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Tracy Stewart, CPA
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Tracy Stewart, CPA

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  • (979) 324-8179
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Peace of mind through financial clarity.

How to Keep Control of Your Divorce Costs

July 8, 2013 by Tracy Leave a Comment

canstockphoto1996125 Piggy Bank with cash

Divorce costs can spiral out of control if you don’t keep track of them. There are two easy steps to keeping control of your divorce costs. Whether you live in Bryan/College Station or Houston, these steps will work for you.

In a collaborative law divorce case, you will know at all times what your combined expenses are. It is part of the transparency of the collaborative process. Unfortunately, that is not the situation with traditional litigated cases. Finding out what your spouse’s expenses have been and will be is a challenging task in a litigated case.

The first step in controlling your divorce costs is to choose the collaborative law divorce process. Spending money on such items as valuing the real estate or the family business is a decision discussed in meetings. The issues regarding whether and how to incur costs are openly discussed in joint meetings with attorneys and the neutral CPA until both spouses understand the pros and cons and come to a mutual agreement.

The best way to control costs is to continually see what they are. The smartest collaborative divorce couples with whom I have worked were the ones who opened a new checking account just to pay the divorce bills. They moved money into this new account and then tracked what they were spending via the new account. If they paid for a divorce bill with a credit card, they paid that one credit card charge from the new account. All costs were shown in this account. These couples knew exactly how much they were spending on their divorce and were able to ratchet the costs down when desired.

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.

Filed Under: Financial Considerations, Fundamentals of Collaborative Law, Working with attorneys, Working with CPAs Tagged With: bank account, Bryan, Collaborative Divorce, College Station, decision making, divorce, divorce costs, financial issues, litigation

A Different Kind of Taxable Alimony

September 13, 2011 by Tracy Leave a Comment

Herman decided to give his wife, Angie, lump sum alimony in their collaborative divorce. He didn’t want it to be taxable to her. He was okay with not taking any tax deduction on his side of the transaction. They can do that. It is legal.

He and his attorney told Angie and her attorney that the alimony in his offer is non-taxable. Angie would get to keep the entire lump sum and none of it would be taxable. Great. Angie considered the lump sum in relation to her cash needs. Looks good.

But, when the agreement was typed up for signatures, it said that Angie was getting her lump sum alimony money from Herman’s IRA account. Herman was going to transfer that IRA money to Angie. He was not going to withdraw it, pay the income tax due and then hand it to Angie. That meant Angie would have to pay income taxes on her alimony when she withdraws it from the IRA.  When I point this out to her, she and her attorney are no longer happy.

Surprises are not fun in divorce proceedings. Angie and her attorney started packing their stuff, ready to walk out.

I sat down with Herman and his attorney to try to figure out how he could give Angie a lump sum that will not be taxable to her. After all, he had offered that to her.

He didn’t want to part with any of his cash-in-bank. So, we scoured his IRA and discovered that it included a large chunk of post-tax contributions. This meant that Herman could use the post-tax contribution money for the lump sum alimony. Angie would not have to pay income tax on the alimony money she withdraws from the IRA. Angie and her attorney were back to happy.

Income taxes are hidden in all kinds of places. Be careful.

 

Filed Under: Financial Considerations, Financial Literacy Tagged With: alimony, bank account, Collaborative Divorce, decision making, divorce attorney, financial issues, income taxes

Everything Shrinks in Divorce Except Expectations

April 13, 2011 by Tracy Leave a Comment

This weekend I read an interesting article in the Wall Street Journal, The Incredible Shrinking Everything by Joe Queenan.  He tells us that nearly everything is shrinking. Yeah, yeah. I knew about the juice containers shrinking. What I hadn’t realized were the shorter solos by Eric Clapton and the lower basketball scores from 2000 to 2011. Shrinkage.

His column reminded me of the shrinkage I see in my business. Bank accounts shrink. Patience shrinks. Lifestyles shrink. What surprises me is the frequently unrealistic optimism of people in divorce.

Sure, everyone is hurt and angry and scared. But they are strangely optimistic (or blind) about their financial future. They really don’t grasp how much their financial security will shrink when they create two households from one.

Nobody likes to cut back on their lifestyle. Not even the wealthy. It’s hard to do. I have come to the conclusion that we humans have great difficulty accurately imagining negative change. We can talk about it. We can rationalize the change. But we can’t seem to feel it until it hits us between the eyes.

So, how does this relate to divorce financial planning? I recommend that if you are considering divorce, you financially pretend you already are there. First you have to figure out your post divorce cash flow. Then you have to actually live on less income for a while. Try it out for a month. Eat out less. Don’t buy those shoes. Shop for store brand items. Clip coupons. Live the shrinkage. It will make your divorce just a little bit easier to handle. You will be better prepared for financial reality.

Filed Under: After the Divorce, Financial Considerations, Living Expenses Tagged With: bank account, budget, cash, decision making, divorce, divorce costs, expenses, financial issues, retirement plans

Spending from One Bank Account During Divorce

January 25, 2011 by Tracy Leave a Comment

When clients ask me for advice on divorce, one common question is “When should we stop using the same bank account?”

I have a lot of collaborative law divorce clients. These people are working together to have a private divorce that they control. During the divorce, they are commonly both using the household checking account for their living expenses.

If you have chosen a collaborative divorce and/or are able to communicate with each other, you can both keep using the joint checking account until you are divorced. Many of my clients go this route. They both have had access to the bank account activity. They choose a date just prior to the anticipated date of divorce. On that day, they print online account statements and “freeze” the balances for the purpose of division. The attorneys and other advisors hand over their final invoices prior to that date. Those invoices are paid from the joint account before the account balance is divided. This eliminates the need for the couple to reimburse each other for spill over divorce expenses.

Filed Under: Dividing Money and Property, Financial Considerations, Fundamentals of Collaborative Law, Living Expenses Tagged With: bank account, collaborative, divorce

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Thanks for all the help, advice and encouragement. It's a real pleasure learning from an informed, honest and caring person. I sleep so much better at night. Thank you for everything!
L.B.

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