Is a Reverse Mortgage Right for You?

Under the right circumstances reverse mortgages, also known as a Home Equity Conversion Mortgage (HECM), can be a good means of supporting your retirement. On the other hand, they can also turn out to be an expensive way to borrow money.

To help determine if a reverse mortgage is right for you, let’s take a closer look at what a reverse mortgage is, review some background information, and discuss the pros and cons associated with this financial decision.

What is a Reverse Mortgage?

Simply put, a reverse mortgage is a loan that uses your home as collateral. The funds provided through the reverse mortgage can be used in a variety of ways such as supplementing your income, paying off debt, or making a large purchase.

When you take out a reverse mortgage, it’s important to note your house will remain in your name, and the income you receive is tax-free. Another point to note is that no matter how much you owe on your reverse mortgage, you can’t owe more than the value of your home.

Reverse mortgages can be an attractive option for some because you are not required to make payments as long as you live in your home. On the contrary, once you leave your home for more than twelve months, sell the residence, or pass away, the outstanding balance of the loan must be repaid, typically with interest.

It is worth noting that the first reverse mortgage was done right here in Portland, Maine as a tool to assist a local widow who wanted to stay in her home after her husband’s passing.

Fees Associated with a Reverse Mortgage

While you won’t be required to make payments as long as you live in your home, a reverse mortgage comes with its fair share of fees, and can actually cost more than a conventional mortgage.

Generally speaking, lenders will charge 1) mortgage insurance premiums (initial and annual) 2) third-party charges 3) origination fee 4) interest and 5) servicing fees. These fees can be paid upfront or by financing them over time from the proceeds of the loan.

How Much Can Be Borrowed?

The amount that can be borrowed depends on several factors including your age, the value of your home, and current interest rates. The older you are, and the more equity you have in your home, the more you can borrow – especially if interest rates are low.

Reverse mortgages do have limits on how much you can borrow your first year, and how much of the value of your home you can borrow against.

As of 2022, the HECM FHA mortgage limit is $970,800. So, even if your home is valued at $5 million, the HECM will only let you borrow against $970,800 of its value. You would then be able to borrow anywhere between 35-75 percent of this amount depending on age, equity, and interest rates.

Who is Eligible to Take Out a Reverse Mortgage?

In order to qualify for a reverse mortgage, the individual must be at least 62 years old and own their home outright. Additionally, the home must be the primary residence (i.e. no secondary residence or real estate property), and there must be documentation that the home owner maintains the property, and pays property taxes, insurance, etc.

Who is the Ideal Candidate for a Reverse Mortgage?

As noted in the introduction, a reverse mortgage is not a good fit for everyone. However, if you are over the age of 62, own your own home, and meet any of the following scenarios, you might be a good candidate for a reverse mortgage.

  • Seniors who are encountering significant costs late in life (and may not have Long-Term Care Insurance)
  • People who have depleted most of their savings, but have considerable equity in their primary residences
  • People who don’t have heirs who wish to inherit the home

What are the Potential Benefits of a Reverse Mortgage?

For the right candidate, a reverse mortgage can help you:

  • Strengthen your retirement. A reverse mortgage can allow you to turn an otherwise illiquid asset, your home, into cash that you can use to cover expenses in retirement.
  • Avoid downsizing so you can live in your home longer. Instead of selling your home to liquify your asset, you can keep your primary residence and get cash out of it. This can help you avoid downsizing or getting priced out of your neighborhood if you had to move.
  • Pay off Existing Home Loans. Your home doesn’t have to be paid off in order to take out a reverse mortgage. In fact, you can use the proceeds of a reverse mortgage to pay off an existing home loan. This frees up money to put toward other expenses.
  • Reduce Tax Liabilities. According to the IRS, money you get from a reverse mortgage is considered to be a loan advance rather than income. That means the funds aren’t taxed, unlike other retirement income such as distributions from a 401(k) or IRA.

What are the Potential Downfalls of Taking Out a Reverse Mortgage?

