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Tracy Stewart, CPA

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Peace of mind through financial clarity.

How to Start a Budget after Divorce: Your 60-second Post-Divorce Budget Bootcamp

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If I say the word “budget”, how does it make you feel? Having a plan and purpose for every penny gives you complete control — and here’s why that’s so important after divorce.

In today’s episode of Your Money Minute with Tracy Stewart, CPA, I want to talk about how to start a budget after your divorce. If you’ve never budgeted, you’re definitely not alone.

Starting a budget can feel clunky and unfamiliar. Sometimes you have n no clue what numbers to plug in, how to track your spending, what goals to set… But it’s all about developing good, healthy habits regarding your money. Good habits take time to establish, so take it easy on yourself as you make the changes necessary. Divorce is all about change, right? You’ll absolutely get there, I have no doubt!

For a while, I was the lady carrying around a little notebook in my purse to track every time I swiped a card or spend a penny. I used this to track my expenses so my budget could get even more realistic with time. I eventually started using a credit card for all expenses, so I could more easily track and categorize them. (Reminder: This will ONLY work if you pay the card off at the end of each month. Don’t get yourself into debt and use the excuse that your money lady said you needed to do it for your budget!)

One last thing: You have to write down your budget. Don’t do this in your head — that’s not good enough. It has to be on paper, it has to be on purpose. The more you get into the nitty gritty of your dollars and cents, the better you can predict, prepare, protect and prosper.

Financial independence is unbelievably liberating. A budget keeps you honest and on track to reach your financial goals. Start developing strong money habits now, and set yourself up for financial security for the rest of your life.

Remember: You can subscribe to my YouTube channel for new episodes of Your Money Minute every weekday. I share tips, tidbits and techniques for making the most of your money and life.

Post-Divorce Checklist: 6 Steps for Financial Peace of Mind

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Post-divorce checklistThe divorce agreement is signed and the final legal bills have been paid. After the long period of uncertainty and stress, this should be the time to breathe a sigh of relief and be done. Right?

Well, almost. Even though you don’t have to go to any more attorney meetings, there are still steps to take towards untangling a married family life into two single lives. Getting these done as soon as possible after the divorce will go a long way towards minimizing surprises and creating a solid home base for you to recover. [Read more…]

Do’s and Don’ts for Boomers Living in Sin

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canstockphoto15145120 Senior Couple on beachAfter a divorce, many Baby Boomers swear they will never marry again. Then they fall in love. In a previous post, Boomers: In your next relationship just shack up, I listed the financial incentives that are fueling the surge in seniors shacking up together. In this post, I will share tips on how to handle your finances when living in sin.

 

Share Household Expenses? Definitely

Many divorces are sparked by the inability to talk openly about money. In your post-divorce relationship, don’t fall into the same trap that got you into that divorce. Make it a priority to go over the money situation once a month. Share the household expenses equally or proportionately based on your respective incomes. Here’s where that joint account comes in handy to pay the bills. You each deposit your share of money to cover expenses and pay for them out of the joint account.

When I say “household expenses”, I am not talking about improvements to the house; fund those by the person who owns the house. Sharing in the cost of remodeling or major repairs can get complicated when one of you passes away first without clearly covering this situation in the estate planning documents. Again, I can refer you to excellent estate planning attorneys in the Brazos Valley.

Mingle Assets & Debt? Nope

When shacking up together, retain separate checking accounts. One joint account is fine as long as you also have your separate account. Do not apply for a joint credit card. Do not comingle debt.

Do not contribute toward the purchase of a major asset that is titled to your partner. Talking about houses, vehicles, boats, airplanes and investment accounts. Ok, if you just have to contribute, be sure your name is also on the title. If you are leasing an abode, get both your names on that lease. No exceptions. Consult with an estate planning attorney. Ask me for the best ones in the Brazos Valley. Do not get yourself into the pickle of co-owning a house with your partner’s mother after your partner tragically and suddenly drops off the perch.

