Years ago, when I was a child, Granny lived with us. It was understood that she would always have a secure home with her children (she had 9 of them). But times change. Most children no longer feel this responsibility to care for their elders.

Thanks to advances in medicine and geriatric care, the probability that we will live to be 100 years old increase every year. Unfortunately, as our life expectancies increase, it becomes much more likely that we will outlive our assets. For one thing, it is doubtful that any IRA rollover is going to last for 40 years. Another complication is that in-home care or institutional care today in Houston averages $70,000 annually. If we inflation-adjust this at 3% for 25 years, the cost increases to $150,000 per year.

For these reasons, long-term care insurance has become a key strategy for preserving assets. Here are some key recommendations for securing long-term care.

•  By choosing a longer elimination period, you can lower your premium. Just be sure you consider how long you can afford to pay all your expenses before you choose the length of your elimination period. Check how the elimination period works before you buy a policy.
• Look for a policy with level premiums. That way, if you buy a policy when you’re 55, for instance, you’ll always pay the premiums that a current 55-year-old would pay, even when you’re actually 75.
•  Make sure the policy is guaranteed renewable for life. Otherwise, the insurer could cancel when it looks like you may actually use the benefits. And insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb.
•  Look for a policy that provides for home health care — older people prefer to remain in their own homes, if possible. Try to get “protection from lapse,” which can provide for third-party notification in case of a missed premium payment, or reinstatement if there is proof that the lapse was due to a cognitive impairment. The policy should cover cognitive impairments such as Alzheimer’s, when a patient may be otherwise physically healthy, but still need long-term care.
•  Ask for a provision waiving premiums once you’re in a home, so you will not have to worry about premiums.
•  Check for a financial rating of A or A+ or the equivalent from the rating agencies that monitor the financial stability of insurance companies.
•  As a cost-effective measure, buy coverage for three to five years with a daily payment of at least $150, pegged to the national average cost of nursing-home care. This will cover the average nursing-home stay — typically less than three years — and lifetime benefits are much more expensive.

For those who haven’t yet bought a Long-term Care policy, keep in mind that premiums for long-term care insurance increase as you age. And since there is a discount for purchasing while married — no one checks to see if you remain married — it is in your best interest to establish coverage prior to a divorce settlement.

Tags: alimony, Alzheimers, asset protection, divorce, Divorce Planning Real Estate Rental Property, Emotional Decision, Financial Planning Advice, health insurance, Home Health Care, Long Term Care Insurance, long-term care
Filed under: Divorce Planning, Financial Planning by Patricia
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Thanks to advances in medicine and geriatric care, the probability that we will live to be 100 years old improves every year. Unfortunately, as our life expectancies increase, it becomes much more likely that we will outlive our assets. For one thing, it is doubtful that any IRA rollover is going to last for 40 years. Another complication is that in-home care or institutional care today in Houston averages $70,000 annually. If we inflation-adjust this at 3% for 25 years, the cost increases to $150,000 per year.

An additional component in the cost of long-term care involves family participation. Years ago, when I was a child, Granny lived with us. It was understood that she would always have a secure home with her children (she had 9 of them). But times change. Most children no longer feel this responsibility to care for their elders.

For these reasons, long-term care insurance has become a key strategy for preserving assets. Here are some key recommendations for securing long-term care.

By choosing a longer elimination period, you can lower your premium. Just be sure you consider how long you can afford to pay all your expenses before you choose the length of your elimination period. Check how the elimination period works before you buy a policy.

Look for a policy with level premiums. That way, if you buy a policy when you’re 55, for instance, you’ll always pay the premiums that a current 55-year-old would pay, even when you’re actually 75.

Make sure the policy is guaranteed renewable for life. Otherwise, the insurer could cancel when it looks like you may actually use the benefits. And insist on an inflation clause that boosts how much the insurer will pay as nursing-home costs climb.

Look for a policy that provides for home health care — older people prefer to remain in their own homes, if possible. Try to get “protection from lapse,” which can provide for third-party notification in case of a missed premium payment, or reinstatement if there is proof that the lapse was due to a cognitive impairment. The policy should cover cognitive impairments such as Alzheimer’s, when a patient may be otherwise physically healthy, but still need long-term care.

Ask for a provision waiving premiums once you’re in a home, so you will not have to worry about premiums.

Check for a financial rating of A or A+ or the equivalent from the rating agencies that monitor the financial stability of insurance companies.

As a cost-effective measure, buy coverage for three to five years with a daily payment of at least $150, pegged to the national average cost of nursing-home care. This will cover the average nursing-home stay — typically less than three years — and lifetime benefits are much more expensive.

For those who haven’t yet bought a Long-term Care policy, keep in mind that premiums for long-term care insurance increase as you age. And since there is a discount for purchasing while married — no one checks to see if you remain married — it is in your best interest to establish coverage prior to a divorce settlement.

