Divorce Financial Professional

The Role of the Financial Professional… After 1995 If You Live in Ireland

March 12, 2021 By CDSOC

By Amy Clews, CPA, CDFA, CVA, CFE Addleman & Associates
www.addlemancpas.com

Why do we need a financial neutral in our Divorce?

The month of March is upon us, and many of us are looking forward to St. Patrick’s Day and celebrating all things Irish; however, did you know divorce in Ireland was not even legal until 1995? And if you’re struggling with the six-month waiting period in California, imagine waiting three years in Ireland where divorcing couples must live apart for two of the last three years before they can divorce.

How will a family potentially support two households both temporarily and in the long-term when finances are separate? How will an equitable settlement be achieved so the family can move forward amicably? These are only a few of the financial questions divorcing couples must consider.

In the collaborative process, the financial professional is there to help the couple address financial issues such as: 1) assisting with gathering financial documents, 2) preparing financial analyses, 3) presenting financial analyses to the collaborative team and the couple, and 4) assisting with financial planning for the future. The financial professional will help you plan for the agreements that you decide will work best for your family moving forward.

The financial professional is able to help with various financial analyses depending on your financial needs. Some of these analyses include…

Assisting with Gathering Financial Documents

The financial professional will provide a document request list that details the information and documents requested to complete your financial analyses.

Marital Balance Sheet

What do you own and what do you owe? An assets and debts analysis will help the divorcing couple determine what needs to be divided after considering the tax implications of those assets. For instance, it is important to consider a retirement account is not equal to a cash account.

Income Analysis

How much income is available to provide spousal and child support? An income analysis determines what historical income levels have been for the family. Income sources can include many items such as wages, business income, interest income, dividend income, tax-exempt income, equity awards, and other sources of income.

Needs Analysis

How much money do you need to pay your expenses? A needs analysis is essentially a budget. This budget looks at historical spending and estimates future spending as well.

Tracings

Do you have separate property that is included in your marital balance sheet? If so, tracing may need to be completed to determine the source of monies used for a current asset.

Business valuation

What is our business worth? The financial professional can help determine the value of the business and provide alternatives for owning that business going forward.

Projections

What does my financial future look like? During the collaborative process, the financial professional can assist in researching different financial alternatives to see how different agreements may affect your financial future.

The collaborative process allows you to find your solutions that serve your family. These creative solutions would not be offered in a true litigation environment. A collaborative process also keeps your financial information confidential, which can help heal your family as it moves on to the next chapter.

The Best Kept Secret to a Successful Collaborative Divorce: Utilizing Coaches, Child Specialists and Financial Neutrals to Focus on Interests and Manage Emotions

December 2, 2020 By CDSOC

By Paula J. Swensen, Esq.

As family law collaborators and mediators, we know all too well how the emotional aspects of a divorce can threaten to derail what often begins as a stable and effective process toward a peaceful resolution of our clients’ family law disputes.

Clients come to us for help in resolving their family law matters with the hope and intention of staying out of court. This is a laudable goal, and most everyone comes with the highest intention of achieving that goal. But then, something quite predictable happens… and if we collaborative professionals are not ready for it, the entire process can be unexpectedly hijacked, thereby posing a threat to the successful outcome for our clients and their families. The ‘something’ that invariably shows up is our clients’ deeply held emotions about the unraveling of their marriages, including all of the uncertainty and fear that accompany such momentous changes in a person’s life circumstances. As we know, once strong emotions enter the picture, it is quite challenging to remain in option-creation and problem-solving mode during the collaborative or mediation process. However, that is what we must do, relying effectively upon our best kept secret, the “neutrals”.

Who Are the Neutrals?

We refer to the “neutrals” as those members of the collaborative team that are exactly that — neutral. They are not advocating for either client, but rather, they serve to facilitate the successful outcome of a collaborative divorce through their professional roles as: financial neutral, child specialist, or as a single coach for both clients.

Why So Many People?

We are often asked, “why do I need so many people in my collaborative process”? Understandably, prospective clients new to the collaborative process are wary of paying “so many” different professionals on the collaborative team. It soon becomes clear to our clients just how invaluable the neutrals are to the successful outcome of a collaborative divorce. Because the effective use of neutrals often dictates the likelihood of success, they are indeed, the “best kept secret” of the collaborative process.

