1. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company1 There is More Than One Way to Manage Finances Because people differ in their goals, fears, and priorities, their way of handling their finances differs also. Only about half of families in the United States consist of married, opposite-sex partners, with or without children. Other kinds of households include: –Single individuals –Unmarried partner households –Single parent and child or children –Same-sex partner households Each type of untypical household has its own special issues.

2. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company2 Divorce Planning Divorce is, unfortunately, a common reality today. Very seldom is a financial planner engaged until after the fact. Financial planners can, however, help people make sound financial decisions about: –Structuring property settlements –Negotiating the “proper” amount of alimony or child support –Ensuring that the right assets are transferred in the most tax efficient manner –Helping the client deal with financial burdens that he may never have handled before For that reason, some financial planners specialize in divorce planning.

3. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company3 If divorce is inevitable… Immediately –Establish bank, brokerage, and other financial accounts in a client's own name. –Obtain new credit cards and establish a client's own credit rating (especially if the ex was not too good with money). –Change the beneficiary designations for retirement plans and life insurance. –Make any necessary adjustments to estate planning documents such as wills and powers of attorney.

4. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company4 Retirement Accounts Need to Be Considered Carefully Retirement assets and non-retirement assets are not of equal value. –There is a potential tax liability attached to retirement assets that in some states can approach 40% of the value. –For clients under age 59½, retirement assets are not liquid. Therefore, having only one spouse keep the retirement account may be shortchanging that spouse.

5. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company5 Alimony Alimony is tax-deductible for the payor and taxable to the payee. Property settlements and child support are not deductible by the payor and are not income to the payee. Characterization of payments is therefore a significant financial decision, and it must be determined if payments qualify as alimony.

6. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company6 Alimony To qualify as alimony: –Payments must be made in cash. –Payments must be received by or on behalf of a spouse under a divorce or separation agreement. –The spouses must not be members of the same household at the time payments are made. –The parties must not identify the payments in the agreement as not being alimony for federal tax purposes. –Payments must terminate no later than at the death of the recipient and there must be no liability to make any payment (in cash or property) as a substitute for such payments. –The spouses must not file a joint return with each other.

7. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company7 Transferring Retirement Assets Defined contribution plans can be split by a QDRO – Qualified Domestic Relations Order. Most often, defined benefit plans are calculated as a present value and cash is paid to the person who is not the participant in the plan. Social Security payments to an ex-spouse may actually be higher than the spouse would receive –If marriage lasted more than 10 years, and divorce occurred more that two years before, the ex-spouse may file for benefits based on the other ex-spouses earnings record. –The other ex-spouse still receives the same benefit, and if remarried, the new spouse will receive the same benefit as well. If a client has been married before, he or she should bring up the prior marriage with the Social Security worker to see if the ex-spouse benefits are higher.

8. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company8 Non-traditional Relationships Many households consist of non-traditional relationships. Approximately 1% of the households in the United States are same-sex partners. Approximately 8% are unmarried partners of the opposite sex. If the planner is uncomfortable with that type of relationship, he or she should refuse the engagement, since the planner’s ethical responsibility is to help the client achieve the client’s goals. You are not required to compromise your values and beliefs, but you cannot dictate the client’s values.

9. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company9 Nontraditional Relationships Considerations –Income taxes –Gift taxes –Estate Taxes –Intestacy rights –Titling of Assets –Beneficiary designations –Power of attorney –Social Security –Company pensions A Power of Attorney is crucial in incapacitation or death, as beloved partners can be squeezed out by families who did not approve of the relationship.

10. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company10 Change of Employment Financial Planners may be called upon to evaluate the financial consequences of –changing jobs –early retirement or –severance packages. There are many factors to be considered in each.

11. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company11 Considerations in Changing Jobs Overtime Vacation time Retirement plan offerings including eligibility for matching Health benefits, including dental and flexible spending arrangements Life insurance Dependent care assistance Company car(s) Relocation assistance Stock bonuses, options, or other ownership programs Club dues Educational assistance Business expense reimbursements

12. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company12 Consideration of Early Retirement Offers Are medical benefits provided in the package? Is the worker in any way barred from seeking employment in the same field with a competitor? How much of the employee’s pension is lost if the package is accepted? If the package is not accepted, does the employee risk being laid off or involuntarily relocated?

13. Special Circumstances Chapter 12 Tools & Techniques of Financial Planning Copyright 2007, The National Underwriter Company13 Severance Packages Severance pay Outplacement services Job training Placement Financial Planning Legal issues such as waiver of ability to sue for wrongful dismissal.