Patricia Barrett CFP CDFA
www.lifetimeplanning.cc

Filed under: Divorce Planning by Patricia
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Family law attorneys refer cases to me in two different ways:  1)  Collaborative, and 2) Litigation.   There are distinct differences in working with collaborative law versus the litigation process (the latter is the typical method).  Both methods are largely controled by attorneys, who steer the case through the courts or through the collaborative process.  In both cases, the attorney guides my footsteps in helping the client or clients.  I also perform financial analysis in both situations.  In both cases, I frequently have long periods of doldrums, while nothing is really happening from my perspective.  However, there the similarities end.

In Collaborative Law, both attorneys must agree on my inclusion in the case, as well as both husband and wife.  Once approved to work with the “team”, attorneys decide whether I’m invited to the initial meeting or other ones.  I am permitted to work directly with parties to gather financial documents and create an inventory.  Often, I usually work with each party on an annual budget.  However, since the case is resolved through a series of attorney-moderated meetings, they tell me when to begin the inventory or the division of assets.  Needless to say, this is necessary in order to do any long-term planning for the parties.  Thus, I do as much or as little work desired by the attorneys, and to a lesser extend, by the clients.  I attend meetings when invited.  My favorite cases are those in which I’m included in all meetings, since this gives me the best perspective on the case and how I can best serve the clients.

In Litigation, one attorney refers me to his client.  The client calls me to set up an initial meeting and decides whether to engage my services.  If so, I move forward independently and receive copies of financial documents from the attorney’s office, including those from the opposing counsel.  The client decides whether to engage my services for analysis of executive benefits, tax analysis, and/or budgeting. The latter can be extremely important is often the reason that the referral was sent my way, since I do a 20-year cash flow to help them plan their future.   The timing of the case and settlement is largely a function of the attorneys and their management, although sometimes a party can hold things up by refusing to provide documents.  I am on the outside, peeking in through the window, dealing largely with the clients.  My favorite cases are those in which the attorney works closely with me to create a settlement and invites me to meetings with the client to strategize.  I love to attend mediation, where I feel that my skill in financial matters gives our client an edge.

Whether Collaboratively done or the old fashioned way, my services as a Divorce Financial Analyst add a layer of expertise to the case that would otherwise be lacking.

 

 

Tags: Collaborative Divorce, divorce financial analyst, divorce financial planner, Divorce Mediation, litigation
Filed under: Divorce Mediation, Divorce Planning by Patricia
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The holidays are a stressful time of year for most people, with gift giving, travel or house guests, decorating, Christmas cards to mail. But, if you are going through a divorce or on the verge of one, the stress is multiplied.

Most people try to avoid the divorce topic during the holidays, pretending that everything is just rosy. After all, we can’t let the children see the pain caused by the breakup of the marriage — not at this time of year. Or, maybe there is a front to exhibit for the in-laws and other relatives.

While avoiding the divorce work, the discovery, the attorneys, etc. is understandable, here are some ways to stay on track for your future post-divorce, even though your Holiday front is securely in place:

1) Set a spending limit for gift-giving. More than ever you must avoid creating new debts or spending down savings.
2) Keep an eye on banks and investment accounts, assuring that you aren’t surprised in the new year by depletion or disappearance.
3) Every day, write down one thing for which you are grateful and why. You can keep the list on your computer and update in two minutes each day. This exercise will help you to keep your perspective, to maintain a more positive attitude.
4) Take photographs of everything in your house, inside the closets, drawers, the garage. This collection of photos should be stored in a safe location, possibly online. If a natural disaster ever occurs, you are prepared for discussions with the insurance company. If things seem to be disappearing as you move through divorce, you have a record of the items.
5) Reach out to old friends, those with whom you have lost contact. It’s time to rebuild your social connections.
6) Take care of yourself. Get a massage. Go for a walk. Do Yoga. Meditate. Watch your diet and alcohol consumption. All of these will serve to keep you healthy and more able to face the road ahead.

7) Consider engaging a divorce financial analyst to help you with your post-divorce budget and illustrate for you a secure financial future, as well as guide you with the complicated financial issues coming your way.  It can be very reassuring to have a guide through the maze.

Yes, put the divorce on the back burner, but by completing these steps, you will stay on track and be ready to proceed on your path to becoming a healthy, well-adjusted single.

 

Tags: budgeting, divorce, divorce holidays stress, Divorce Planning, Financial Planning Advice, gift-giving, holidays, photographs, stress
Filed under: Children in Divorce, Divorce Planning, Financial Planning by Patricia
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Are you going to end up with a portion of  your ex-spouse’s pension after the dust settles on your divorce?  The Qualified Domestic Relations Order will instruct the spouse’s employer to carve out your portion of the pension and place in an account in your own name.  You’ll be able to access the pension based on your own date of birth, although you will have to wait until your spouse is of minimum retirement age according to the plan rules.  This is usually age 55, but can vary from plan to plan.