Get a No-Nup? Yep

Ok, it might not be romantic, but get a no-nup anyway. This is a legal document that addresses property division, financial support and debt planning for the possibility that your relationship ends prior to either of you passing on. You want to be clear what will happen to your assets if and when the relationship ends. It is not a DIY project. You will need a family law attorney, so call me if you want recommendations.

 

Boomers: In your next relationship just shack up

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canstockphoto22699599 Happy Older Couple In Park

It used to be called living in sin. It is now socially acceptable and growing by leaps and bounds among boomers. Shacking up is a popular alternative to marriage and divorce, even a nice collaborative divorce. Older people are living together for an average of nine years. Financial reasons top the list of incentives.

Loss of Income. Alimony usually stops when the recipient marries. If you have survivor’s pension benefits, you might lose those if you remarry. If you are receiving a share of your late or former spouse’s Social Security benefits, you could lose those benefits if you remarry before your 60th birthday. If you remarry after age 60 (age 50 if you are disabled), you can collect benefits on your former spouse’s record.

Potential Financial Burdens. In Texas, both spouses are on the hook for most debts incurred during the marriage, regardless of who incurred the debt. Then there is the cost of nursing homes at $5,000 a month in the Bryan College Station area. As a married couple, such costs can devastate the surviving spouse’s financial security.

Tax Disincentives. If each of you has income, as a married couple you could be thrown into a higher tax bracket. As singles living together, you each get $3,000 of capital losses to offset ordinary income, which results in an offset of $6,000 over the two tax returns. As a married couple filing with a joint tax return, you two would only get $3,000 to offset.

Estate Planning Risks. Protecting their children’s inheritance is a big reason Baby Boomers opt to cohabitate. Assure yourself and your heirs that their inheritance will remain intact. Visit with an estate planning attorney before you move in together. Contact me if you need a recommendation for an excellent estate planning attorney in the Brazos Valley.

In my next blog, I’ll give you tips for what to do and what not to do when shacking up. Do’s and Don’ts for Boomers Living in Sin

 

Divorce: Watching Out for Your Financial Future

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canstockphoto3071713 small change coins

Bryan/College Station couples in divorce who stay out of court can get ahead financially by choosing the collaborative law divorce process. Unlike all the other divorce processes, collaborative law divorce provides a neutral financial advisor who has particular experience in helping couples move from we to me. You can save divorce costs and have a new financial plan that gets you going in your new life.

Divorce is one of the most stressful transitions you can face. Most individuals just want out, no matter what the cost. Unfortunately, without divorce financial advice, the cost can be very steep indeed. It can include decades of fighting in court and difficultly making ends meet. The usual financial planning structure does not work in divorce.

Your financial considerations hinge on the fact that you are moving from a couple to a couple of individuals. You and your spouse may have always differed in your financial planning opinions, but you had to compromise in some way during your marriage. After the divorce, each of you can make your own choices. This transition in planning is unique to divorce.

In a Bryan/College Station collaborative law divorce, you work with a team of experts trained by the Collaborative Law Institute of Texas. This includes attorneys for both sides, a neutral CPA/financial planner and a neutral divorce coach/child specialist. The neutral CPA develops a plan for splitting your property and is prohibited from taking either of you as a client after the divorce.

In mediation, you usually only have your attorney to advise you, missing the financial expertise of the collaborative law process. If a financial planner is engaged for a mediated divorce, that person can accept either party as a client after the divorce. This is a financial risk to you if your spouse promises to be a paying client after the divorce. Only the collaborative process ensures the protections of a truly neutral financial advisor.

 

I have worked on about 100 collaborative law divorces. If you would like my advice on which collaborative law attorneys to interview, feel free to contact me at stewart@texasdivorcecpa.com.

The Number: How Much Spousal Support to Seek?

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After a long marriage, women facing divorce struggle with knowing how much spousal support to seek. You can help yourself by understanding your future cash flow situation.

Make a detailed list of the living expenses you will have after your divorce. Identify your expenses. Create a separate list of expenses you wish to cover for your children. Look over your bank statements and credit card statements for the past year. Identify those expenses that will not change after your divorce. Then make a list of spending amounts that will change after your divorce. Will you have a new cell phone contract? How about your vehicle insurance premiums? Are you expecting to have a different home?

