When an airline offers a frequent-flyer program it allows members to accumulate miles. The miles begin to obtain value to the program member despite being only a medium you can trade for free travel. The member doesn’t truly care about the miles. He cares about the benefit of accumulating those miles, free travel. The medium, in this case, frequent flyer miles, truly has no value yet still draws the concentration of the program member. “The money we earn from work is also a medium. Thus, the potential implication of research on medium is not medium; it is extra large.” Christopher Hsee, Journal of Consumer Research, June 2003 

The tenet of Medium Maximization says people often fail to fully skip over the medium (frequent flyer miles) in favor of the benefit (free travel). For example, consider the opening scene to the film Wedding Crashers. The scene concentrates on a divorcing couple in the midst of a Divorce Mediation session. They begin arguing over who should be awarded the frequent flyer miles. Frequent flyer miles and other frequent buyer or cash back rewards programs are considered by family law courts to be a community asset in California. The husband says “I earned those miles”, the wife seems to agree but believes he earned them on trips to see his -insert expletive- girlfriend. The miles are the medium to this couples’ financial decision-making process (dispute). By focusing on the medium (frequent flyer miles) rather than the benefit (free travel) of owning the medium, they have both failed to consider the decision at hand from a rational perspective. The real decision at hand is who will be awarded the right to free travel in the future not who gets the frequent flyer miles. The value of this free travel can be estimated fairly easily. Twenty-five thousand (25,000) miles might earn a one way ticket from Los Angeles to New York while the same ticket would actually cost $300. The wife lost sight of the benefit of the miles immediately when she associated the medium with the outcome in her mind, her cheating husband. She has missed the point by concentrating on the medium rather than the benefit.

The wife is very clearly upset by the situation and allows her emotions into the decision making process. I don’t blame her. The point of the illustration is to realize that economic theory tells us people will never concentrate on the medium because it has no value. The emotional turmoil of the dispute in the movie tells us humans often place a value on the medium and may ultimately make emotional decisions because of their tendency for medium maximization. Understanding Behavioral Finance can help mitigate emotion but we can never hope to completely remove it making Behavioral Economics vital to appreciating real life financial decision-making especially in Divorce Financial Planning.

Justin A. Reckers can be reached at:

Tweet This Post

“Denial, anger, bargaining, depression and acceptance are the commonly accepted steps in the grief process, whether grieving the loss of a patriarch, mother, business, child or family structure. If a client is stuck somewhere on this cycle, financial advisors will have trouble shepherding them toward an unbiased and healthy decision-making process.”

The quote above has been excerpted from the most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

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

“Research shows that there are conditions under which an individual is willing and quite happy to pay $28 for a $20 bill at auction. Some have written about how we can apply Einstein’s theory of relativity to human decision-making processes. The technology now exists to help us analyze the neurocognitive effect of receiving expert financial advice.”

The quote above has been excerpted from the most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

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

The quote above has been excerpted from most recent article in a series I am writing along with Robert A. Simon, Ph.D. discussing the application of Behavioral Finance to Financial Decision making processes. These articles are written specifically for the Financial Planning and Advisory community. Please click the picture below to be directed to MorningstarAdvisor.com and read the whole article.

Stay tuned for more information on upcoming articles planned for individuals, families and Family Law practitioners.   Feel free to comment on the MorningstarAdvisor.com website.

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

Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition.  This provision provides eligible individuals access to coverage that does not impose exclusions for pre-existing health conditions. In the past, pre-existing medical conditions, whether serious or minor, may have precluded an individual from obtaining medical insurance on the open market. Long term legal separations, delayed divorces and other creative solutions were used by negotiators in situations where an un-employed spouse had pre-existing health concerns. This reform will become effective June 30, 2010 and should provide long term solutions for your clients. Coverage under this program will continue until new exchanges are operational in 2014. The exchanges may even offer more affordable coverage than the COBRA continuation insurance many newly divorced and unemployed individuals opt for today. This new venue will enable comparison shopping for standardized health packages, facilitate enrollment and administer tax credits to make coverage affordable for all income levels.

