Ugh… Financial Disclosures, really? Do I have to?

Yes, the California Courts require full financial disclosure of all income, assets, and expenses. Honestly, I think this is an important requirement even though it can be difficult. It is unfortunate that many of us do not know much about our finances. That can be for many reasons, but truthfully, managing money is not usually something we look forward to doing as a “fun” joint activity with our spouse. And if money is tight, or even if it isn’t, it can be a significant source of conflict. So like typical human beings, we take the easy way out and one person takes a primary role of managing the finances.

So in divorce we typically set up two different households, and each person in the couple will now be handling their own income, expenses, bank accounts, and investments. For the person who has been doing this all along, it is generally not a big deal. Yet, for the person who has not been involved much in the past, taking on money management can be a big change. Don’t worry if that is you, I can absolutely tell you that this is very common, and there is no shame in it. Look at it as an opportunity.

Back to the financial disclosures…

It is time to divide all the income, assets, and expenses you previously had together. I have yet to see one household magically divided into two with the same income without significant spending changes.

The process of developing a good budget provides great insight into what you have actually been making and spending. While it is much easier to just spend, I find that many people can easily adjust some of their spending habits by just looking at where the money is actually going. Understanding where the money goes also supports making purchasing decisions based more on your goals for your future than on your current emotional state.

An inventory of your assets: house, cars, savings, retirement funds, investments, art, jewelry, and toys along with any debt you might have is important to making decisions about how to divide your property when you divorce. Even if you are congenially working together, making separate lists increases the likelihood of including everything on the list. And yes, everything includes assets you had before the marriage, or received as a gift or inheritance during the marriage. In California, it is not typically required to divide separate property, but you must include it on your disclosures. If you end up in court, judges do not look kindly on hidden assets.

The disclosure of assets to the courts requires that you list them and value them. Sometimes it is not completely obvious how to value items like pensions, antiques, or tools and equipment. Divorce professionals help people do this all the time, and if they don’t know how to do it, most likely they know someone who does.

So, completing financial disclosures is certainly not something anyone gets excited about, but it is critical information to smooth the divorce process and ensure you know how to provide for your future.

Employee Stock Plans and Divorce

Those lucky enough to have an employee stock plan might wonder how the courts consider those plans in a divorce. The answer is… It depends!

Very commonly, employees with active stock plans will need to have someone evaluate the plan to determine how much is community property and how much is separate property. Regardless of whether it is stock options, restricted stock units (RSU), phantom stock, an employee stock purchase plan, or something else, in California you are likely looking at a mix of separate and community property.

Income and bonuses from employment during a marriage is community property and stock plans are part of the employment package. Thus, these plans can be both community and separate property if the grant date occurred before the marriage and the vesting date after. If both dates occurred before the marriage, then the shares are separate property. If both dates occurred after the marriage and before the separation then the shares are community property. And to make it more complex the courts look at the intended purpose of the grant as part of the analysis.

I have yet to see an individual use the same formula as the California Court system when analyzing a stock plan to determine how much is separate and how much is community property. That’s the long way of saying, don’t bother trying.  And to add a bit of further complication, once the separation period is in effect, income from vested stock plans becomes part of the income available for support used in spousal and child support.

It is not unusual for the soon-to-be ex-spouses to have differing opinions about how to handle incentive stock plans.  Applying the formulas for determining the community and separate property portions helps to find middle ground and it is more likely to be an acceptable solution to both parties.

This is a perfect assignment for a Certified Divorce Financial Analyst (CDFA)! We do these on a regular basis using the right formulas. Better yet, we can explain it so that you totally understand the implications. What do we need to do this analysis? A copy of the stock plan description, a list of the grants, and the vesting schedules is an excellent starting place.

Am I Going to be OK? Divorce and Retirement

If you are divorcing and anywhere near retirement, your financial future is a very important consideration for your divorce settlement. As I work with clients, I make it a priority to at least have a conversation on the subject with everyone 45 and older. The level of detail for this conversation increases the closer the client is to 65 or his/her desired retirement age. AND it must happen BEFORE the settlement is final.

Divorce can wreak havoc on your retirement assets (401K, IRA, pension, etc.). Additionally, some people find it tempting to pull some of that retirement money out, regardless of penalties, but that should be a last resort. A common outcome is that each party in the divorce gets 50% of retirement assets in the settlement. The problem is that retirement expenses of a single person are not merely 50% of what they are for a married person.

