Our Divorce Mediation Blog

THE VALUE OF A PENSION AND A 401(k) IN A DIVORCE

12/14/2018

A pension and a 401(k) are two different ways to save for retirement. A pension gives you a set income amount distributed each and every month no matter how long you live. A 401(k) has a certain amount of money in the fund and when all of the money is eventually distributed that income stream is gone. Most people today no longer have the option of a pension and the comfort of a never-ending monthly income and must budget their retirement with 401(k) funds. However, most teachers, police officers, and fire fighters can still rely on a pension for funding their retirement.

When you are getting a divorce, it is important to have your pension evaluated by an actuary. An actuary is a math whiz that uses statistics to determine insurance risks and premiums. An actuary can also use those math whiz skills to determine the marital value of your pension. Most people with a pension receive a personal benefit statement which shows how much the employee has contributed to the pension. This is not the value of the pension. The value of the pension has to be calculated using a formula which will show the current value of that future stream of income. Your future stream of income might be worth hundreds of thousands of dollars even though you have contributed $35,000 at this time. If you retire at 60 and then live to be 100, that’s 40 years of pension money. If you get $3,000/month from your pension then you get $1,440,000 from the pension. But what if you live until 70? Then you get a total of $360,000. The actuary can help predict how long you will live and come up with an estimated current value of that future money (which also gets adjusted for inflation). Sometimes some of the money for your retirement may be earned before or after your marriage. That money does not count as a marital asset. It is not a straightforward calculation- which is why you need the skills of an actuary.

A 401(k) and a pension are not always an even swap during a divorce. It is important to have your pension evaluated so you can fully understand the value of the asset you are keeping or giving up. At Westfield Mediation, LLC, our divorce mediators help our clients understand this often-misunderstood situation. We help clients look at their entire financial situation as a whole and fully understand each piece of it. We help both clients have a realistic view of their new financial futures and their retirement funds are a key piece of that picture.

For more information on pensions or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

ASSESSING ALL OF THE ASSETS IN A DIVORCE

11/16/2018

One of the goals of divorce is to separate financially from one another. Sometimes you remain financially connected due to child support, expenses for the kids, college tuition, alimony, etc. But when going through a divorce you want to try to separate your financial entanglements as much as possible. You open up separate and individual bank accounts, you get individual instead of joint credit cards, you get your own car insurance. Sometimes in a divorce you divide joint assets, such as shares of stock or a pension, into separate accounts or you keep control entirely of one asset, such as a business.

You agree that once you are divorced and separate your assets into these individual accounts you have sole control over them. You manage when to sell your shares of stock and have no say over what your ex-spouse does with his/her shares after the divorce. If you kept all your investments with Bernie Madoff and your ex-spouse pulled all of his/her investments, then post-divorce you are bummed and poor and your ex-spouse is not. The same is said for a small business. If your spouse got 100% of the business in the divorce because you thought the business was not worth much, and then the business takes off, you cannot claim you are entitled to some of that success. Once you give up your claim to something, no backsies.

During divorce mediation at Westfield Mediation, LLC, we recommend that couples get all of their assets valued by outside, objective sources. You want to understand with hard facts what you are giving up and what you are keeping. Many times, people don’t want to go through the effort and expense of getting pensions or businesses evaluated. Instead they often ballpark what they think it is worth and then trade one asset for another. I’ll keep my pension and you keep your 401(k). However, if they got their pension evaluated, they would see that this is not an even swap. Or you may think your business is worth x but really it is worth y. You keep the business worth $100,000 (so you think) but really it would be valued at $25,000 by a forensic accountant doing a business valuation. So, in the divorce settlement you end up giving up too much of your entitlement to your spouse’s retirement funds so you can keep your business. In order for you to truly swap one asset for another you need to know the actual value of it all.