While a reverse mortgage might seem to have many benefits, there are also some very serious risks to consider which include:

  • Losing your home to foreclosure. To qualify for a reverse mortgage, you have to maintain the payment of your property taxes, homeowners insurance, HOA fees and any other expenses associated with owning your home. The home must also serve as your primary residence for most of the year. If at any point during the loan period you become delinquent on these expenses, or spend the majority of the year living outside the property, you could default on the reverse mortgage and lose your home to foreclosure.
  • Compromising other retirement benefits. While income generated from a reverse mortgage may have certain tax benefits, taking out this loan could impact your ability to qualify for other need-based government programs such as Medicaid or Supplemental Security Income (SSI). You should discuss this with a benefits specialist to ensure your eligibility in these programs won’t be compromised.
  • Limiting, or even eliminating the opportunity to leave a legacy to your heirs.  A reverse mortgage requires that the full balance be paid when you die. It also eats away at your home’s equity over time. This combination  usually results in your heirs having to sell the home in order to repay the debt. As a result they are left with little to no inheritance.
  • Paying high upfront fees. With loan origination fees up to $6,000, upfront mortgage insurance premiums worth 2% of your home’s value, and other closing costs, reverse mortgages are more expensive than other home loan types. In short, a reverse mortgage can be an expensive way to borrow money.

So, Is a Reverse Mortgage Right for You?

The answer is never an easy yes or no. Like any big financial decision, you should consult your financial advisor or a trusted expert to help you evaluate the pros and cons of applying for a reverse mortgage.There are many cases when an individual should avoid applying for a reverse mortgage. Be sure you fully understand reverse mortgage pros and cons before taking one on.

Have a Question about a Reverse Mortgage?

Long-Term Care Insurance: When & Why It Can Be a Good Investment Idea

It’s a fact. People around the world, including the United States, are living longer. According to the United Nations, the number of seniors aged 60 or older is projected to reach 1.4 billion by 2030 and swell to 2.1 billion by 2050.

As the elderly population increases, the cost for long-term care support services offered through adult day care, nursing home, and assisted living residence is also on the rise. If not accounted for, these long-term care costs can easily wipe out a lifetime of savings.

One option to mitigate the risk of depleting your nest egg is to invest in long-term care (LTC) insurance. Under the right circumstances, LTC insurance can help protect you and your loved ones while helping you navigate your long-term care needs. 

But, is LTC insurance a good option for you?

In the following article, we’ll take a closer look at what LTC insurance is, what it covers, and discuss when and why it can be a good tool that rounds out your financial plan.

What is Long-Term Care Insurance?

Long-term care insurance helps cover the costs associated with long-term care needs, which are services that are not typically covered under regular health insurance. These services may include assistance with daily activities like bathing, dressing, and transportation.

A LTC insurance policy is designed to help individuals cover the costs of care when they have a chronic medical condition, a disability, or a disorder like Alzheimer’s disease. Most policies will reimburse the policyholder for care received in a variety of places, such as:

  • Your home.
  • A nursing home.
  • An assisted living facility.
  • An adult day care center.

The Difference Between Traditional & Hybrid LTC Insurance

There are two types of LTC coverage. The first is traditional, also known as standalone LTC insurance, and the second is hybrid LTC insurance. 

Traditional LTC insurance policies require you to pay a monthly premium for the coverage, which you may or may not actually end up needing. 

Hybrid LTC insurance policies combine coverage for long-term care with whole (permanent) life insurance. If you end up needing long-term care, those costs will come out of your death benefit (the payout to your loved ones under your life insurance policy). If you don’t need long-term care, your death benefit will stay intact. 

While traditional LTC insurance follows a use-it-or-lose-it model, hybrid LTC insurance allows you to retain at least some of what you paid. However, hybrid LTC insurance tends to be more expensive.

What Does LTC Insurance Cover?

It bears repeating that LTC insurance is designed to help offset costs associated with services that are not covered under regular health insurance, Medicare, or Medicaid. Therefore, different policies may limit what conditions are covered. 

For example, it’s not unusual for substance abuse or a war injury to be exempt from coverage. And while they might not stop you from getting coverage, pre-existing conditions such as heart disease or a past cancer diagnosis may not be covered under the policy. 

As a rule of thumb, the policy holder becomes eligible for benefits when they can no longer perform two daily living activities such as bathing, dressing, eating, using the toilet, getting in and out of bed, and managing incontinence — or become cognitively impaired. At that point, premiums typically are waived while you receive benefits.

When Should You Consider Buying Long-Term Care Insurance?

Like any investment, timing counts when deciding to buy LTC insurance. If you purchase LTC insurance when you are too young, you run the risk of paying premiums for a very long time. On the other hand, if you wait too long to buy LTC insurance, you run the risk of either being turned down or paying astronomical premiums that make this type of investment impractical.

That said, most people who buy long-term care insurance do so in their fifties and sixties. In some cases people are now looking to purchase insurance in their late forties.

