Deck 17: Comprehensive Financial Plan

Question 1

What is meant by the statement, "After a divorce the person needs to establish his/her new identity?" What planning activities might help the client complete this transition?

Answer 1

While name change is an integral aspect of creating a new identity for many, the issue goes much further. The person will need to understand and adapt to his/her new financial reality. The change could impact: living arrangements, support network, life style, job status, and planning needs.
The person will also need to reflect on the new goals and objectives. Because of the emotional trauma of the moment, a financial planner should begin planning for the divorced client by focusing on short-term goals, which normally relate to cash flows and reestablishing new identity. Then, as the new life circumstance takes form, the planner can shift towards long-term planning.
In many instances, the divorced client will change advisors (e.g., CPA, insurance agent, and so on), especially if that advisor had established the primary relationship with the former spouse. The planner should inquire about this issue.

Question 2

Describe the criteria on which alimony is awarded today.

Answer 2

There are numerous factors that the court assesses when calculating an equitable maintenance determination. These factors include:
1. Length of the marriage
2. Financial need
3. Age and health of the two persons
4. Earning capacity of each person (future earning potential and impairments in earnings potential)
5. Ability to pay
6. Educational level of the parties
7. Previous lifestyle and standard of living
8. Property owned by each party
9. Pre and postmarital agreements
10. Contribution of the recipient spouse to education and earning power of paying spouse
11. Tax consequences of the divorce and property division

Question 3

What are career assets, and how should career assets be handled in divorce?

Answer 3

Career assets for a working spouse include: employee benefits (e.g., health and disability insurance, vacation days, group life), vested retirement assets, stock options, professional networks, job skills, and education. As previously discussed, retirement assets and stock options are marital properties and subject to division. Future earning power (career enhancement, professional degrees) is considered when determining the amount of the maintenance payments and when assessing an equitable division of marital assets. If education was supported by the other spouse, then the expense of the education may be awarded during the divorce settlement.
If there is a family-owned business, then that is a marital asset. Similar to the division of the personal residence, the division of the business could be resolved by: (a) one spouse buying out the other's spouse's interest in the business, (b) the business being sold and profits divided, or (c) business continuation through a joint-ownership arrangement.

Question 4

What are some of the complicated questions that overwhelm a divorcing couple?

Question 5

Explain equal verses equitable concept.

Question 6

Question 1. Key documents from a divorce proceeding may include which of the following?

A) Divorce decree
B) QDRO
C) QPRT
D) A and B
E) B and C

Question 7

Jane Biaz has come to you for help. She is going through a divorce, and her husband has promised her a decent alimony payment for life. However, he is not in good health and she is convinced that soon she will be left hanging by herself. Can you help her?

Question 8

Jill is a recently divorced parent with a young daughter. Discuss the reasons why life insurance is an important planning priority? What life insurance planning strategy is unique to the custodial parent?

Question 9

David and Jane Dunn have been one of your valued clients for over 10 years. Unfortunately, they are going through a divorce and are in the process of valuing their property themselves. They have asked you if this is a good idea. How would you advise them?

Question 10

Describe the income tax considerations of child support.

Question 11

Discuss the estate-planning priorities when working with a divorced client?

Question 12

Describe the difficulty in dealing with a family-owned business in a divorce situation.

Question 13

What are important priorities pertaining to cash flows when working with the recently divorced client?

Question 14

Why is dealing with career assets such a big problem in any situation involving a divorce?

Question 15

Jerry Kavanaugh just returned from a visit with his attorney where he was exposed to the "equal versus equitable" concept. Jerry is thoroughly confused about the concept and has approached you for help. How would you explain the concept to him in simple language?

Question 16

Describe the key methods of dividing pension plans.

Question 17

When working with a client who just went through a divorce, what are some of the important priorities pertaining to assets and liabilities?

Question 18

Discuss the tax-planning issues and tax-planning strategies available to the single client following the divorce?

Question 19

Question 3. Child support payments:

A) Cannot be deducted by the payer
B) Are includable in the income of the recipient
C) Must be made directly to the child
D) Can be made only if the child is not counted as an exemption

Question 20

Question 2. Assets and liabilities are divided during the divorce proceedings. All of the following actions are appropriate following the divorce, except for:

A) Close any existing credit card accounts that were held jointly
B) Cancel debit cards associated with joint accounts
C) Ensure that the ex-spouse not taking possession of the home signs a quit claim, which will remove that person from the existing mortgage lien
D) Refinance an existing auto loan in the sole name of the divorced spouse

Question 21

Question 7. In assessing funding of education after divorce, it is important to understand who owns the asset. Which of the following education-funding vehicles remain the property of the parent, rather than an asset of the beneficiary child?