You will probably have to make an important decision: do I take a lump sum for full payment or do I accept the lifetime stream of payments, called a pension annuity? While the bird-in-the-hand aspect of the lump sum is appealing, one must consider the risk inherent in the financial markets. Are you ready to bet your long-term financial security on the performance of a portfolio? Even if you have ultimate trust in your financial advisor, the stock market could take a dive, endangering your ability to continue the distributions throughout your lifetime.

Naturally, the investment advisor will assure you that he or she can secure returns great enough to equal or exceed your pension annuity. But, don’t accept advice on this issue from someone who stands to gain by managing those funds for a fee or commissions.  But, you would be wise to seek the assistance of a Certified Financial Planner who works by the hour and can crunch the numbers.

If you are lucky enough to have access to a pension and also end up with an IRA rollover or other financial assets, I encourage you to choose the lifetime stream of payments. The pension payments, coupled with Social Security benefits, will give you a solid base of income for your golden years that isn’t subject to the stock market or interest rates.  Without the rollover or other financial assets to access in case of emergency, accepting the lump sum may be a better choice.

 

Tags: Certified Financial Planning, Financial Planning Advice, lump sum, Pension, pension annuity
Filed under: Divorce Planning, Financial Planning by Patricia
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The Texas Health Insurance Risk Pool was created by the Texas legislature to offer health insurance to residents of the state through participation of health insurance companies.  This program is designed to provide health insurance to those Texans who are unable to obtain adequate health coverage due to their medical condition. You must meet these requirements:

1)      Prior coverage continued for 18 months or more as of the date you apply for the Pool.

2)       The recent coverage was under a Group Health Plan.

3)      You are not eligible for coverage under a Group Plan now.

4)     Your last coverage wasn’t terminated for fraud or non-payment of premiums.

5)     If offered, the individual elected and continued coverage under COBRA as long as offered.

Additionally, in order to qualify for coverage you must have applied and been rejected by an insurance company because of your health, or an insurance company denies coverage for your specific health condition. However, you are automatically eligible for coverage if you have many serious diseases, such as cancer, lupus, psychiatric disorders, and many more.

 There is no preexisting condition limitation, so long as you qualify. For one who is losing coverage due to divorce, if you have a preexisting condition and COBRA isn’t available, this may be important for you.  Premiums for the Houston area are included below.  Note that the premiums are substantially lower with the larger deductible.

Area 6 (Houston and surrounding area)

	Plan I, $1,000 Deductible		Plan II, $2500 Deductible		Plan III, $5,000 Deductible		Plan IV, $7,500 Deductible
Age	Male	Female	Male	Female	Male	Female	Male	Female
0-18	431	431	321	321	249	249	218	218
19-24	468	620	352	469	270	361	238	318
25-29	486	678	362	504	280	389	246	341
30-34	550	746	413	553	321	433	282	381
35-39	624	805	469	600	361	466	318	411
40-44	723	881	539	662	419	513	368	451
45-49	835	955	629	712	484	552	425	486
50-54	992	1051	741	785	578	611	509	537
55-59	1259	1148	939	856	730	667	644	587
60-64	1439	1360	1077	1017	837	789	736	694

Tags: COBRA, Divorce Planning, Financial Planning Advice, health insurance, medical coverage, Texas Health Insurance Risk Pool
Filed under: Divorce Planning, Financial Planning by Patricia
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Family Limited Partnerships, FLP’s, are known for their flexibility, especially when compared to irrevocable trusts. The partnership agreement can be amended or terminated pretty easily. They can be terminated on order of the court (like in a divorce decree) or upon the occurrence of an event listed in the partnership agreement. We would want to look at the partnership agreement to see if the partnership is terminated upon divorce. If the partnership agreement does not call for its termination on divorce, the parties can continue to run the partnership, if that’s something they’d be able to do. My guess is that in most cases people getting a divorce want to terminate their FLP. That can be done if they are the general partners.

As for characterization of the property that’s put into the partnership…FLPs are favored by many because separate property put into the FLP does not become community property and neither does the appreciation on separate property. A partnership interest received in exchange for a separate property contribution remains separate property. In the case of separate property put into the FLP, the parties then own it as tenants in partnership, but there are no community rights in the property.

Bottom line, FLPs are going to be difficult to divide on divorce if there have been contributions of separate and community property. Generally, the fair market value of a FLP is less than the value of the underlying assets. When determining the value of a FLP for tax purposes, the value is usually discounted for lack of control. When valuing for divorce, the discounts will often be good for one party and bad for the other. For that reason, I would suggest that both parties have attorneys when dividing a FLP. Since the there are no set “rules” for determining the value of a FLP and dividing them, there is certainly room for error or negotiations.