For more information on divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

dividing the money

7/13/2018

In a lot of marriages, one spouse is in charge of handling the money – investing, paying bills, taxes, etc. And, in some cases, the other person is completely in the dark about the family finances. Sometimes, this is a conscious choice – one spouse has skills or interests in money management, and the other does not. And sometimes, it just happens with the natural division of labor that occurs when you create a family – you bring the kids to soccer, I will pay the bills; I will make dinner, while you call the accountant.

And this arrangement may work for many couples. Yet, if circumstances change, and the couple starts to think about getting divorced, the spouse without any money knowledge may feel that he or she is at a disadvantage. At Westfield Mediation, LLC, we recognize that this is a common scenario for divorce mediation clients, and we make sure everyone understands the post-divorce financial plan and that both parties’ financial interests are being met.

During divorce mediation, we help couples create a financial plan for moving forward. As part of this process, we have clients lay out all of their assets, debts and expenses so we can all see the whole picture. For some divorcing spouses, this is the first time he/she is seeing all this information, and it may seem overwhelming. In divorce mediation, we help reduce some of the stress by breaking the process into manageable steps. We also recommend accountants and financial planners – these professionals can be especially helpful for divorcing spouses who have never taken on any financial role before.

Being out of the loop on the financial side can seem like a problem for some spouses, but it is not an insurmountable one. In divorce mediation, we make sure everyone has all the facts before the divorcing couple commits to a financial plan for their futures.

For more information about financial plans or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

Retirement Accounts Are A Marital Asset

5/4/2018

Many people are upset/elated to find out that retirement monies accrued during the marriage are considered a marital asset, regardless of which person’s name is on the account. If you had $100,000 in your 401(k) or IRA on the day you got married and $400,000 when getting divorced, $300,000 is considered the marital asset, even if only one person funded all $400,000 from his/her contributions from his/her paycheck into the account. The $100,000 is a pre-marital asset and not part of the marital assets. It belongs solely to the owner of the account.

Pensions can be a little trickier. When looking at a pension you first have to determine how much of your pension is considered to be a marital asset and if you are dividing it now or later. If some of your pension was earned before you were married you will probably need an actuary to do some complicated math to determine what dollar amount of your pension is considered to be a marital asset. There are some complex formulas that are used. It is not as simple as looking at a statement, like you can do with a 401(k) or IRA.

There are two methods to distribute the monies in a pension- Immediate Offset Method and Deferred Distribution Method. Both are well-named. The Immediate Offset Method means you find out the present marital value of the pension (let’s say $300,000 just like in the example above) and offset the value with another equivalent holding from the big pot of marital assets. So instead of getting $150,000 of the pension, you get $150,000 more than your spouse from the sale of the house (which sold for $500,000) and your spouse keeps full ownership rights to the pension. Person A gets $400,000 from the sale of the house and none of the pension. Person B gets $100,000 from the sale of the house and all $300,000 of the pension.

The Deferred Distribution Method means you are waiting to get money from the pension. You determine that one spouse will get x percentage or dollar amount from the pension and the other spouse will get the rest. However, this does not happen until the pension holder is eligible to receive the retirement benefits. You are deferring or waiting for some point in the future to get your marital share of this asset.

Neither method is better than the other. You have to determine which works better for your situation. At Westfield Mediation, LLC we help you figure out what your post-divorce economic life will be. This can help your work out how best to divide your retirement funds.

For more information on dividing retirement funds in a divorce or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

Big Changes may be coming for alimony

12/22/2017

The proposed tax bill that Congress is working on includes a big change to alimony/spousal support. According to the latest version of the bill, beginning with divorce agreements executed in 2019, alimony will no longer be a deductible expense for the ex-spouse who pays. And the recipient will not have to pay tax on the alimony he or she receives.

This change could be a big deal for divorcing couples. While it could save some money for the person who gets alimony, it may make the higher-earning spouse less inclined to pay spousal support – and have less money available to distribute -- if there is no tax benefit to the payment.