Extending Dependent Coverage. Young adults age 19 through 29 are the largest growing age group in the country at risk of being uninsured. The growing population of un-employed or under-employed young adults has many of them landing back at home after college. Parents are increasingly making planning for the expenses of their able bodied adult children part of their divorce negotiations. Current medical policies provide dependent care for children until they are 19, or 23 if a full-time student. Purchasing catastrophic or high-deductible medical insurance for the kids has become a common risk management solution for parents to insure against major loss if their child should be in an accident or need expensive medical care. The problem remains the relatively high cost and relatively small number of options. The Patient Protection and Affordable Care Act will require any group health plan or plan in the individual market that provides dependent coverage for children to continue to make that coverage available until the child turns 26 years of age. This takes effect for plan years beginning on or after September 30, 2010 and should allow parents to more effectively arrange for sharing the costs of co-parenting their adult children.

There are many other important and far reaching provisions beyond the scope of my writing. The complete 2,409 page text is available at http://docs.house.gov/rules/hr4872/111_hr3590_engrossed.pdf.

So how are we going to pay for it? Tax increases. The upper middle class and wealthy will be footing the bill for much of the increased taxation. An increase in the hospital insurance tax rate (commonly referred to as Medicare payroll tax) and an additional tax on investment income will take effect in 2013. The Medicare payroll tax will increase from 1.45% to 2.35% and a “Medicare contribution tax” of 3.8 percent will be levied on net investment income (e.g., dividends, capital gains, rents, passive income) for taxpayers with Adjusted Gross Income greater than $200,000 ($250,000 for joint returns).

Increased access to affordable coverage should provide flexibility in divorce settings, reduce the use of risky long term planning scenarios and possibly remove expensive COBRA continuation coverage from our lexicon.  Like any significant income tax changes, those included in the reform will require changes to support guideline calculations and a base-line understanding of how those changes will affect individuals and families navigating divorce. We will learn more as provisions go into effect in the coming years.

_________________________________________________________

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

 The general idea is that there is a growing need for Financial Advisers experienced in divorce to help individuals and couples navigating the difficult financial decisions necessary during the division of a marital estate. I agree with the premise but have real concerns with some of the statements included.

 The Premise

The economics of divorce have changed and will continue to do so. The decision of WHO gets to keep the home has never been easy. Now it is also difficult to carry out the agreed upon plan. Deteriorating real estate markets and nonexistent financing alternatives have left divorcing couples faced with decisions family law attorneys are not experienced in advising. Constantly changing tax law has created financial concerns such as the Capital Loss Carryforward, Dependency Exemption, Alimony Recapture, Child Contingency Rules and Section 1041 governing tax free transfer of assets pursuant to divorce. Attorneys and their clients ignore these at their peril as they have real economic value and consequences. Federal Tax Law supersedes state Family Law so relying upon family code for guidance will often lead to inappropriate and costly conclusions. There are many examples of the value of Divorce Financial Planning and a Financial Adviser in divorce proceedings throughout my website.

 My Concerns

The article interviews various Financial Advisers providing Divorce Financial Planning advice in various divorce processes. There are multiple options available to a divorcing couple as elucidated in the articles and on my website. They are Litigation, Collaborative Divorce, Mediation and Do-it Yourself. No matter which process is chosen, Divorce Financial Planning is valuable to the parties and the attorneys. In Collaborative Divorce or Mediation, a Financial Adviser may work as a Neutral adviser to the family. Here in lies my concern with the article. The Reuters article puts forward “Unlike in a collaborative divorce case, a financial neutral in a mediated divorce can take either party as a client after the divorce.” I disagree.

1. Let’s look at the definition of the word NEUTRAL –“belonging to, favoring, or assisting no side in a war, dispute, contest, or controversy”.

2. The following is an excerpt from the International Academy of Collaborative Professionals (IACP) ethical standards for practitioners. These are aspirational as the IACP does not have disciplinary authority of any kind. Key areas are underlined for emphasis.

                    10.1.  A Collaborative practitioner who serves on a Collaborative case in a neutral role shall adhere to that role, and shall not engage in any continuing client relationship that would compromise the Collaborative practitioner’s neutrality. Working with either or both client(s) or with their child(ren) outside of the Collaborative process is inconsistent with that neutral role.