FLPs are a good way for one party to retain his/her separate property without the need for a pre-nuptial. If husband owns a partnership interest in a FLP (he could be the child or grandchild of the partners who set up the FLP), and he gets a divorce, the FLP interest will remain his separate property. If there have been community contributions to husband’s FLP, the wife could be awarded some interest in the FLP; however, most FLPs have buy-sell agreements that allow it to buy back shares that have been involuntarily transferred to a non-family member. They can buy it back at a fair market value (again, often less than the value of the underlying assets).

Tags: asset protection, Divorce Planning, Family Limited Partnership, Financial Divorce Plans, Partnerships
Filed under: Divorce Planning by Patricia
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There is an exemption on the taxable gain on the appreciation in your home. It’s $250,000 for a single individual and $500,000 for marrieds, so long as you have lived in the house for at least two years. So, when dividing assets during a divorce, we rarely consider any taxes on the equity in the homestead.

But, what if it was used as a rental property? How does that change the situation?

If ever used as a rental property, all accumulated depreciation must be claimed as income in the year of sale. Rental property depreciates over 27.5 years, so this could be a substantial sum of extra income when selling the home. Yes, your taxes were reduced during the years of collecting rental income, but converting it back to a homestead has a negative tax impact.

One of my clients rented out their home for six years while overseas. I’ve included a tax adjustment when dividing the assets to compensate him for the additional tax he will have to pay upon sale. This “imputed tax” would serve to reduce the value of the property for purposes of asset division.

Most of us don’t consider the possible drawbacks to being awarded a rental property or a home that was once a rental property. It may seem like a simple solution to the equitable division of assets and prevent a person from having to qualify for a new loan. But, you should consider the recapture of depreciation if the home is now used for rental or was used for a rental in the past.

Tags: Depreciation on Real Estate, Divorce Planning Real Estate Rental Property, Financial Divorce Plans, Imputed Tax Adjustment, Real Estate Exemption
Filed under: Divorce Planning, Financial Planning by Patricia
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The stage of life during which you are divorcing is one of the worst times to buy a house.  For one thing, the title will be affected, since everything in Texas is community property.  The title company will even require that your soon-to-be ex-spouse attend the closing and sign documents even if their name isn’t on the loan.    Even if your attorney creates a special document that states you can buy a house, the title is still clouded.

Budgeting issues are very complicated during divorce and afterward.  Will the buyer be able to afford the notes once child support and/or spousal support is considered?  In Texas, he will be required to pay 25% of his after-tax income in the form of child support if he has 2 children.  This increases to 30% with three and to 35% with four.  (Applies to earnings up to $7,500 per month).

Did he carefully run the numbers before committing to such a major financial decision?   The purchase may turn out to be a bad decision once the assets are divided and two household budgets are considered.  At a minimum, he should consult with a financial planner who specializes in budgeting, as well as with an experienced family law attorney, to be sure the purchase of a home during the divorce process is wise.

Sometimes, the purchase of a home becomes an emotional decision rather than a logical, well thought out one.  The stage of life during which you are divorcing is full of emotions.  No major financial decisions, such as a home purchase, should be finalized during the divorce.

 

 

Tags: Buying a house, child support payments, Divorce Planning, Emotional Decision, spousal maintenance, Title to House
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Can you do your own divorce in Texas?  There are books and kits and websites that say it is possible.  They emphasize that a person able to read and follow instructions and fill out forms can complete the entire divorce without an attorney.

It will take mutual consent of both spouses in order to move forward “pro-se” (without an attorney).  Do not rush into the process when overcome by powerful emotions.  For that matter, don’t hire an attorney under those circumstances either.

Attorneys tell me that the courts do not like dealing with pro-se cases, since the individuals do not understand the system and the papers are rarely done correctly.  Even if you have no assets to divide and no children for whom a parenting plan is necessary, there are certain situations that still make it impossible, such as:

a)      If you need alimony and cannot get your spouse to agree to it, you may need a lawyer.

b)      If your spouse is an active member of the armed forces and will not sign a “waiver” form.

c)      If your spouse hires an attorney, you cannot do your own divorce.

d)     If your spouse avoids being “served” papers and you cannot get his or her signature on the waiver.

When children are involved, it is not only who has custody, but how to arrange visitation and how much is to be paid for child support.  There are numerous decisions that must be made concerning parental “rights and duties” as listed in the family code.  These decisions are important and can come back to haunt you if made incorrectly or in haste.

Check out the four ways to get a divorce in Texas on my website.  There is also a diagram of these methods for securing a divorce in Texas.

 

Tags: air force, armed forces, army, child support payments, Divorce Mediation, do-it-yourself divorce, Military, navy, served, waiver
Filed under: Children in Divorce, Divorce Mediation, Divorce Planning by Patricia
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