Most clients do not think twice about the necessity of employing and paying for a lawyer to advocate on their behalf in a divorce. While we lawyers enjoy a vital role on the team, it is often the work of the neutrals that makes the difference between a successful outcome or one that falls short. Why? Because sometimes when clients get stuck in the mud over a challenging issue, their advocates get stuck right along with them. While this is certainly not desired, it is not uncommon for an advocate to get caught up in the strong emotions of his or her client during the divorce process. It often takes someone who is not advocating for either client to better explore and explain options for breaking an impasse so that the matter may continue to move forward. In this way, the neutral can play an instrumental role to enable the clients to reach a mutually-satisfying resolution.

When and How Are the Neutrals Best Utilized?

Question: When is the best time to utilize the neutral professionals? Answer: Early and often. It is highly recommended that the neutral professionals be made part of the collaborative team at the commencement of collaborative process. In this way, they show up at the “collaborative table” as equal members of the collaborative team along with the lawyers. This pays dividends throughout the process as the neutrals are vested, from the outset, with no less credibility and gravitas than their legal counterparts. This allows the clients to have confidence in the input of the neutrals from the very beginning.

Our neutral professionals fulfill a vital role when it comes to managing and overcoming the emotional obstacles presented in a divorce. For example, where an impasse can arise over the amount of support or whether the couple should sell the family home, the financial neutral can often be the secret weapon in helping the couple to break the impasse. Where a spouse can get bogged down in all of the emotion surrounding wanting to stay in the marital residence, the financial neutral can explain the numbers in such a way as to help a client to visualize whether staying in the home presents a viable option or not. The input of the neutral is future-focused and geared toward helping to solve the problem, rather than in furtherance of any position. The coach or child specialist operates in the same manner. They bring credibility, option-creation and problem-solving to the table in a way that the clients can trust in their unbiased input, especially if the neutrals have been involved from the outset of the collaborative process.

Neutrals-The Secret to Success

As has been proven, the collaborative model works so well because all of the members of the collaborative team play a critical role in the success of the collaborative process. We know that emotions can run high during a divorce. We also know that emotions can get in the way of rationality, and the ability to access the cognitive areas of our brain, which is critical for effective problem-solving. That is precisely why the use of neutrals is one of the best-kept secrets to success. As impartial and unbiased members of the team, they are best-suited to help clients move past the emotion of a given impasse, and to focus on feasible options to obtain an optimal outcome for their families.

Do I need a financial specialist as well as a lawyer for my divorce?

April 19, 2019 By CDSOC

By Cathleen Collinsworth, CDFA®, MAFF®
www.cccfda.com
949.262.3692

Do I need a financial specialist as well as a lawyer for my divorce? Won’t I be paying twice the money for two professionals to be doing the same work? As in all questions relating to divorce, the answer is, “It depends.” If the marital estate consists of assets such as a residence, retirement accounts, investments, and or credit card debts, you should consider hiring someone to assist you in fully understanding all the financial issues relating to the marital estate.

Misinformation and misconceptions about the divorce process can be detrimental. Many have false expectations that they will be able to secure a divorce settlement allowing them to continue with their accustomed style of living. Financial divorce analysis helps to ensure a good, stable economic future and prevents long-term regret with financial decisions made during the divorce process.

The financial work provided by a lawyer is not the same as that provided by a trained financial professional specializing in the divorce process. In addition, being a CPA or a CFP does not mean that individual has specific training in family law financial matters.

As you go through the divorce process, finding the right professional to help you can become challenging. Do your homework.

Find a financial analyst who has experience in family law.
Find someone who knows that there can be significant tax implications when the parties divorce.

A Certified Divorce Financial Analyst (CDFA®) is someone trained in finances who has also taken financial courses specifically designed for the knowledge relating to divorcing couples.

Remember Assets Are Not Equal

Example 1:

Swapping a $50,000 interest in a joint savings account is not the same as receiving a $50,000 interest in a 401(k) plan.

There are no tax consequences to withdrawing the money from the savings account.

