Dis-Orientation: Back to School and Divorce

Traditionally, autumn is a boom season for divorce, particularly for couples, who wait out the summer at the cottage before returning home to cut their marital ties. Many couples considering splitting decide to wait until after the holidays to break the news to their children. How are these parents going to approach their separation or divorce – and how will it affect their children?  
Obviously school-year separations can be difficult for school-age children. Parents need to bend over backwards to minimize the changes and transitions in their child’s life so as to keep school-related schedules, after-school activities, playtime with friends and other routines as much the same as possible.  

Parents with university aged children face the additional burden of having kids who are moving away from home.  The added stress of dealing with ever increasing tuition costs and related school expenses makes divorce at this stage more complex.

As couples work through their separation agreement, they should be aware of the many financial issues that affect them and their children beyond the traditional items of child support.

They should be considering such things as:

  • Is there enough savings set aside for tuition and room& board expenses
  • How will any shortfall be funded by each parent?
  • Who manages any RESP plan set up for the student?
  • What additional expenses will students/parents incur as a result of parents living apart
  • Who will benefit from any tuition tax credit available to transfer to a parent

Sending kids off to university is an exciting and challenging time for both students and parents alike.  Dealing with divorce at this stage in your family’s life adds additional challenges.   If you need help sorting through the financial issues around these issues, we may be in the position to help.


When You are the One Paying Support

According to a recent study done by Prudential Insurance in the U.S. of  the 1,140 women and 604 men surveyed,  it was reported that 22% of women ( married or with a partner)made more money than their husband or partner.

This economic statistic is certainly a factor why women increasingly are paying support. However, in our society, women seem surprised to have to pay support even if they earn more. As the financial gender gap continues to narrow, an increasing number of women involved in a divorce must confront the possibility of paying support to their spouse. (AKA, “Manimony”).

I have assisted many divorcing women who face the prospect of paying support. Women who have worked hard building careers, taking care of children, dealing with aging parents, feel that they have contributed more than their fair share while married.

This also means that women are increasingly responsible for their finances and investment decisions. This is an area where women have less confident in their knowledge of finances. This adds addition pressure and concerns for women who have to  deal with ongoing payments along with  managing their current lifestyle and worrying about retirement.

Are you someone who makes more money than your spouse? If you found yourself in this situation, how did you deal with this issue?

How To Track Europe

Market-Moving Indicators for Monitoring Europe
If you’ve struggled to make sense of the ongoing European debt debacle, you’re not alone. It’s difficult even to keep track of all the pieces of this financial Rube Goldberg puzzle, let alone understand how they can influence one another.
Though new aspects of the situation seem to crop up every month, here are some of the most common factors that either reflect or affect sentiment about what’s happening in Europe. Knowing about them might help you understand why markets react to a seemingly obscure headline. After all, one of the few things that almost everyone seems to agree on is that the situation isn’t likely to be solved overnight.
Take an interest in interest rates
Interest rates on sovereign debt are perhaps the most closely watched indicator. When demand for a country’s bonds is low because investors are concerned about the possibility that they might not be repaid in full and on time, that country must offer a higher interest rate in order to borrow money to finance its day-to-day operations.
Interest rates become particularly worrisome when they reach or exceed 7%. That’s the level that prompted Greece, Ireland, and Portugal to seek bailouts from their European peers, and it’s widely seen as unsustainable. When a country must pay that much simply to service its debt, investors become concerned that high borrowing costs will make a country’s financial situation even worse.
Watch credit ratings
Troubled European countries are struggling to deal with a devilish Catch-22. In many cases, unsustainable debt burdens have led to stringent austerity measures; however, such measures also can hamper economic growth, which reduces tax revenue and can potentially increase deficits. Higher deficits can lead to a lower credit rating that in turn can mean higher borrowing costs, bringing on the problems discussed above and potentially launching a new downward economic cycle. Thus, a downgrade to a country’s credit rating tends to raise concerns.
However, investor reaction also can be unpredictable. For example, Standard & Poor’s January downgrade of nine sovereign nations and the European Financial Stability Fund was largely met with a shrug by investors. There’s been so much pessimism about Europe for so long that in some cases, markets may already have priced in much of the bad news.
Monitor credit default swap costs
A credit default swap (CDS) is a form of insurance against the possibility that a bond issuer might default or fail to make a payment on its obligations. Bondholders buy a CDS from a financial institution or insurance company that promises to reimburse the bondholder for any losses sustained in the event of a default. The cost of that insurance is seen as a proxy for the perceived risk involved in investing in a particular country’s bonds. The higher the cost of a CDS on, say, Italian sovereign debt, the greater the anxiety about whether the bond issuer will default and the CDS issuer will have to pay.
Follow the money
To prevent credit markets from seizing up, the European Central Bank late last year provided almost €500 billion in three-year loans to European banks, making it easier for them to refinance their debt. The level of borrowing at the ECB is seen as one indicator of how banks are being affected by their holdings of sovereign debt. The greater the need to borrow from the ECB, the greater the banks’ perceived level of vulnerability.
Bailouts: Nein nein nein?
U.S. voters aren’t the only ones who are sensitive about bailouts; so are Germans. As Europe’s most powerful economy and the one with the best credit rating, Germany is the tentpole upon which European financial stability hangs. However, by the end of 2011, the German economy had begun to slow. Any indications that economic pressure could threaten Germany’s ability and willingness to remain strong in its support of the eurozone can spook anxious investors.