Keep in mind that the rates you pay for LTC insurance are determined by several factors such as your age, health history, gender, marital status, and the amount of coverage you wish to purchase. 

Also, please keep in mind that prices for the same amount of coverage will vary among insurance companies. That’s why it’s important to compare quotes from different carriers.

Are There Any Tax Benefits to Buying Long-Term Care Insurance?

The short answer is yes. Long-term care insurance can have some tax benefits if you itemize deductions, especially as you age. Federal and some state tax codes let you count part or all long-term care insurance premiums as medical expenses, which are tax deductible if they meet a certain threshold. The limits for premiums you can deduct increase with your age. Check with your tax professional first to be positive of your situation.

 

 

2021 Federal Tax Deductible Limits for
Long-Term Care Insurance

Age at the End of the Year
Maximum Deductible Premium
40 and Under
$450
41 to 50
$850
51 to 60
$1,690
61 to 70
$4,520
71 and Over
$5,640

Please Note: Only premiums for tax-qualified long-term care insurance policies count as medical expenses. Such policies must meet certain federal standards and be labeled as tax qualified. Ask your insurance company whether a policy is tax-qualified if you’re not sure.

Things to Consider Before Investing in LTC Insurance

Ultimately, the decision to buy LTC insurance comes down to your risk tolerance, and your comfort level with this type of insurance policy. Like any investment, you should discuss the pros and cons of buying LTC insurance with your financial advisor or accountant.

If you do decide to purchase LTC insurance, you should consider the following:

  • Your overall financial situation.
    While weighing out the cost benefit of purchasing LTC insurance, you will first need to consider your overall financial situation to see if the long-term benefits are a good match. Some people would prefer to sell their second home, or downsize their existing home to help cover the cost associated with growing old. Others may set up a longevity fund to cover not only long-term care, but also all the costs that come from living longer than average. One advantage of self-funding: total flexibility in how you spend your care dollars.  The downside is that it is difficult to accomplish for most people.  You would also purchase LTC insurance as a method of protecting your assets.  If you don’t have a lot of assets, you may want to consider other options.

     

  • Your ultimate financial goals.
    Understanding your overall financial goals is also an important consideration when weighing out whether or not you should buy LTC insurance. If you put a high value on leaving money behind for loved ones, then purchasing a policy may make sense. If you are content without leaving a legacy, then you might be able to forego this purchase.

     

  • Your age and health history.
    As discussed earlier, what you pay for a policy is directly tied to your age, health history, gender, marital status, among other factors. The older you are when you buy LTC insurance, the more it will cost. In some cases, some insurers will require that you take a physical exam, or require that they review your medical records, and conduct a telephone interview. In general, traditional policies have more stringent health requirements than hybrid ones, so keep that in mind as you are comparing your options.

  • Insurance companies and coverage.
    When comparing LTC insurance policies, it’s important to compare different carriers and coverage policies. It can also be very helpful to speak with a financial adviser who can put your options in the context of your overall financial plan.

  • Understand the tax implications and know how you are going to pay for the policy.
    In certain situations, you may be able to cover premiums, tax-free, using money from a health care savings account. You can also explore the tax advantages associated with exchanging an existing life insurance policy or annuity for a long-term care policy.  This can be complicated, so speak to your tax professional before making a choice for yourself.

Need Help Deciding Whether or not long-term care insurance is right for you?

How to Leverage Technology to Build and Maintain a Budget

Many of us were taught how to set a budget with pocket money we were given as children.  Now that you are an adult, you are managing your cash and figuring out how to budget on a larger scale. However, setting up and maintaining a budget is not always an easy task.

If you are struggling to have enough money for the month or wondering how you are going to afford big purchases like a computer or a car it’s time to sit down and create a budget. Even if it makes you uneasy. The good news is there are some things you can do to make this process a little less painful. Keep reading to find out how to easily manage your finances through online tools.

Take Advantage of Online Banking Tools

Most banks have websites and offer money management apps for their customers. Customers don’t realize that banking tools can do more than just withdraw money or pay. You can set these tools to automatically save a portion of your monthly paycheck. Directly from your banking tools, you can sort all your periodil bills and avoid late payment penalties.

These tools also assist in allotting different amounts to expenses, such as investment and emergency accounts. Apart from all of these benefits, the tools also generate reports of where your money is going and alert you when the account is low. Consult your bank and bank’s website to find out more about the capabilities of these banking tools.

