Tuesday, September 4, 2012

The Do-It-Yourself Divorce Trend Continues, with a Record Number of Litigants Handling their Own Divorce Cases during the First Quarter of 2012

The do-it-yourself divorce trend shows no sign of slowing, and that is probably good news for everyone except divorce lawyers. According to statistics released today by online divorce provider DivorceToday.com, during the first quarter of 2012, a record number of Americans filed for divorce without hiring divorce attorneys. The uptick in do-it-yourself divorce filings cuts across all geographic areas and income levels. Online divorce services now play a major role in the divorce process for many divorcing couples.

According to Marc Rapaport, founder and CEO of Empire State Legal Forms, Inc., even high-income Americans are now foregoing lawyers and opting to do it themselves. Rapaport states, "at all income levels, there now appears to be a realization that particularly with the availability of online divorce kits, divorcing couples are capable of resolving their own financial issues, and thus are able to retain control over the process. Middle income divorcing couples cannot afford divorce lawyers, and high-income people don't want to be caught in the downward spiral of out-of-control legal fees and protracted litigation."

According to Rapaport, clients of his company's divorce website, DivorceToday.com, not only save money, but also benefit by staying in control of the divorce process. According to Rapaport, people now realize that "divorce lawyers are, all too often, part of the problem - not the solution." Rapaport states that do-it-yourself divorce is "healthy both financially and emotionally. There is good reason to be wary of divorce lawyers, and the do-it-yourself divorce revolution helps couples take control of their own destinies."

Rapaport observed that the do-it-yourself divorce trend now encompasses far more than simple no-fault dissolution kits, and that there is an increasing level of comfort with do-it-yourself qualified domestic relations orders, which are also known as QDRO forms. A QDRO is a specific form that is required to divide or distribute a retirement asset in the context of a divorce or marital separation. In the past, lawyers would charge thousands of dollars to draft simple QDRO forms. Rapaport's website, http://www.QDROpedia.com, enables users to download QDRO forms for as little as $59.00. QDROpedia.com has qualified domestic relations orders, ready to download and sign, for distributing pension plans, 401k plans, profit sharing plans, and other retirement assets. According to Rapaport, QDROpedia.com is now the fastest growing site operated by Empire State Legal Forms, Inc.

Certainly, the rich and famous will continue to keep divorce lawyers occupied. However, for average Americans, the process of divorce is now a matter of downloading forms from the internet and filing their divorce papers with the court.

Source: http://www.prweb.com/releases/2012/3/prweb9354653.htm

Monday, September 3, 2012

Divorce Done Well.

UGH! Tax time again. Already? I met with my personal accountant the other day. Our yearly gathering- where he feels obligated to ask if I paid my quarterly estimated taxes and I sheepishly admit that, yet again, I did not. I am a very responsible person but just do not give my personal taxes much thought throughout the year. I have this meeting and vow to change and pay my quarterly taxes this year, but then go about my life as usual, until this time next year. Perhaps, you don’t give much thought to taxes either and this has worked as well for you as it has for me.

Well, now you are getting divorced. That changes things and taxes need to be thought about carefully. When you are revamping your financial picture you need to know how taxes will impact your plans. If you plan to split your spouse’s 401K money and you are taking your share as cash in a lump sum distribution you will have to pay taxes (but can avoid the 10% early withdrawal penalty by completing a QDRO). The bottom line number you thought you had in hand to pay for your new expenses is not what you will receive from that 401K. Uncle Sam takes his cut first and then you get the rest. You will lose money to taxes now and the investing and earning power of that money for the future. Would a different strategy make more sense?

There are tax consequences regarding your house. What if you decide that one of you keeps the house for now and will sell in five years, after your youngest graduates from high school? The exclusion for the capital gains tax for a singleton is $250,000 but $500,000 for a married couple. So you may end up “losing” $250,000 of tax-free money depending on the decisions you make. Another example of tax implications is that spousal support (alimony) is tax deductible to the person making the payments and considered as taxable income to the person receiving payment. Child support is not tax deductible for the person paying it and not considered as income for the person receiving it. This information may change how you originally wanted to structure your post-divorce finances.

These are just a few examples to illustrate how important taxes effect what you think you are walking away with and what your bank account will reflect you actually have to live with when divorcing. At Westfield Mediation, LLC, we always encourage our clients to consider the tax implications when making their decisions. We also recommend that clients review their Memorandum of Understanding with their accountant to fully understand their choices and get suggestions on how to save money in taxes if they do things differently. Knowledge is power and we want our clients to make decisions from a position of strength. Once your new life is established you can go back to not worrying about taxes again, until this time each year.