There will be current tax consequences as a result of withdrawing money from the 401(k) plan: You will pay ordinary income taxes on the amount withdrawn and, depending on the circumstances, you can pay a combined 12% penalty.

Example 2:

Swapping the family residence with $100,000 of equity with a stock account that currently has a $100,000 capital gain is not equal. If the family residence is sold there could be no capital gains tax owed because there is a $250,000 ($500,000 if married) capital gain exclusion relating to the sale of the family residence.

Stock with a cost of $100,000 is sold for $200,000. Gain of $100,000 could be taxed as high as 23.8% for the Federal Government or $23,800 thus leaving cash available of $76,200.

As you navigate through the divorce process you can make better decisions when you are fully informed of the impact of your financial decisions going forward. The decisions you make now can impact your future financial status.

As you can see, not hiring the right financial professional can be costly. Don’t roll the dice and hope for a good outcome.

Please do not hesitate to call if you have further questions, comments or would like additional information.

© 2018 Cathleen Collinsworth, CDFA®, MAFF® Cathleen Collinsworth is a CDFA®, Certified Divorce Financial Analyst, and a MAFF®, Master Analyst in Financial Forensics, who has been practicing as a sole practitioner in Irvine since 2000. She has been retained as a forensic accountant and expert witness to provide services in family law for 20+ years. As a member of Collaborative Divorce Solutions of Orange County (CDSOC) since 2007 she has provided services as a Neutral Financial Specialist and team facilitator. Cathleen has served on the Board of Directors of CDSOC and served as the President for 2016-2017. She has extensive training in mediation and the interdisciplinary team model of collaborative practice and frequently mentors’ collaborative practitioners. She has authored articles, presented seminars, been a guest speaker and has prepared instructional videos in the field of finances and family law during the last 20 years. She currently serves on the Collaborative Divorce Education Institute’s Leadership and Training team and is a frequent trainer at the annual conferences of Collaborative Practice California, the International Academy of Collaborative Professionals, the Association of Family and Conciliation Courts, and other professional conferences throughout California. In 2015 Collaborative Practice California (CP Cal) awarded Cathleen the Eureka Award, which recognizes those who have made significant contributions and demonstrated an abiding dedication to establishing and sustaining Collaborative Practice in California. Cathleen also serves as a CP Cal Delegate and is a member of the International Academy of Collaborative Professionals (IACP). A detailed list of her training can be found at https://www.collaborativepractice.com/members/2328. For additional information, please visit her website at www.cccdfa.com.

Your Six Different Divorce Alternatives

September 6, 2016 By CDSOC

by Leslee J. Newman, CFL-S, Family Law Attorney
Orange, California

1. Self-Representation (“Pro-Per”)

Both parties may consult with attorneys, but decide to represent themselves in or out of court. Both parties are ultimately responsible for the agreements and paperwork that goes to the court for filing including the final Judgment.

2. One-Party Representation

One party is represented by an attorney and the other is not. Generally, the party who has the attorney is responsible for drafting the paperwork, and the unrepresented spouse would get advice as to what he or she wants included in the final Judgment.

3. Both Spouses Have Representation

Both spouses have their own litigation counsel, and try to settle parts of the case through settlement discussion. If they are unable to settle some or all of the issues, the case goes to court for a judge to make the decisions for the spouses.

4. Mediation

Both spouses retain the same mediator who acts as their neutral facilitator and does not represent either party. Depending on the style of the mediator, and whether or not the mediator is an attorney, the spouses may have the benefit of being educated as to the law, available options, recommendations, and suggestions, etc. If the mediator is an attorney, there is the added advantage of accurate drafting of the court forms, and the Judgment of Dissolution of Marriage.

Because the mediator is a neutral party, the mediator encourages both spouses to consult and review the Judgment with other attorneys before signing. There is also a confidentiality privilege in the California Evidence Code, called the mediation privilege, which can help to protect the privacy of the mediation process. If the spouses are able to settle all of the issues of their case through mediation, they do not have any court appearances.

5. Collaborative Practice

The Collaborative Process features an integrated team of professionals. Each spouse retains their own Collaborative lawyer, and a divorce coach who is a mental health professional assisting with the communication, the emotion of the divorce, and helping to regulate the interaction between the parties. The neutral professionals on the team are a financial specialist (forensic or financial planner), and a child specialist, if there are minor children or adult children still living with the parents.