Make the Most of Budgeting Apps

Technology has made processes better and more efficient. The financial sector has not been left behind, especially in personal finance matters. The rise and development of financial technology (fintech) have led to apps that help individuals manage their spending. Here are good examples of budgeting apps that help you track your expenses:

  • Mint
    There is so much you can do with Mint regarding personal finance. You can link the app to your bank accounts, investments, credit cards, and even a retirement account. The features in the Mint app allow users to see their actual income, update budget categories, and track expenses and credit—plus set and monitor investment and saving goals, just to mention a few of their helpful features.

  • Simplifi
    This budgeting app allows users to manage their money in many ways. You can connect all your bank accounts, credit cards, loans, and other investment accounts within the app. Using Simplifi, you can easily create and track multiple saving goals such as buying/building a home and planning for future vacations amongst other users.  The app has an easy, user friendly feel to it.

  • PocketGuard
    Just as the name implies, PocketGuard helps users direct their spending behavior within limits and put aside some spending money for savings. Consumers can link their bank accounts and credit cards to the app. Users create different categories, for example, savings and expenses. Any spending automatically uploads to the PocketGuard app, enabling accountability. It has a unique feature called “In My Pocket,” which shows how much money there is for everyday spending.

  • You Need a Budget (YNAB)
    You Need a Budget is a budgeting app that helps consumers have their money management matters organized. YNAB allows users to sync their bank accounts and credit cards, plus being able to set goals and customize spending categories. It’s designed with flexibility, such as shifting funds through different categories, the ability to budget with someone else, and planning for non-monthly, irregular bills.  Many people enjoy this particular app.

Utilize Spreadsheets

Most people are familiar with spreadsheets. But few have explored using spreadsheets as budgeting tools. If you want a simple and free tool for personal finance budgeting, then spreadsheets are the way to go. Examples of these tools are Google Sheets and Microsoft Excel.

You can choose to customize the spreadsheets so that they calculate your monthly income percentages for each category. Because spreadsheets offer financial templates and formulas, you can use them for creating a budget, monitoring spending, and generating financial reports.

Budgeting Knowledge Online Is Extensive

Most of us go online daily, and this is where we can get lots of ideas about budgeting. Many online platforms such as social media and online video platforms like YouTube and blogs have helpful information. Through these platforms, one can learn how to stay on top of their game in managing personal finance.

Be Cautious of Online Purchases

You need to be on the watch for small and impromptu expenses such as subscriptions and digital purchases. That can add up to substantial unplanned expenses. Parents, make sure your phone is secure to prevent toddlers and kids from accidentally draining your account through online purchases.  You don’t have to search long to find horror stories of children unknowingly racking up large purchases on their parent’s devices.

7 Benefits of Creating a Budget

  1. Budgeting helps one become financially stable because you become aware of all your expenses and plan your income accordingly. You avoid being financially overwhelmed.

  2. Budgeting helps you control where your money is spent, helping you be more financially organized and keeping you from spending what you don’t have.

  3. Budgeting guides you toward achieving financial goals like saving to buy a home or paying off credit card debt. You set personal finance objectives and track if you are in the right direction to achieve them or if you need to adjust your progress.

  4. Budgeting helps you prepare for unforeseen expenses and future expected expenses like retirement. So, you won’t be stranded and stressed during an already hard time.

  5. Budgeting allows one to attain financial freedom and independence. Yes, I mean it! You avoid and get out of debt with budgeting. Being devoted to the budget that you created helps you address bad spending habits.

  6. Better family relationships. Most married couples generally have agreed-upon, transparent budgets, which reduce financial stress.

  7. Budgeting can help you save money for “rainy days,” a sudden job loss, or even just living in a world where inflation is the norm!

Conclusion

Technology is necessary to build and maintain a budget. There are lots of apps, and most of them are free. If you choose to pay for the advanced tools, it’s worth it.  Budgeting comes with many benefits that lead to healthy bank accounts and credit lines—giving you peace of mind in your day-to-day financial life.

How to Prepare Yourself for a Recession

You will inevitably experience a recession at some point in your life. Knowing what to expect and how to prepare will make the experience less stressful for you and your family. A recession is temporary. Remembering that will help you remain optimistic that things will eventually turn around for you.

What is Recession?

Simply put, the recession is a stage in the economic cycle where there is a dip in economic activity. It generally follows a period of growth or ‘boom.’ A recession is categorized in different ways but is generally identified by a widespread drop in spending. In some recessions, supply outweighs the demand leading to several adverse consequences. Inflation can be a cause of a market slowdown as well.  Recession can cause job losses, defaults on student loans and mortgages, hike in interest rates, and volatility in the stock market. All of which can have a profound impact on a person’s mental health as well as their finances.