Source: http://thealternativepress.com/articles/tax-time

Sunday, September 2, 2012

5 Year-End Financial Planning Moves

With the end of the year approaching, here are some financial planning moves for you to consider. Some need to be done by year-end to impact your 2011 taxes. Others constitute areas that should be reviewed periodically, and year-end is always a good time to get your financial house in order as we move into a new year.

Harvest tax losses from your investment portfolio. We have experienced a lot of volatility in the stock market in 2011, including significant declines in many of the major indexes in the third quarter and during November. It is always a good idea to go through your taxable investment accounts and look for holdings with unrealized losses on an annual basis. Consider realizing these losses in your 2011 tax return, especially if you have capital gains against which to offset them. If your losses are larger than your gains, up to $3,000 of excess losses can be deducted each year. Also, remember that any losses above that limit can be carried forward and used in subsequent tax years. There are other rules pertaining to the use of these losses, including rules that depend on the duration of your holdings and the timing of your trading activity. As a result, this may be an area in which a consultation with a financial planner or tax advisor knowledgeable in this area can really pay off for you.

Consider a Solo 401(k) or other self-employed retirement plan. If you work for yourself, and qualify to contribute, the deadline to establish a Solo 401(k) is Dec. 31 if you want to deduct contributions made in 2011. You can contribute up to $49,000 ($54,500 if 50 or older in 2011). Beyond that, depending upon your business structure (sole proprietor, corporation, LLC, etc.), the deadlines for contributing will vary. These plans can be established at Schwab, Fidelity, Vanguard, TD Ameritrade and many other custodians. Besides a Solo 401(k), the self-employed can also consider a SEP IRA, a SIMPLE plan, or even a pension plan. The best plan for your situation will depend upon a variety of factors including your business income and the stability of your business cash flow. Again, this is an area where a consultation with a qualified financial advisor can pay off for you.

Review your beneficiary designations. Take a look at your workplace retirement plans, IRAs, annuities, insurance policies and any other instruments that transfer ownership or where payment is made to a designated beneficiary upon your death. Be sure the person or people named in those instruments match your wishes. For example, if you still have an ex-spouse named as the beneficiary of an insurance policy that is who will get the money when you die. This might not sit well with your current spouse if you are remarried.

Review and rebalance your 401(k) account. All too often investment choices are made once in these accounts and that’s it. For many, your 401(k) is your biggest retirement savings vehicle. I generally suggest that you review and, if needed, rebalance this account at least annually. Many plans have an auto rebalance feature which makes the latter task even easier. Above all, review your 401(k) plan as a part of your overall portfolio, not in a vacuum. Ideally your company retirement plan should work in harmony with your investments outside of the plan as a part of your overall financial planning strategy.

Hire a financial adviser if you need one. I encounter many folks who feel that they can do their own investing and financial planning. Many of them are perfectly capable. The question is will they actually take the time to do the planning and ongoing reviews and updates that are so critical? My (very biased) suggestion is to seek out a fee-only adviser.

The end of a calendar year is a time when we often reflect on where we are in life and upon what has happened over the past year. Take some time in this last month of 2011 to get your financial house in order and to position yourself to hit the ground running in 2012.

Source: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/12/07/5-year-end-financial-planning-moves

Saturday, September 1, 2012

Roth or Regular IRA? Only Time May Tell

Opting to put some of your retirement nest egg into a Roth IRA might come down to how you feel about politicians.

Personal income taxes are sure to rise over the coming decades, as lawmakers grapple with the country’s massive budget deficit . That makes a Roth — a retirement fund made with after-tax money that isn’t taxed again when withdrawn for retirement or passed on to your heirs — seem a great bet.

Why take a bigger tax hit down the road when you can pay now at a lower tax rate? Not so fast, tax experts and financial advisors say.

Roth IRA Changes Coming?

Given the track record of politicians in other investment and retirement matters, there’s a chance Roth IRAs won’t retain their special status that allows them to grow tax-free, say personal finance experts.

A grab-back could result in a sizable hit for the hundreds of thousands of retirement savers who last year converted their traditional IRAs to Roth IRAs after the federal government removed the $100,000 income cap that limited the availability of the investment vehicle.

“Pardon my cynicism, but my fear is that some future Congress will put an excise tax on Roth IRAs to raise money,” says Warren Ward, a financial planner in Columbus, Ind. “What they’re doing now is kicking the can down the road. They might say, ‘Remember that deal we made 10 years ago? There’s a huge amount of money there. Let’s go after that.’ ”

Financial planners point to the Reagan administration’s move in the early 1980s to put a tax on Social Security [cnbc explains] checks as an example of what could be ahead for Roth IRAs.

Retirement Diversification

That kind of uncertainty over the future tax environment can also make Roth IRAs an attractive investment, says Christopher Cordaro, a wealth manager at RegentAtlantic Capital in a Morristown, N.J.