A) UTMA account
B) 2503b) trust
C) Coverdell ESA
D) 529 Plan

Question 22

Question 4. Which of the following statements regarding life insurance is true for the custodial parent after divorce?

A) A court-ordered alimony or child support award creates an insurable interest
B) Any alimony or child support agreement creates an insurable interest
C) Only the payer spouse can own the insurance policy and make premium payments
D) Life insurance is not a priority item for a divorced client with cash flow challenges

Question 23

Question 15. The two primary methods of dividing pension benefits are called:

A) Divide and conquer methods
B) Defined contribution and defined benefit methods
C) Percent vested method and percent value method
D) Immediate payment or deferral distribution

Question 24

Question 6. All of the following are important investment-related planning priorities following the divorce, except for:

A) Reassess the client's risk tolerance, time horizon, and needs
B) Ensure investment assets are property titled
C) Transfer some of the emergency fund assets to growth investments because there is only one person to plan for rather than two).
D) Reposition the investment portfolio as necessary

Question 25

Question 14. Which of the following options are available to a divorcing couple for dividing the home?

A) Own the house jointly
B) Buy out the other spouse
C) Do nothing, if there is a large mortgage on the house
D) Only A and B
E) A, B, and C

Question 26

Section 121d3 applies to divorced couples. What is the purpose of this tax code section?

A) It extends the two-out-of-five year test for purposes of a primary residence sale
B) It states that no gain or loss is recognized upon the division and transfer of property incident to divorce
C) It specifies that any property transferred to the ex-spouse within three years of the divorce is not a gift.
D) It permits the transfer of the child exemption amount to the noncustodial parent

Question 27

Question 16. Career assets should be considered in arriving at an) _________settlement:

A) Equitable
B) Equal
C) Amicable
D) Reasonable

Question 28

Question 11. In the case of a divorce, when looking at property issues, a couple must always ask all the following questions except:

A) How will the property be divided?
B) What is the property worth?
C) Where is the property physically located?
D) What constitutes property?

Question 29

Question 12. Assume that Judy and her husband are getting a divorce. When they were married, Judy had $5,000 in a savings account. Subsequently, her savings account earned interest of $500 and is now worth $5,500. Judy did not add her husband's name to the account. The value of her property is:

A) $5,500
B) $500
C) $5,000
D) Cannot be determined, since Judy failed to add her husband's name to the account.

Question 30

Question 9. It is important to review and modify as appropriate all of the following estate-planning documents after a divorce, except for:

A) Will
B) Power of attorney for health care
C) Letter of last instructions
D) Power of attorney for property and finances
E) All of these documents may need to be changed

Question 31

David is 52 years old and expects to receive from his pension fund $2,600 per month at age 65 for 13.9 years. The financial planner has calculated that the present value of a fixed sum which could generate this income is $148,450. Based on this information, if David is divorced today, his wife Betty will be awarded:

A) $148,450
B) Nothing, since she never contributed to the pension fund
C) 25% of this amount which both consider to be fair
D) $74,225 50%

Question 32

Question 17. The author suggests three alternatives for dividing a business. Which of the following is not mentioned?

A) The couple sells the business outright and divides the proceeds between the two spouses
B) One of the spouses keeps the business
C) The couple sells half of the business interest to an outside party
D) Both spouses continue to own the business

Question 33

Question 10. In divorce, equal versus equitable concept refers to the following:

A) Property divisions are acceptable to both spouses only when they are equal and equitable
B) Equal means 50-50, whereas equitable means the settlement favors the husband
C) Equal means 50-50, where equitable means fair
D) Equal and equitable are subject to varying interpretation; hence, they are rarely used in divorce settlements.

Question 34

Question 5. Jane was previously insured under her ex-spouse's employer health plan. Which of the following are viable strategies for securing health care coverage after the divorce?

A) Purchase an individual private policy
B) Continue coverage under COBRA for the next three years
C) The ex-spouse is expected to keep her on his employer health plan
D) A and B
E) A, B, and C