How is Recession different from Depression?

When a recession drags on for a long period and turns severe, the economy is considered to be in depression. A recession is a normal part of a business cycle. However, depression is not. They are much more devastating in scale and impact. While recession can last for months, depression can last for several years. Economies only need to make minor market corrections to recover from a recession. But recovering from depression often requires drastic economic measures and significant policy shifts.

Early steps to take to prepare for a recession

Some people get nervous when the economy is doing well for long periods. Some even expect the “shoe to drop” and the recession to set in. They keep their affairs in order so that they will be positioned to survive whatever the economy does.  Some early steps to take may include the following:

1.  Reduce or eliminate your debt.

Some debt, like mortgages and car loans, are long-term.  But other debt, like credit card debt, can be reduced when hard times are expected.  There are many ways to do this. One effective way is to work on paying off the smallest balance first and then using the money that used to be paid on that debt to pay off the next smallest balance. For some people, being able to cross off debt from a substantial list is energizing. Others prefer to pay off the credit card with the highest interest rate first. This saves more money in the long run. Whatever you choose to do, have a plan. Talk to your financial advisor or find one of many books in your local library that will give you tips on how to pay down debt.

2.  Establish an emergency fund.

Set up an emergency fund that would cover roughly six months of expenses.  This has become more critical in light of the recent pandemic. If you live paycheck to paycheck, you will need to find additional ways to earn money.  Here are a few:

  • Go through your closets and cabinets to find items you no longer need.  Have a yard sale or garage sale.
  • Ask your boss for a raise and advocate for yourself at work.  Prepare a list of all your contributions to the company in the previous year. 
  • If you live solo and have rooms to spare, then get a roommate or more than one roommate. You can check college bulletin boards or online forums. Ask friends or members of your church. Carefully vet anyone you are thinking of letting into your home.

3.  Find ways to save money. 

When a recession is just around the corner, it’s time to tighten your belt!  Think through all of your current bills. Call every vendor to see where you can save money.  Do you really need 200 channels on your television?  Check out streaming services. Call your cable provider. Call your cell phone provider. In every case, tell them that you must cut costs and ask for suggestions. Be sure to mention that you will be checking with their competitors and plan to take advantage of the best plans.

If you eat lunch out often, change that to preparing your lunches. If you buy expensive brand-name grocery items, try the store brands.  Many store brands are made by the same manufacturers as the more expensive labels. You may not notice any difference in quality. Take advantage of coupons, store loyalty programs, and plan meals around the weekly specials. Cancel magazine subscriptions, streaming services that you don’t use, and anything else that is non-essential. If you and your friends give each other birthday presents, get together with them to discuss an alternate plan like perhaps going out for ice cream for each birthday. 

If you still send birthday cards, start buying them at a dollar store. Many dollar stores carry well-known brands of cards for rock-bottom prices. They also carry low-cost wrapping paper and gift bags, cosmetics, kitchen items, cleaners, personal care items, and many more things.

4.  Save on gas.

Plan your trips carefully so that you can take care of many chores in one trip.  Check Gas Buddy or a similar app to find where gas prices are the cheapest. Keep your tires properly inflated at all times. Don’t carry heavy loads in your car for days. Get together with a friend or neighbor to go grocery shopping together. You can drive one time, and they can drive the next. Use the pharmacy inside your grocery store, if it is a preferred provider, instead of going to a different pharmacy in another location.

5.  Evaluate your investments. 

A recession might not be the best time to invest heavily in the stock market. Be sure that your emergency fund is easily accessible. Keep an eye on online high-yield savings accounts, which often pay more than local brick and mortar banks and credit unions. Consider consulting a fee-only financial expert to see what recommendations they might have, especially one who is a fiduciary and a Certified Financial Planner (™).  Evaluate the fees on any 401(k) or IRA accounts that you have now. Maintaining your monthly or annual contributions to these accounts is also a good idea. Talk to a tax professional to see if transferring any IRA funds to a Roth IRA instead so that when you retire, your income will not be taxable to you. A recession would hurt even more in retirement if you’re unprepared, so it is vital to be able to look down the road and plan for the future.

All said and done

While these steps can be helpful when dealing with the realities of a recession, they are also useful in our everyday lives.  Why spend money on monthly bills that aren’t needed or wanted.  We get by doing it because we can absorb the cost.  With economic and financial stressors, these moves become more critical for long term success.  It’s important to stay focused and know that you can get through the tough times.

