’s” structural integrity, so that Collaborative clients can be transported to the intended destination- a healthier divorce.

By Pete Roussos, MFT, www.peterroussos.com

Check out the Collaborative Divorce section of my website for more on the revolutionary no-court divorce option.

_________________________________________________________

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

CONTACT US

Tweet This Post

Justin Reckers, Certified Financial Planner, Certified Divorce Financial Analyst and Managing Director of Pacific Divorce Management  has joined Licensed Marriage and Family Therapist, Nancy Fagan of The Divorce Help Clinic and attorney Shawn Weber of Brave, Weber and Mack to develop a monthly workshop/seminar to help Men prepare for and cope during the divorce process and thrive afterwards. Here Justin and Nancy are featured on San Diego Fox 5 Morning News speaking with Raoul Martinez about the “Walk Away Wife” trend, No-Fault Divorce in California and Divorce Financial Planning tips including Negotiating the Family Home and the “Marriage Severance Package”. Our interview highlights upcoming Men’s Divorce Seminars and Workshops we offer in San Diego.

Go to The Divorce Help Clinic website http://www.thedivorcehelpclinic.com/menonly.html to sign up for upcoming workshops.

Justin A. Reckers can be reached at:

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

 CONTACT US

Tweet This Post

Epstein Credits are most commonly incurred when one party pays community debts using their spearate property income.

If you are claiming the credit. – Keep your receipts, bank statements and other records. It is common to see divorce proceedings last years and create a long trail of records. Large bills pile up quickly for financial experts if they must recreate the paper trail.

Seek professional advice if you believe you need to consider this during your divorce.

Justin A. Reckers can be reached at:

Our firm does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences. The information provided herein is obtained from sources believed to be reliable; but no representation or warranty is made as to its accuracy or completeness.

Tweet This Post

Retirement plans such as 401(k)’s, defined benefit pension plans, and other hybrid employer sponsored retirement savings vehicles are often among the largest assets to be divided during the division of a martial estate. Many of these plans are governed by a set of federal law known as the Employee Retirement Income Security Act of 1974 or ERISA. ERISA allows an Alternate Payee such as a former spouse to receive a portion of the employee’s benefits with a court order. A Qualified Domestic Relations Order (QDRO) is the court order required to give notice to a retirement plan administrator that an Alternate Payee is entitled to a portion of the plan. Without a QDRO the plan administrator cannot legally make payments to the Alternate Payee.

Who Should Draft My QDRO?

Drafting of QDRO’s is an important step in the divorce financial planning process. Financial planners have specific and far reaching knowledge of retirement plans and the underlying laws that govern them but are ill-equipped for drafting the actual Domestic Relations Orders. The drafting process is best left to a professional specializing in drafting such documents. These professionals often have experience working for the large plan administrators and have inside knowledge of the processes.

For a QDRO to be valid and accepted by both the court and the plan administrator it must contain specific requirements under the law as well as be tailored to that specific plan. Retirement plans may even reject court certified orders that were not pre-approved by their own staff. For this reason it is necessary for a draft to be sent to the plan administrator for pre-approval prior to seeking court certification.

How Will a Financial Planner Help Me?

Divorce financial planning will help each party to understand the process and be sure their rights are protected in the draft documents. The alternate payee and plan participant will need to consider their options for managing benefits from a defined contribution plan. Benefits should be invested in securities in order to earn returns. Tolerance for risk and time horizons may have changed for both parties and re-visiting these topics is vital to post divorce success. It may be worth discussing the options for distribution of benefits from a plan should cash be needed at the time of the division. It is also vital to understand the lump sum, annuity, and other options available for benefits under a defined benefit plan. These are ideal topics to pursue in discussions with your financial advisor during the divorce financial planning process.

The QDRO Process

The QDRO process can take many months to complete which makes it increasingly important that the process is started as soon as possible. Following is a timeline of the process you might expect when undertaking the filing of a Qualified Domestic Relations Order.

1. QDRO Specialist drafts the Domestic Relations Order in accordance with specific plan provisions and the agreements reached by parties to the proceedings.
2. The Draft Qualified Domestic Relations Order is submitted to the Plan Administrator for pre-approval.
3. The Plan Administrator responds to the drafter with any necessary revisions.
4. Requested revisions are made to the QDRO and the revised copy is sent to parties and attorneys for review and signature.
5. The approved QDRO is signed by both parties and sent to the court for the judge’s signature.
6. A copy of the singed and court certified QDRO is sent to attorneys or parties.
7. The certified singed copy of the QDRO must be sent to the Plan Administrator for processing.
8. The Plan Administrator will send a letter to the participant and alternate payee with instructions on how to access the plan and a timeline for completion of the division. It may be necessary for the Alternate Payee to stipulate an outside account for benefits to be rolled to.
9. The Plan Administrator calculates the division of the plan pursuant to the QDRO and creates a separate account for the Alternate Payee.
10. The Alternate Payee will receive confirmation that their benefits have been partitioned into a separate account or rolled over into the account previously stipulated.

Justin A. Reckers CFP®, CDFA™, AIF^®
858.509.2329
jreckers@pacdivorce.com

Tweet This Post

Previously, the Service allowed a non-custodial parent to claim an exemption for a child if the custodial parent signed a written declaration releasing claim to the exemption and the non-custodial parent attached that declaration to their return. IRS Form 8332 is available to document this release.  In Publication 501, Exemptions, Standard Deduction, and Filing Information, the Service has stated that a non-custodial parent may attach certain pages of a divorce decree or separation agreement, instead of Form 8332, if the attached pages include the information required on the form.

A problem arose in the ambiguous language of the actual code.  It stated the release of a claim must be on Form 8332 or, if not on such form, must “conform to the substance of such form.” The ambiguity begat creativity and family law attorneys began drafting the declarations into settlement agreements. Taxpayers would then simply need to attach a copy of their divorce decree. This eliminated the need for Form 8332 and therefore, the need to speak to your ex-spouse every year requesting a signature.

The recent memorandum was directed specifically at the question whether it was allowable for a non-custodial parent to prove their right to the exemption by submitting proof of satisfaction of a condition in a divorce decree. The condition was that the non-custodial parent may only claim the exemption if current in his or her support obligation. This raises the problem of substantiation.

In the June 19 memo, the Service concluded the release must be on Form 8332 or must be a document conforming to the substance of Form 8332 and has as its only purpose the release of a claim to exemption. A divorce decree, separation agreement or parenting plan allowing a non-custodial parent to claim an exemption for a child, only if a condition is met, does not conform to the substance of Form 8332.  For tax years beginning after July 2, 2008, a settlement agreement, decree or judgment may not be used by a non-custodial parent to substantiate a dependency exemption for a child, even if accompanied by a statement intending to show the condition in the decree or agreement was met.

These regulations reflect the Service’s concern about substantiating a claim to a dependency exemption for a child and are intended to avoid problems of proof, minimize controversy, and minimize costs to parents.  The change does not preclude a non-custodial parent from claiming the exemption; it simply requires more care be made to make sure this is accomplished.

It may be helpful to include language stipulating the custodial parent will execute Form 8332 on a yearly basis. This follow up challenge can be alleviated by insuring the newly single parents consult a financial advisor with specific experience in the field of divorce financial planning. Two parents claiming an exemption for the same child will end in IRS audits for both and possibly bring a settled case back into the courtroom.  The Service has clearly stated it is not permissible to include any language that could require substantiation.

Justin A. Reckers CFP®, CDFA™, AIF^®
858.509.2329
jreckers@pacdivorce.com

Tweet This Post