Asset Protection (beyond insurance)

Asset Protection Strategies Beyond Insurance
You’ve worked hard to accumulate your assets and property; that’s why it’s so important to take measures to protect your wealth. Often, the simplest way to protect assets is by shifting the risk to an insurance company. But insurance may not provide all the protection you need or it might not be available, so you may need to consider other strategies.

These asset protection strategies generally involve transferring legal ownership of assets to other persons or entities, such as corporations, limited partnerships, and trusts. The logic behind shifting ownership of assets is fairly straightforward: your creditors can’t reach assets you don’t own.

Shifting assets to a C corporation
The law views a C corporation as a separate legal entity. As such, business assets owned by a C corporation are considered separate from your personal assets, which will generally not be at risk for the liabilities of the business.

However, protection from liability may be lost if the business does not act like a business, such as when the business acts in bad faith, fails to observe corporate formalities (e.g., organizational meetings), has its assets drained (e.g., unreasonably high salaries paid to shareholder-employees), is inadequately funded, or has its funds commingled with shareholders’ funds.

Shifting assets to other entities
A limited liability company (LLC), limited liability partnership (LLP), or family limited partnership (FLP) is a legal entity that can be used to separate business assets from personal assets.

An LLC is generally taxed like a partnership with income and tax liabilities passing through to its members (and not double-taxed as a C corporation), but it is viewed as a separate legal entity and can be used to own business assets, protecting your personal assets from business claims against the LLC.

If you have business partners, an LLP may protect you from the professional mistakes of your partners. That is, if one of your partners is sued for negligence, and the LLP is also named in the lawsuit, the partner sued may be liable personally for any judgment, but the LLP should protect your personal assets from the reach of any judgment creditor of the LLP.

An FLP is a limited liability partnership formed by family members only. Generally, a creditor can only obtain a charging order against the FLP, which allows the creditor to receive any income distributed by the general partner (who is usually a family member). It does not allow the creditor access to the assets of the FLP. Although each of the entities discussed above are alike in that they can protect your personal assets, they are very different in other ways. Make sure the entity you choose satisfies all of your needs.

Shifting assets to a trust
There are many different types of trusts that can be used to protect assets. A protective trust may protect assets intended to eventually pass to another person. For example, you transfer assets to a protective trust naming yourself and another as beneficiaries. The trust allows you to receive only income from the trust, with no access to the trust principal. At your death, the assets are to pass to the other beneficiary. If you’re sued, the creditor can only receive your right to trust income, but not the assets of the trust. These trusts usually contain a spendthrift provision that makes it difficult for creditors to reach trust assets to satisfy claims against trust beneficiaries.

The laws in a few states, such as Nevada, Alaska, and Delaware, enable you to set up a domestic self-settled trust. You can create this type of trust, transfer assets to the trust, and name yourself as beneficiary. The trust gives the trustee discretion over whether or when to distribute trust property or income to beneficiaries. Creditors can only reach property that the beneficiary has a legal right to receive. Therefore, the trust property will not be considered the beneficiary’s property, and any creditors of the beneficiary, including yourself, will be unable to reach it.

Many foreign countries have laws that make it difficult for creditors to reach trust assets held in that foreign country. In order for a creditor to reach assets held in a foreign or offshore trust, a court must have jurisdiction over the trustee or the trust assets. Because the trust is properly established in a foreign country, obtaining jurisdiction over the trustee in a U.S. court action will not be possible. Thus, a U.S. court will be unable to exert any of its powers over the offshore trustee.

Protecting assets doesn’t include fraud
Protecting your assets by legally repositioning them does not extend to actions intended to hide assets or defraud creditors. So, make sure you implement any asset protection strategy before there is any hint of trouble, and be sure to carefully document that you are doing so for sound business or other reasons.

These asset protection strategies generally involve transferring legal ownership of assets to other persons or entities, such as corporations, limited partnerships, and trusts. The logic behind shifting ownership of assets is fairly straightforward: your creditors can’t reach assets you don’t own.