Newly Single: How to Create a Post Divorce Budget

If you and your spouse have finally decided that you are better off apart than together, you probably have a lot on your mind as you’re preparing for divorce and living single. Finding a place to live, establishing new routines, and learning how to manage household tasks by yourself can feel overwhelming for the first year or two after your divorce.

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How to Prepare for a Divorce

Many people dream of grand weddings where they start their lives together with “that perfect someone.” They envision growing old together, celebrating successes, and having that “fairytale romance” inspired by Disney and reinforced in countless books, television shows, and movies.

As you’ve probably discovered, though, marriage is not always destined for “happily ever after.” In fact, the divorce statistics across the U.S. are daunting at best. About 50% of married couples who have not been previously married end up in divorce.

For those who have been married before, the prospects are even more challenging. For second marriages, the average divorce rate is 60%. A staggering 73% of all third marriages end in divorce.

For all of this doom and gloom, though, there is a positive side. If you have decided that divorce is the only path to a life that is more aligned with what you want for your future, there are steps you can take to effectively prepare for your divorce.

Preparation makes a major difference in how well people hold up while going through a divorce, as well as how well they manage their post-divorce lives. Careful preparation also helps ensure that children and others affected by the divorce are not negatively impacted by the change.

Integrating these simple steps can help minimize the financial, emotional, and health impact of your divorce, ensuring that you have the confidence, energy, and resources to thrive in your new, post-divorce life:

1. Find a Good Divorce Attorney

Couples who finally acknowledge that their marriages have fallen apart often want to avoid the expense of hiring attorneys, figuring that they can come to agreements on issues like finances, child custody, and asset ownership on their own.

Unfortunately, this comes after months or years of not being able to agree on things; otherwise, the divorce wouldn’t be happening in the first place. Add to that the complexity of divorce laws in the United States, and getting divorced without an attorney becomes a recipe for disaster.

Connect with a skilled divorce attorney with a proven track record of helping clients achieve equitable results in divorce proceedings. The investment can pay for itself many times over.

2. Establish a Support Network

Going through a divorce can feel isolating and overwhelming, especially once you have filed the initial paperwork. Managing these feelings requires a strong network of supporting people. This includes not only professionals like divorce attorneys and Certified Divorce Financial Analysts, but family and friends willing to lend an ear or offer insights. Don’t forget – health and wellness coaches, therapists, and fitness trainers should all be part of your support network too. 

3. Gather Relevant Personal Information 

You’ll need your marriage certificate, proof of residency, proof of identification, and other documents to file your divorce complaint and begin proceedings. Check with your state’s family court to obtain a list of personal information and documents you’ll need to bring when you initiate your divorce filing.

4. Collect Financial Information

Finances can often be among the most complex parts of divorce, so it’s essential that you obtain complete records of your finances, your spouse’s finances, and the debt, income, and assets you have jointly accumulated during the marriage.

Because each state’s laws are different, you’ll need to check with your state’s divorce court to determine the info you will need. If the process seems overwhelming, a Certified Divorce Financial Analyst can assist by helping you gather and organize financial data, locate forgotten and hidden assets, assess joint debt, and perform many other similar tasks.

5. Get Organized

Once you have all of your documents and information, work with your attorney and Certified Divorce Financial Analyst to get all of this information organized to help streamline your divorce proceedings. You’ll also need to organize tasks such as changing your address, establishing utility service, and establishing new day to day living routines.

6. Find a Place to Live

Regaining a sense of stability quickly is essential to thriving after a divorce. This means knowing where you are going to live, and knowing that you can afford the expenses that come with your new living arrangement. If you will be leaving your marital home, the sooner you finalize your new living space, the lower your stress level will be as your divorce case proceeds.

7. Take Care of Yourself

Finally, remember that you need to give yourself the best treatment ever as you are completing your divorce and beginning your new life. You might feel like you have to harness your “superpowers” to keep up with your work, family, and social obligations while internally grappling with the implications of your divorce. Over time, though, running in “superhero mode.” is exhausting.

That’s why it’s essential to give yourself what you need to maintain your sense of wellness in such a stressful time. Your body, mind, and spirit need kind treatment and attention, and these needs don’t stop because you’re in the middle of a divorce.