Estimate how much of your living expenses can be covered by non-wage income. If you have investments, the income on those may change after you start making investment decisions on your own or are working with an investment advisor. Consider whether you might have Social Security income or pension income. Estimate how much child support you think you will receive.

Will you have income from a job? How much you can earn in a career? If you already have a career, this step is relatively easy. If you are just now entering or re-entering the workforce, this step is more challenging. Consider seeking advice about your employment possibilities from a career advisor.

To find out how much spousal support you might want to ask for, add your estimated sources of income together and subtract your anticipated expenses. If the result is a negative number, that is your starting number for how much spousal support to seek. Weigh this against the Texas spousal support guidelines and the amount your soon-to-be-ex husband can manage. Work with your divorce attorney to fine-tune your approach.

I can refer you to Brazos County divorce attorneys as well as career advisors and investment advisors. Contact me today for a referral.

Are you worried about IRS problems haunting you after your divorce?

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Texas spouses whose divorcing husbands or wives have controlled the income tax returns during the marriage often worry about having the IRS come after them for back taxes and penalties years after the divorce. If this sounds like you, you can benefit from knowing about innocent spouse relief and an indemnification clause to protect yourself.

When you file a joint return, each of you and your spouse are liable for all of the taxes, penalties and interest owed on the return. After your divorce, you will still be on the hook for the unpaid taxes that apply to your joint tax returns from the years you were married. That is, unless you can qualify for innocent spouse relief.

Early in your divorce, talk with your attorney about getting an indemnification clause in your divorce settlement. In Texas, this would be included in your divorce decree, agreement incident to divorce or a mediated settlement agreement.  It would say that your ex-husband or ex-wife is required to reimburse you for future tax liabilities related to prior tax returns.

By the way, the IRS does not care about this indemnification clause. They can still go after you for any taxes, penalties and interest owed from either you or your ex.

 

Most Neglected Divorce Homework

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I help Houston divorcing couples find mutually agreeable settlements. Frequently, part of that settlement is finding suitable health insurance for the unemployed spouse.

I give my clients homework. Get this document, copy these statements and so forth. The most neglected homework assignment is to obtain health insurance quotes. Perhaps it is a scary thing to do. I give them a referral to a great health insurance agent, but still, they procrastinate.

Many can get COBRA through their spouse’s employer. But it is important to check out all your options. COBRA coverage is usually more expensive than health coverage for employees, because the employer typically pays part of the premium for the employees. If you are the divorced spouse who is covered with COBRA, you are going to pay the entire premium without the benefit of an employer subsidy.

As a former spouse, you  can elect to continue the COBRA coverage for as long as 36 months. Check with your spouse’s Human Resources department for the exact length of time. In Texas, your coverage might be only for 18 months. The plan administrator for the health plan has about 14 days to notify the person of their right to get the COBRA coverage. The person needing COBRA coverage must contact the plan administrator within 60 days of the divorce or legal separation.

Most importantly, get your health insurance options straight early in the divorce so you can make an informed decision and negotiate for the premium expenses during the property settlement discussions.

Six Steps to Post-Divorce Health Insurance Coverage

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Many of my clients in Houston and College Station are facing a health insurance answer during their divorce. They are unemployed and rely on their soon-to-be-ex spouse for health insurance coverage. What to do if you are in that situation?

  1. Find out if COBRA coverage is available under your spouse’s employer.
  2. In Texas, there are two kinds of COBRA, federal and state. The former offers 36 months of coverage after divorce while the latter offers 18 months. Find out which one is applicable to your situation.
  3. Get a quote on your cost of COBRA coverage from the employer.
  4. Seek quotes on individual policies from an independent health insurance advisor. (If you need a referral in Houston, send me an email at stewart@texasdivorcecpa.com.)
  5. Compare the coverage and costs of the COBRA and the individual policies.
  6. Be very careful with your timing when changing health insurance coverage from your current coverage to either COBRA or individual policy. Do not have even a day of lapse.

Most people want to put off this project. It seems intimidating. Break it down into these six steps. I cannot emphasize enough how important this issue is for your future financial security.