“From a planning perspective, if you could have two pots of money — a Roth that you’ve already paid taxes on and another pot that you haven’t — it gives you the greatest flexibility,” Cordaro says. “You basically have diversification. Particularly if you aren’t sure what the tax code is going to be in any given year and what your overall income is going to be, it’s good to have greater flexibility."

Cordaro explains the appeal of Roth IRAs to his clients by likening traditional IRAs to a big home mortgage.

“Let’s say you have a million-dollar investment account and a million-dollar house,” he says. “If you have a $350,000 mortgage, you owe the bank that liability. Think of an IRA the same way. It’s like a $350,000 tax liability. Sometimes it’s better to pay off that liability sooner."

Roth IRAs Benefit Younger Workers

Roth IRAs are typically best suited for younger people — say 25 years old — as they are getting into the workforce and have relatively low tax rates

“The longer you have to invest the money, the better,” says Cordaro. “I have three teenage daughters and I’m setting up Roths for them as soon as they have taxable income. The $3,000 that my daughter earned will never have tax on it again and it has potentially 60 or 70 years of tax-free accumulation,” he said. The chance that Roths won’t have such favorable tax treatment by the time his daughters retire is worth the risk.

Other people who make good candidates for Roth IRAs are those who don’t need the money.

“Their goal might be to have an asset to benefit their children,” says Beth Gamel, co-founder of Pillar Financial Advisors in Waltham, Mass. “The payback for them is they can leave the asset to their children and that it would never be taxed."

If it comes down to a choice between a company-sponsored plan where the employer offers to match an employee’s contribution, it’s always better to take the free money, says Ward, who caters mainly to middle-income clients in Indiana.

“One thing I learned 20 some years ago when I first started out as a stock broker is the saying, Don’t let the tail wag the dog,” he says. “You should make good investment decisions first. Don’t let the tax consequences be the main reason.”

Source: http://www.cnbc.com/id/45463526/

Friday, August 31, 2012

Buy Foreclosures With Your IRA

While home prices still haven't hit bottom nationally, demand is starting to grow, especially for distressed properties on the low end of the market.

Large scale investors, like hedge funds and other private equity firms are rushing in with cash on hand, and that gives them the upper hand in competition for these properties.

So how does an individual investor, without extra cash lying around, get in? Retirement funds.

It may sound risky, but with strong rental demand and relatively little supply of single-family homes, it could be far less risky than the stock market. That's because your gains are largely coming from rental income, not home appreciation, which is why this works so well in today's market.

"Here in Reno, prices are half of what they were at the top of the bubble, so, yeah, it might go down a little bit more but I don’t think it will go to zero, like some of my stocks have gone to zero," says Terry Vander Ploeg, who invested $105,000 in a Reno foreclosure.

The catch is that you have to do it through what's known as a self-directed IRA. Not a lot of firms do this, but some do: Guidant Financial, Sterling Trust, IRA Resources and PENSCO are a few. The firms act as custodian of your self-directed IRA, holding the property and dealing with all associated expenses.

"It's really an account that provides greater flexibility than what a third party administered 401K, for example, would provide," says Kelly Rodriques, CEO of PENSCO, which has doubled its assets in the past four years. "That's in part because real estate has become a pretty well priced or at least valued investment area, given the downturns," according to Rodriques.

Rich Pregel had money in a 401K from a previous employer and experience in the real estate business. Late last year he decided to put his money to work in real estate. The 48 year old Cincinnati resident bought a commercial foreclosure in his home town to rent.

“I’m generating close to $80,000 on $140,000 investment after expenses, it’s pretty much a no brainer,” says Pregel, who used a self-directed IRA.

This type of IRA does carry restrictions. The property must be used purely as an investment, with all the income going directly back into the IRA. The owner may not occupy the home or even use it as a vacation property. The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company which would be paid for out of the IRA.

It is also possible to get a mortgage through the IRA, but it has to be what's called a non-recourse loan.

"It’s a loan that can only seek the property, the collateral, as its sole recovery, if the property goes into default, so you as an individual can’t sign up to guarantee the loan," says Rodriques. The IRA is not just purchasing the property, but it is responsible for liabilities and payments.

All this may sound complicated, but some say it's worth the extra time and energy. With a rising number of foreclosed properties coming to the market this spring, and banks far more willing to do short sales on troubled loans, opportunities are everywhere.

"Right now, we bought it for a good price, put some money into it to get it up to rentable specs, and now we’ll see," says Vander Ploeg. "We have a renter in, and we’ll see how it goes. You’ve got to have the right renters."

Source: http://www.cnbc.com/id/46718050