Getting enough rest, treating yourself to a movie, buying yourself a small gift, and stocking your fridge with healthy meals and snacks instead of fried chicken and ice cream can all help you stay optimistic, energized, and ready to embrace all the new experiences and opportunities coming your way.

Uncertainty can’t be avoided, but by eating healthy, exercising, spending time doing things you enjoy, and surrounding yourself with supportive, loving people, you can quickly thrive in your new, free life as a single person! 

If you would like to learn more about August Wealth Management and our CDFA and CFP services, please feel free to contact us or schedule an appointment.

How to Protect Your 401(k) During a Maine Divorce

How to Protect Your 401(k) During a Maine Divorce 

No one who gets married envisions having to protect their assets in a divorce later, but unfortunately, divorce is just a part of our society today. And while divorce rates have actually declined over the last ten years many couples, even in Maine boasts one of the lowest divorce rates in the United States at 4.8%, still find they just can’t make their marital vows work for whatever reason.

If you are planning a divorce in Maine, you might be wondering “How do I protect my money during a divorce?” It’s important to consider every aspect of your finances to ensure a smooth transition. One important but often overlooked asset is the 401(k) retirement plan.

Failing to consider this asset in your divorce plan could end up costing you a sizable portion of your 401(k) balance. Having the right information, though, could help you hold on to more of the retirement investment balance you’ve worked so hard to build.

Who gets marital property in a divorce in Maine?

Where marital property law is concerned, Maine is an “equitable distribution” state. This means that the court will attempt to divide both assets and debts as equitably as possible.

“Equitable” frequently does not mean “equal,” though. Courts in Maine base the distribution of assets and liabilities based on a number of factors, including each spouse’s expenses, earning potential, and available resources.

In a divorce arrangement in which one partner would be responsible for ongoing child-related expenses, for example, the court might attempt to offset those expenses by awarding that person a greater percentage of assets and a lower percentage of debt.

In Maine divorce and finances, marital property includes retirement accounts – including 401(k) accounts, bank checking, and savings balances, pension plans, and owned businesses.

How can you protect your 401(k) in a divorce in Maine?

  • Consult your 401(k) plan administrator. There are many legal requirements that must be met in order for funds in your 401(k) account to become anyone else’s property. Your plan’s terms and conditions, as well as Maine law, control much of what can and cannot be done with 401(k) assets.

Your plan administrator will help you determine if your 401(k) assets are vulnerable in a divorce. If it appears that some assets are vulnerable, the plan administrator can help you determine the amount of those assets. This can help you develop a financial plan if some of your 401(k) assets are lost in a divorce.

  • Review your prenuptial agreement. Maine has adopted the Uniform Premarital Agreement Act – as long as the prenuptial agreement is in writing, it is considered enforceable.

When it comes to protecting money during Maine divorce proceedings, your prenuptial agreement is highly valuable. Keep in mind, though, that it may only cover contributions before your marriage date – contributions made during your marriage may still be subject to equitable distribution.

  • Handle 401(k) divorce cash-outs carefully. If you are going through a divorce, your spouse may seek to take a lump sum from your 401(k) plan to cover their expenses incurred in the divorce, as well as for other purposes.

Likewise, you might be tempted to cash out a portion of your 401(k) balance to cover your own legal, moving, or other expenses created by your divorce.

Typically, 401(k) withdrawals before age 59 ½ involve a 10% penalty – this is retirement money that is gone forever.

If your soon-to-be former spouse is seeking a 401(k) divorce cashout, ask your plan administrator or attorney about a Qualified Domestic Relations Order. This may allow you to avoid the 10% penalty and can specify how the plan pays your spouse.

Taking a cash-out for yourself, on the other hand, will almost certainly involve a 10% penalty. In addition, the money you withdraw from the plan will be treated as taxable income, which means you will owe even more money in the form of federal and state income taxes.

  • Educate yourself about your plan and your options. While it would be nice for your attorney or plan administrator to do all of the work, the simple truth is that you need to understand your plan and your options on your own. Familiarizing yourself with plan rules can give you the best leverage possible to keep more of your 401(k) assets.

Managing the Path the Forward

As I mentioned earlier, no one ever gets married with the intention of getting divorced, but life is full of surprises, and the only thing that is constant is change. If you need help planning for a divorce, I’d encourage you to check out this short video title, “How to Prepare for a Divorce in Maine” and learn how a Certified Divorce Financial Analyst can help. 

If you would like to learn more about August Wealth Management and our CDFA and CFP services, please feel free to contact us or schedule an appointment.