Through the Collaborative Process, the spouses and their professional team enter into a written agreement with the understanding that if the collaborative process breaks down before the entry of the Judgment or completion of the case, then the professional team, including the attorneys, are disqualified from going to court and continuing on the case. This process usually includes the privilege of confidentiality in the written stipulation to begin the collaborative case.

6. Cooperative Process

The cooperative process begins with an informal agreement between the spouses and their attorneys not to go to court, but to conduct settlement discussion and face to face meetings to settle the issues of the case. Unlike collaborative practice, however, the spouses and their attorneys are not disqualified from going to court if there are any issues that cannot be settled out of court.

Dividing Stock Options and Restricted Stock In Divorce

September 1, 2016 By CDSOC

by Thea Glazer, CFP®, CDFA™, MS Accounting
Glazer Financial Advisors, Laguna Hills, California

Stock options and restricted stock may be part of the marital estate. And they are some of the more complex assets. This brief overview provides a basic understanding of the factors you need to take into consideration. It does not go into all the many tax and technical issues that are aspects of equity compensation. Seeking professional guidance for your specific circumstances is always a good idea.

Many companies grant their employees equity compensation in addition to their salaries, commissions and cash bonuses. Equity compensation is non-cash compensation representing a form of ownership interest in a company. Among the most common are employee stock options and restricted stock or restricted stock units. In divorce, stock options and restricted stock are property to be divided. The employee’s separate shares are often also considered as income in the calculations of support.

Employee Stock Options (ESOs)

An employee stock option is the right given by an employee to purchase a specified number of shares of the employer’s stock for a specified price and for a specified time. There are two types of ESOs, Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQs). The primary difference is that ISOs have an advantageous tax treatment explained below.

Stock options have a Grant Date, Exercise Price, Vesting Schedule and Expiration date. Example: Company ABC grants John Smith 3,000 non-qualified options on January 4, 2015 at a grant price of $10.50, a four-year annual vesting schedule and an expiration date of January 4, 2025. That means that John can exercise (buy) the 750 shares of stock annually on January 4 from 2016 through 2019. He does not have to exercise any shares until January 3, 2025. If he doesn’t exercise by the date of expiration, they will expire and be worthless.

Taxation of Stock Options Nonqualified stock options are taxed at the time of exercise as ordinary income. The amount taxed is the difference between the grant price and the fair market price. Most companies sell enough shares to cover the withholding tax and release the net shares or proceeds if the shares were simultaneously sold. If the shares are held once exercised and sold later, there may be capital gains tax as well. Unless shares are about to expire, most people exercise and sell simultaneously.

Incentive stock options are not taxed when they are exercised. If the shares are held for at least one year from exercise and two years from grant date, the gain is taxed at the advantageous long term capital gains rate.

Restricted Stock (RS) and Restricted Stock Units (RSUs)

Unlike stock options, restricted stock and restricted stock units are actual stock. There is usually no purchase price and, if there is, it is very, very nominal (one cent). Holders of restricted stock have voting rights while holders of restricted stock units do not. Restricted stock units cannot be “underwater” which happens to options when the grant price exceeds the fair market price so they are much less risky. Grants of restricted stock usually have about one-third as many shares as do options. Restricted stock grants have a grant date and vesting schedule. There is no expiration date and usually no grant price.

Taxation of Restricted Stock

Once a share of restricted stock vests, it is released. Upon release, the fair market value less any purchase price is taxed as ordinary income. Most companies sell enough shares to cover the withholding taxes and release the net shares. There is no decision making needed by the employee like there is regarding when to exercise options. Once restricted stock vests, it is automatically released. Many employees continue to hold the net shares until a time they need the cash, feel the stock has reached a good selling price or want to diversify their portfolios.

Transferability of Stock Options and Restricted Stock

Some plans allow NQs to be transferred to the former spouse of the employee, but the majority do not. It is very rare to see ISOs transferable. If they are transferred, they may lose their status as ISOs and fall under the tax rules for NQs.

RS and RSUs are not transferrable.