                  A. A Collaborative practitioner serving as a neutral financial specialist in a Collaborative case shall not have an ongoing business relationship with a Collaborative client during or after the completion of the Collaborative case, but may assist the clients in completing the tasks specifically assigned to them by the clients’ written, final agreement. Such assistance may not include the sale of financial products or other services.”

3. Divorce Mediation remains completely unregulated at this time. There is no requirement for a professional to be trained in formal course work to be a mediator. You do not have to be an attorney, financial adviser or any other discipline. There is no expectation of competence in any specific practice. There are great resources for mediation training and a few organizations that again have aspirational guidelines for training. Since there are no guidelines for training there are no guidelines for the relationship a Mediator or Neutral should have with their clients.

4. The nature of divorce with the court’s continued jurisdiction over modification of various orders requires a professional to assume their relationship continues with the family even after a judgment of divorce has been entered.

Why does the article propose that the definition differs in the context of a Collaborative Divorce versus a Mediated Divorce? The Definition of NEUTRAL remains the same in either process. I suspect it is because there are no stringent guidelines available for a Financial Advisers acting as a Neutral in a mediation setting. In the absence of guidelines we must live with our personal ethics. I believe an adviser calling themselves a Neutral during a divorce or any dispute  resolution process must adhere strictly to the definition of Neutral and must always assume their job may never be done in that Neutral role.

The Certified Financial Planner Board of Standards defines a “conflict of interest” as when “a certificant’s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services.” Consider the case where the “Neutral” adviser anticipates a relationship with one party post divorce and that party must make a decision to keep the house or take a cash buy out. The adviser stands to profit from the client’s decision to take cash as the adviser can manage that cash and earn a fee for doing so. If they take the home the adviser’s opportunity to manage assets is depleted.

I have had various opportunities to work with individuals and families in a Neutral role. It is common for one party to seek post divorce relationships with an adviser so integral in the difficult transition of divorce. They are always disappointed when I re-iterate that I am precluded by my ethics as a Neutral adviser from working with either party post divorce. If advisers wish to be a part of the “Growing need for advisers in out-of-court divorces”; they need to develop clear ethical boundaries for themselves. Maintaining a relationship with one party after having held yourself out as a Neutral for a couple is the definition of Conflict of Interest in my book and runs counter to the Ethical standards of a CFP®, CDFA™, or any other discipline.

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

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

A CERTIFIED FINANCIAL PLANNER™ professional, or Certified Divorce Financial Analyst  may not be able to help you sort out what dishes and furniture to sell or give away, but he or she would make a good first stop in developing a complete downsizing strategy involving assets, investments, career and overall financial lifestyle planning.

Handled correctly, downsizing can save a lot of money. Selling a larger home – especially if it still has a mortgage – in favor of a smaller house or condo can potentially save tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.

Get advice first: Downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. A CFP^® professional can give you a push by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.

Start thinking about new places to live: Today’s divorcees don’t necessarily have to move to predictable local condominiums and apartments filled with the neighborhood’s recently divorce parents. Decide what kind of home you could see yourself living comfortably now and when your children are grown. To get you thinking and hone your expectations, start looking at local newspaper ads and visit websites like Realtor.com to seek information about current listings. Keep your finger on the pulse of the neighborhood so you can be sure to know when a good deal becomes available.

Talk to your family: It is important to discuss expectations with your children. Many parents use their children as a reason to place themselves under financial hardship in order to retain a family residence. Chances are good that those same children when given the choice, will choose to see their mother happy and comfortable in a smaller, more affordable home, over watching her rip up floor boards to heat the McMansion.

Start weeding: Physical downsizing isn’t something that’s done quickly. Give yourself some time to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what each party will take to their new residence, what you hope to give to friends and family members and what you’ll donate or trash. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system so you won’t forget any decisions you’ve made along the way. You might want to set up a separate area for family photos and other keepsakes that have high emotional value and an egalitarian system for who will get what.

Don’t start upsizing later: When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard. Make a permanent life decision not to start re-using credit cards or mortgage debt.

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