I generally begin my articles for our Family Blog Web Site with a definition of the topic or subject that I am addressing, and this month’s article will not deviate from that practice.  Finance is defined by Webster’s New World Dictionary as being “the science of managing money”.  And, Financial Planner is defined by Wikipedia as “a practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: cash flow management, education planning, estate planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).  The work engaged in by this professional is commonly known as personal financial planning.  In carrying out the planning function, he or she is guided by the financial planning process to create a financial plan – a detailed strategy tailored to a client’s specific situation, for meeting a client’s specific goals.”

Jay Buckingham, CFP, of Buckingham Financial Group has been my personal Financial Planner for over ten (10) years.  In order to assist me with the preparation of this article, I recently met with Jay to discuss his role as a Financial Planner.  I learned that Financial Planners must have an educational background associated with being or having an MBA (“Masters in Business Administration”), a CPA (“Certified Public Accountant”) and/or a CFA (“Certified Financial Analyst”).  A person who wants to become a “Financial Planner” generally obtains the necessary degree(s) and then typically works for another certified Financial Planner to obtain experience in the field. He stated to me that the majority of his clients are females and the average age of his clients is in the early to mid-sixties range.  While I, as a divorce attorney, may see my client(s) through his or her divorce, Jay’s goal is to maintain a relationship with his client(s) through the end of the client’s life span, with a focus upon appropriate strategies about managing assets to pay for present and future living expenses, including planning for retirement.

My Motives for Seeking a Financial Planner:

I was in the midst of post-Decree marital turmoil and was very concerned about my financial well-being.  I had been in a long-term 30 plus year marriage; and, I had been married to a man who had always handled the finances, who had always done the income tax returns, and who had always made all the financial decisions in the marriage.  When two parties divorce, unless both parties are independently wealthy, there will be serious economic consequences for each!  In a marriage there is one set of living expenses (including mortgage or rental payment, utilities, taxes, automobile insurance, groceries, etc). But, when there is a divorce or dissolution, there are two persons having separate living expenses and often not enough money to go around.  While a Husband and Wife earning a total of $100,000 may be comfortable with payment for all of the expenses outlined above, each party individually having income of $40,000 to $50,000 may indeed struggle to meet their monthly living expenses. And, if you have individuals having a combined income of $30,000 to $40,000 who are facing a termination of marriage, the economic consequences are certainly magnified. Quite frankly, one or both parties may have to seek financial assistance from family members or state or county agencies to meet monthly housing and living expenses.  In our present economy, I have seen both Husbands and Wives working a full-time job and then trying to get a part-time job just to attempt to “make ends meet” ! Cutting expenses and creating a “leaner” budget is not easy.

Some Ways to Utilize the Services of a Financial Planner:

Income Tax Services

My income tax returns are prepared by experts in the field and I am advised of ways that income taxes can be saved. For example, in recent years, Jay advised me about how to maximize savings and contributions to a 401-K Account and, later, to a Roth IRA Account in order to accomplish financial goals.  While I wanted to continue paying a mortgage and real estate taxes in order to earn income tax deductions, Jay counseled me that it would be more beneficial to “pay off” the mortgage in full and then to contribute the former mortgage payment to a retirement account.

Although Divorce Decrees and Final Decrees of Dissolution contain the “standard language” that spousal support shall be tax deductible to the Obligor (usually the Husband) and tax includable to the Obligee (usually the Wife), most Wives/Obligees do not know that they must pay quarterly income taxes on the spousal support they receive.  Without prior planning for payment of quarterly income taxes (federal and state), the Wives/Obligees could be unpleasantly surprised to find they owe more monies to the IRS and/or to the Treasurer of the State than they had imagined.

Financial Management Services

I do not have the time or the inclination to learn more about the stock market, the Dow Jones Average, and/or NASDAC and/or how they work.  I know that at the present time our stock market has been very volatile.  My Financial Planner and his staff undertake the study and analysis of the stock market as their daily/weekly function.  This is what financial planners “do”! A good financial planner will advise the client about good investment opportunities and as to investment opportunities to avoid.

Cash Flow Management

My financial planner and I frequently discuss my monthly income versus my monthly expenses. Are there any expenses that can be reduced in order to provide for increased savings?  Are there any monthly expenses that can be eliminated entirely?  Adhering to a monthly budget is necessary to keep savings and retirement accounts intact and growing for later years.

Estate Planning

Share your estate planning wishes with your planner. My Financial Planner knows that I have a recently revised and updated Last Will and Testament in place and that I have a General Durable Power of Attorney (for business decisions), a Durable Power of Attorney for Health Care (for end-of-life health care decisions), and a Living Will in place.  We have discussed my present financial goals and my retirement goals and there is a plan “in place” that is working for me and my immediate family.  The knowledge that I have the involvement of a Certified Financial Planner to assist me with all of the foregoing services is indeed a “comfort” to me! Also, be sure to take note that all people who hold themselves out as “financial planners” are not the same. Be sure to look at their education and certification. A “Certified Financial Planner ™” is an individual who has met CFP Board’s education, examination and experience requirements, has agreed to adhere to high standards of ethical conduct and who completes CFP Board’s biennial certification requirements, including continuing education.

Our firm works regularly with many financial planners, accountants, psychologists and other professionals to aid our clients who are going through a divorce or dissolution. We believe a “holistic” and “multi-disciplinary” team approach is often essential to properly assist our clients in transitioning to becoming single.

For more information about Certified Financial Planners ™, click here. If you wish to learn more about Jay Buckingham, CFP, or Buckingham Financial Group, click here.

Last month, Justice Souter of the United States Supreme Court issued a unanimous decision in the case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. A dispute had arisen between husband’s estate and his ex-wife over receipt of his Savings and Investment Plan proceeds. A SIP is an “employee pension benefit plan” similar to a 401(K) plan subject to federal ERISA laws. Early on in the marriage, husband had named his wife as the beneficiary to his employer’s SIP plan. The parties divorced and the divorce decree language said that the wife was “divested of all right, title, interest, and claim in and to . . . any and all sums . . . the proceeds [from], and any other rights related to . . . retirement plan, pension plan, or like benefit program existing by reason of [the husband’s] past, present or future employment.” However, the husband never executed a form to remove the wife as his beneficiary of the plan nor did he submit a Qualified Domestic Relations Order (QDRO) to the employer covering the SIP. He did, however, submit a QDRO covering his pension.

The husband passed away and the parties’ daughter requested that the employer pay the SIP benefits to the husband’s estate. The employer refused claiming that the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) prohibiting benefits from being assigned or alienated, required payment to the ex-wife instead! After much litigation, the United States Supreme Court agreed with the Fifth Circuit Court of Appeals that the language in the divorce decree did not over-ride the specific requirements of the retirement plan document, which husband did not follow to remove his ex-wife as the beneficiary. The end result was that the $400,000 in his SIP account went to the ex-wife instead of his estate and children!

It is a common scenario that lawyers and divorce courts attempt to divide and allocate 401(k) and SIP accounts. This area of the law is fraught with many landmines and can be very complicated! So, to avoid unintended consequences, the rules of the plan, as well as the strict requirements of ERISA, must be complied with carefully. The most prudent course of action for people facing this type of situation is to contact the plan administrator to be certain that all required steps have been taken, which vary from plan to plan, including signing the change of beneficiary form and/or the issuance of a proper Qualified Domestic Relations Order (QDRO).

Source: Kennedy v. Plan Administrator for DuPont Savings and Investment Plan