In New Jersey, determining the amount and time period of spousal support or alimony requires a balancing of factors – the length of the marriage, the parties’ age, health, income and ability to earn, etc. Currently, the alimony payments are taxable income for the person who receives them, and a tax deduction for the payer.

In divorce mediation, we work with our clients to develop a fair spousal support plan that also takes into account the divorcing couples’ assets and debts. In our experience at Westfield Mediation, LLC, the current tax rule generally encourages divorcing couples to include spousal support in their agreements, because both the payer and the payee benefit. It will be interesting to see how this proposed change plays out in the real world of divorce.

For more information on spousal support or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

The Hot-Button issue of Alimony

10/27/2017

Alimony is often a hot-button issue in divorce mediation, and the discussion can get very emotional. In many cases, one spouse feels that he or she deserves more money for a longer period while the other wants to pay less money for a shorter time. Also, while the goal is to even things out for some period of time to reflect the lifestyle of the marriage, the couple may also disagree on what kind of lifestyle they had. For example, if this past year was particularly good or bad, how should that factor into the calculation. Luckily, in divorce mediation, we are used to difficult discussions. And we can guide divorcing couples with somewhat competing interests to reach an agreement.

Determining the amount and time period of spousal support or alimony requires a balancing of factors – the length of the marriage, the parties’ age, health, income and ability to earn, etc. Because there is no one set formula, divorce mediators can help couples come up with creative solutions. For example, for our clients at Westfield Mediation, LLC, we sometimes create a plan where the amount of spousal support changes over time, giving the receiving person some opportunity to establish himself/herself financially. Also, in our financial plans, we balance spousal support with the distribution of assets and debts to come up a fair allocation for both people. Alimony has tax consequences and also impacts child support, so it’s important to have a financial agreement that works for the whole family.

Coming up with a plan for alimony that makes everyone feel comfortable can be tricky, but it is doable. For more information on spousal support or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, M. Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.

dividing assets in a divorce

10/13/2017

One area that has to be addressed in a divorce is division of your assets and debts. What is happening to your house, 401(k), IRA, pension, stocks, investments, bank accounts, credit card debt, mortgage, student loans, car loan, etc. Anything and everything dealing with your finances is addressed. It can seem overwhelming but the divorce mediators at Westfield Mediation, LLC, help you break it down in to smaller, more manageable steps. Some people choose to look at all of their assets and debts and split each and every one in half. That is very doable. But this is not your only option.

One of the great positives about divorce mediation is that you can develop a financial plan that works for you. You don’t have to split every asset or debt down the middle. One person may want to keep the house and one person wants to keep all of his/her pension (and the values are somewhat similar). When you have multiple investment accounts you can each keep a whole of several accounts and divide only one of them to balance out the bottom line. What can’t happen is that one person keeps all the assets and one person gets stuck with all the debt. At the end of the day when looking at the big picture if the numbers of all of your assets and debt and all of the other person’s assets and debts are close to one another then you have a plan for your financial future.

But you also have to think about your cash flow. In order to keep 100% of your pension for the future you may be giving up another asset that you could tap into for cash right now. Will your post-divorce budget allow that? And you have to keep in mind the tax implication for the assets that you are keeping or giving up. Or the interest rate on the debts that you are keeping or giving up. There is a lot to consider and that is why some people choose to just divide everything down the middle. But you don’t have to.

For more information about divorce mediation contact Randi M. Albert, JD, or Michelle Weinberg, M.Ed., Licensed Marriage and Family Therapist, at Westfield Mediation, LLC, at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com

Fair and equitable

11/25/2016

The focus in divorce mediation is on coming up with a plan that is “fair and equitable.” Keeping that standard in mind for our clients at Westfield Mediation, LLC would seem to lead to an easy path for dividing assets and debts, and creating a reasonable plan for spousal support. Yet, in many divorces, the emotional and the financial are all tangled up, and what’s fair to one person seems quite unfair to the other.