Certified Divorce Financial Analysts: What They Do and When to Hire Them

Certified Divorce Financial Analysts: What They Do and When to Hire Them?

If you are getting divorced in Maine, you’re likely finding yourself having to take care of dozens of tasks you’d never thought of. One task that proves difficult for many people going through a Maine divorce is protecting their finances to ensure a transition that is as smooth as possible.

Divorce can be a financial minefield, especially if you’re not prepared. Although your attorney may be able to competently handle other aspects of your case, they may not have the financial knowledge to help you protect and retain your assets in a divorce.

In some cases, having a Certified Divorce Financial Analyst (CDFA) on your side can be beneficial. In this article, you’ll learn what a CDFA is, what they do, and how they might be able to help you.

What is a CFDA?

A Certified Divorce Financial Analyst, formerly called a Certified Divorce Planner, is an accredited advisor who has met the requirements for the CDFA designation administered by the Institute for Divorce Financial Analysts.

These requirements include 3-5 years of professional experience in family law or financial planning, with demonstrable experience in at least three of the following:

  •     Financial coaching
  •     Real estate or mortgages
  •     Life and disability insurance
  •     Investment advising or managing
  •     Tax code researching and application

CFDAs must also pass a 4-hour exam to receive certification and must complete 30 hours of formal continuing education every other year to keep their certification in good standing.

What does a CFDA do?

A CFDA conducts research and analysis to provide financial insights to clients and their teams of divorce attorneys and other professionals. They typically take a collaborative approach with clients and their teams, helping them shape strategies to minimize the financial impact of the divorce.

In some cases, a CDFA may also provide expert testimony in cases where deep analysis of a client’s finances, businesses, and personal assets.

A CDFA can also provide budgeting guidance to assist you with adjusting to life after divorce. By projecting changes in income, assets, and expenses – such as childcare costs and spousal support – a CDFA can help minimize financial disruption and help you recover from a divorce more quickly.

What are the Benefits of Hiring a CDFA?

A certified divorce financial analyst is an essential part of your divorce support network. While they do not provide you with legal advice, they can help your legal counsel understand how your divorce agreement will impact your financial future.

A CDFA will also help identify short-term and long-term effects of dividing marital property and if possible, assist your legal team in proposing an alternative property division settlement that ensures a better financial future for you. They can also review your financial information and project how much money you need to maintain your current lifestyle after your divorce.

Additionally, a CDFA can help you determine if you can (or should) keep your marital home, identify future financial goals, develop a budget, and identify any divorce-related tax consequences. As mentioned previously, a CDFA can also testify as an expert financial witness on your behalf during the trial.

Is there a difference between a CDFA and a financial advisor or forensic accountant?

If you already have a financial advisor, you might assume that you don’t need to hire a CFDA. Unfortunately, most general financial advisors lack specific knowledge regarding the tax and financial complexities of divorce.

This means that, while your financial advisor might be able to help you choose investments or fine-tune your succession plan, they’re not the kind of specialist needed for a divorce case.

Want to Speak to a CDFA?

Is a CDFA the same as a forensic accountant?

No. A forensic accountant is a financial professional with extensive courtroom knowledge who will research, audit, and investigate to assist with a potential or actual dispute. Forensic accountants are often called upon in cases of suspected fraud, hidden assets, difficult business valuations, and other past transactions that could impact the financial outcome of the divorce.

A CDFA, on the other hand, provides advice and forward-thinking strategies to produce the best client outcomes possible in divorce cases.

Do I need a CDFA if I have an attorney?

Expecting your attorney to have a firm grasp on the financial implications of your divorce could be a costly mistake. Attorneys are experts in matters of law, while CDFAs are experts in finance.

In fact, some divorce finance experts recommend that when attorneys are going through their own divorces, they should hire CDFAs to assist them.

What should I look for in a CDFA?

If you’re planning to hire a CDFA, you may have already asked a few of your closest friends for referrals or spent time searching for CDFAs online. It’s important to understand, though, that not every CDFA is right for your specific situation.

While evaluating your CDFA candidates, it’s helpful to find individuals who are also Certified Financial Planners (CFP). This designation means that the person you hire will have a broad understanding of long-term finances, which can be helpful for maintaining stability after a divorce.

Please note that finding the right CDFA can take time. Although this can be frustrating during a time when you’re already under enormous stress, taking that time can help create better results for you after the divorce is final.

 

If you would like to learn more about August Wealth Management and our CDFA and CFP services, please feel free to contact us or schedule an appointment.