For non-transferable shares of options or restricted stock, the employee holds the shares on behalf of the non-employee spouse and exercises on his/her behalf or transfers released shares. There are IRS acceptable ways to allocate the taxation so the non-employee spouse is taxed at his/her rate rather than that of the employee.

Division of Equity Compensation in Divorce

Both stock options and restricted stock shares are divided by formulas. The most commonly used ones are Nelson and Hug.

The Nelson formula is: Date of grant to date of separation ÷

Date of grant to date of exercise or release

The Hug formula is: Date of hire to date of separation ÷

Date of hire to date of exercise or release

The reason the grants were awarded determines which formula is applicable.

Valuation of Stock Options and Restricted Stock

It is rare to value the options rather than to divide the shares. That is because the value is constantly changing so it is imprecise at best. In order to correctly value the options, the following factors are in the variables of a complex formula, the Black-Scholes formula that is used in valuing stock options:

Grant price
Grant date
Date of expiration
Vesting schedule
Current stock price
Volatility of the stock price

Sometimes valuing the options is the only way to effectuate the property division by offsetting another asset. However, dividing the shares divides both the risk and reward to both spouses. I believe it is preferable when possible.

Collaborative Divorce Offers Flexibility

In Collaborative or mediated divorce cases, there is far more flexibility in dividing assets. Unequal divisions are also acceptable if the parties agree and have reasons to do so. In court, such flexibility is not nearly as possible. This is another great reason to consider alternative dispute resolution such as Collaborative Divorce to allow you to make the best decision possible for your circumstances, rather than a decision forced upon you by a judge.

Teamwork is the Key to Success in Collaborative Divorce

April 2, 2016 By CDSOC

by Dr. Carol Hughes, Ph.D., LMFT

Clients often wonder how working with a team of professionals will benefit them when moving forward with the Collaborative Process for their divorce. Even experienced practitioners sometimes fail to understand how all professionals on an interdisciplinary team can assist and support clients, even high-conflict clients, to become “Agreement Ready.”

Licensed Marriage and Family Therapist Dr. Carol Hughes, family law lawyer Diana L. Martinez, and financial specialist Cathleen Collinsworth offer recent findings from neuroscience showing how working in teams can assist clients resolve even their most difficult conflicts at the upcoming Collaborative Practice California (CP Cal) “Celebration XI” Conference in Redwood City, California April 29 – May 1.

Dr. Hughes says the training is designed for all practitioners who want to continue evolving their ability to assist clients with the powerful tools provided through the Collaborative Process. Participants will learn techniques for assisting clients:

Identify and develop the clients’ ‘Key Elements of Agreement’ that avoid being too specific or too vague and therefore of no value.
Identify and develop the clients’ ‘Questions To Be Answered’ relative to their ‘Key Elements of Agreement.’
Develop ‘Options for Resolution’ that are both individually and family-centric interest based.
Evaluate their ‘Options for Resolution’ and co-create their Agreements.
Develop the necessary skills to support their interdisciplinary professional team members in the Agreement Readiness process.

From the inception of a case, interdisciplinary teams of lawyers, neutral financial specialists, divorce coaches and neutral child specialists can employ tools and techniques to shift clients toward Agreement Readiness. By doing so, a team can save client costs and facilitate better outcomes through more durable divorce agreements for the entire family involved.

Presenters (left to right) Dr. Carol Hughes, Cathleen Collinsworth, and Diana L. Martinez of Collaborative Divorce Solutions of Orange County.

“Our goal in the end is to educate our prospective clients that the goal of the Collaborative Process is reaching a final agreement each party can ‘live with,’ one that provides clarity and substantive closure for each of them,” said Dr. Hughes. “The agreement must also reflect their values and goals, no one else’s including the professional team’s goals.”

Dr. Hughes said it is important for each Collaborative team member to develop the necessary skills to support their clients. But what is often forgotten is the importance of learning how to develop similar skills to provide support among the professional team members as they work together to move the Collaborative Divorce case through the Agreement Readiness process.

“Just as it is critically important for the team members to work together to support their clients, we need to work together to support each other and allow the unique value that each professional from the three disciplines brings to their Collaborative Divorce team to flourish,” said Dr. Hughes. “This helps us educate clients about the pivotal role of each member in facilitating cost effective outcomes and durable agreements.”