Generally, (with a few exceptions), both the assets and debts accumulated during marriage are shared. But what if one spouse ran up big credit card bills while having an affair, or in a less extreme scenario, buying high-ticket items he or she knew that other spouse wouldn’t approve. Should those bills still be evenly shared? What if one spouse helped the other pay off debt early in their marriage – is there any credit later on for that assistance? What if one party’s low salary was an ongoing source of strain, should that spouse still get an equivalent settlement or generous alimony plan? Are the burdens borne by the primary parent and the primary earner the same? Should they share the pot evenly?

These are the kinds of emotional financial issues we commonly deal with in divorce mediation. We help divorcing couples draft a financial plan that they can both accept, keeping in mind both the best interests of the children, and the fair and equitable standard. It can be tricky, but the goal is to make it less of a win-lose scenario, and more of a collaborative effort. Working together with a mediator through this process helps preserve a better ongoing relationship; and divorcing couples who have some input into the plan are more likely to follow it.

For more information about divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, LMFT, at Westfield Mediation, LLC, at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com

divorce and MOney Troubles

9/30/2016

Divorcing couples often have money troubles. Sometimes, these problems already existed, and maybe even contributed to the decision to divorce. Other times, it is just the expense of creating two households that makes things financially difficult. As part of the divorce mediation process at Westfield Mediation, LLC, we help our clients create a workable financial plan.

In mediation, we go through our clients’ assets and debts, and help them devise an agreement for dividing them. We also create plans for child support and spousal support or alimony. Finally, we have our clients complete budgets that show how much they spend living together, and how much they will spend living apart.

During this process, it often becomes clear that for most people, the expenses of living separately are greater than those living apart, and their current incomes are going to need to be stretched. This is especially true at the beginning of the separation when the couple may need to set up a new home or two.

To get through this rough time, we encourage our clients to try to trim their budgets and/or maximize their income. Oftentimes, we recommend speaking to a financial advisor to determine how best to move forward with current income and investments. Laying out financial issues helps make clear what each person needs to do to afford their new life. And having a practical financial plan in place takes some of the stress out of getting divorced.

For more information about financial plans and/or divorce mediation, please contact Randi M. Albert, JD, or Michelle Weinberg, LMFT, at Westfield Mediation, LLC, at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com

Revenge in a divorce

11/13/2015

The last two books I read involved women who were getting a divorce and wanted revenge on their husbands. Each wanted to punish him for divorcing her. While I understand the emotional desire for justice, the law remains neutral and does not allow for revenge tactics in divorce proceedings.

New Jersey is a no-fault state when it comes to divorce. That means that even if you can point the finger at the husband/wife and say to the world, “This is why we are getting divorced. It is his/her fault, not mine, because s/he did xyz” has no impact on the outcome of the divorce. You do not get more time with your kids because your husband had an affair. You do not pay less in alimony because your wife wanted the divorce and you did not. Fault or no fault does not impact the outcome of the divorce.

A while ago I had a couple at Westfield Mediation, LLC, that were married for over 25 years and the husband was already receiving a large portion of their financial assets. However, this was not satisfying to him. He was angry and wanted to make his soon-to-be ex-wife pay more, because she asked for this divorce and this is not something he wanted. Rationally he understood the facts of the situation. He was keeping the house in its entirety and could see on paper that in lieu of alimony he had 70% of the assets and she had 30%. But emotionally this was not enough. Emotionally he was so hurt and wanted to hurt her the way that she hurt him. And the only way he thought he could do this was financially. He wanted financial revenge on her, for her causing emotional distress to him. I had to explain that the law does not work that way. Revenge makes for a good story plot in a book, but the judge won’t go for it in New Jersey.

For more information about divorce mediation contact Randi M. Albert, JD, or Michelle Weinberg, LMFT, at Westfield Mediation, LLC, at 908.913.0373. View our website at www.westfieldnjmediation.com or email us at info@westfieldnjmediation.com.