This is a great example of how a Certified Financial Planner (CFP) who is also a Certified Divorce Financial Analyst (CDFA) can add value and provide peace of mind. In my work for soon-to-be-divorced soon-to-be retirees, I generate a retirement projection based on the proposed settlement. I prefer to start before the settlement is even drafted to make sure my client asks for what is wanted and needed. The projection takes into account income from employment, support, social security, pensions (if you are lucky enough to have one), and any other income you anticipate as well as likely expenses and future goals. This allows us to work together to paint a picture for your future.

It is an amazing experience to work with divorcing couples who respectfully work together to make sure both parties will be OK; however, that is not a reality for everyone. Even if the divorce is not going well, it is a powerful process for the party I’m working with.

I have to say, I actually enjoy this part because it helps people to start planning for life after the divorce and maybe even do a little dreaming for their future lives. A little spark of positive energy to move forward with less uncertainty and more peace of mind.

Alphabet Soup of Getting Professional Help with Your Divorce Finances

Getting good financial advice as part of your divorce process can be one of the most important decisions you make. During this highly emotional time you are making some of the most important financial decisions of your life. High emotions and important financial decisions, a good match??? Not usually.

So who do I trust? It depends, but a simple answer is a professional trained in both divorce and finances relating to divorce. Your attorney should be smart, but is probably not the best professional to consult about what your retirement picture will look like after your divorce is completed.

Certified Public Accountants (CPA) or Enrolled Agents (EA) are great resources for tax related questions and advice, many are also well versed in divorce. Some tax professionals are also Certified Divorce Financial Analysts (CDFA) and specialize in divorce finances and taxes. Others may be Chartered Business Valuators (CBV) or Certified Valuation Analysts (CVA) who specializes in business valuations, or Certified Fraud Examiner (CFE) trained to look for hidden assets, financial manipulation, or misconduct.

A Certified Financial Planner (CFP) has specialized training in financial well-being, budgeting, and planning for your future life. A CFP with a Certified Divorce Financial Analyst (CDFA) credential specializes in financial well-being before, during, and after divorce. As a CFP and CDFA, I admit I am a little biased about the skills someone like me can bring to the table, but I honestly believe consulting with someone like me can be of tremendous assistance making wise decisions during your divorce such as:

  • Should I keep the house? (Notice not CAN I keep the house)
  • Will my support be enough to meet my monthly expenses? How will I afford to pay support?
  • What is the impact of divorce on my retirement plan? What is a QDRO? Do I need one?
  • What about paying for the children’s college education?
  • What about health insurance?
  • What protections do I need in terms of insurance and estate planning after divorce?
  • I’m divorced, now what do I need to do with my finances?
  • Are my investments set-up to meet my retirement needs?

CFP credentials require a certificate covering a wide range of financial education topics, experience, and successful completion of a very challenging exam. A CFP with CDFA credentials has earned an additional credential to specialize in divorce finances.

Rest assured, just like any true professional, a CFP, CDFA will not try to be all things to all people. As needed and appropriate, I (and my colleagues too) refer clients to other experts in the Alphabet Soup of financial professionals when their expertise is more appropriate for your  divorce situation.

How’s Your Financial Satisfaction?

In our society we tend to equate financial satisfaction with having a lot of money.  In actuality, the degree to which one feels satisfied with their money is based on a unique and personal interpretation of your needs and circumstances. In other words, two individuals can experience identical financial situations, and yet the degree of satisfaction they feel can be at polar opposites.

Satisfaction describes a feeling of fulfillment or contentment.  Its meaning is relative and often dependent on one’s definition of success as applied to specific areas of life.  In our financial lives, “satisfaction” is as much (if not more) an emotional issue as a practical one.  That is because a sense of satisfaction is highly subjective, and greatly influenced by the individual’s attitudes and beliefs.

The first step to making positive change in any area of life is awareness. Download this satisfaction survey to start the process!

Financial Satisfaction Survey_Lamorinda

And check out my new web site while you are here…


The Financial Satisfaction Survey is available via licensing arrangements with MoneyQuotient and is protected by federal copyright law.