Be sure to review your will or, if you don't have one, draw one up. You should consult an attorney familiar with your state's estate laws to ensure that your assets are properly distributed. Do not wait until the divorce is final. You should review and amend your estate plan at the same time you decide to commence a divorce proceeding. Also make sure to review beneficiary designations for pensions, 401(k)s, and life insurance policies. Federal law requires a spouse to be the sole beneficiary of pension or 401(k) benefits unless that right is waived in writing by the spouse.
If you find yourself faced with divorce, it is essential to protect your financial future. Enlisting the help of an attorney and carefully monitoring the process can ensure that your interests are considered and that you won't need to revisit the proceeding later on.
Wednesday, October 15, 2008
Your Retirement Assets
Money in your 401(k) or pension plan may legally be divided during a divorce. The divisible amount typically begins to accumulate on the day you are married and ends on the day you are divorced.
To claim a share of a spouse's 401(k) or pension plan benefit, you need to obtain a court order called a Qualified Domestic Relations Order (QDRO) and provide it to your spouse's plan sponsor before distributions are completed to your spouse, which prevents your spouse from making withdrawals.
You and your spouse can decide to not divide your 401(k) assets or pension plan benefits, but you should make this agreement in writing and include it as part of the settlement to prevent the courts from declaring the money divisible.
If there are outstanding loans against a 401(k) and only one spouse was able to contribute, the noncontributing spouse may be exempt from paying back the loan. However, if the purpose of the loan was something that benefited both spouses -- such as a home -- the noncontributing spouse's share of the assets may be reduced to facilitate repayment of the debt.
If you do receive a share of a spouse's 401(k) assets or pension plan benefit, it may be best to roll over your share immediately into an individual retirement account (IRA) to avoid taxes and maintain tax deferral. You should discuss this with your attorney or a financial advisor familiar with divorce proceedings as soon as you anticipate a divorce.
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To claim a share of a spouse's 401(k) or pension plan benefit, you need to obtain a court order called a Qualified Domestic Relations Order (QDRO) and provide it to your spouse's plan sponsor before distributions are completed to your spouse, which prevents your spouse from making withdrawals.
You and your spouse can decide to not divide your 401(k) assets or pension plan benefits, but you should make this agreement in writing and include it as part of the settlement to prevent the courts from declaring the money divisible.
If there are outstanding loans against a 401(k) and only one spouse was able to contribute, the noncontributing spouse may be exempt from paying back the loan. However, if the purpose of the loan was something that benefited both spouses -- such as a home -- the noncontributing spouse's share of the assets may be reduced to facilitate repayment of the debt.
If you do receive a share of a spouse's 401(k) assets or pension plan benefit, it may be best to roll over your share immediately into an individual retirement account (IRA) to avoid taxes and maintain tax deferral. You should discuss this with your attorney or a financial advisor familiar with divorce proceedings as soon as you anticipate a divorce.
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Tax Relief for Innocent Spouses
Divorce will not protect you from the IRS. If you filed jointly with your spouse, you can be held liable for delinquent taxes.
In 1998, Congress enacted legislation that offers protection to spouses who filed joint returns, relieving them of paying taxes that are the responsibility of an ex-spouse. The law also allows an innocent spouse to limit tax liability if he or she has been living apart from the delinquent spouse for at least 12 months from the time the joint return was filed. Talk to a tax advisor about how this information relates to your own situation. Back to top
In 1998, Congress enacted legislation that offers protection to spouses who filed joint returns, relieving them of paying taxes that are the responsibility of an ex-spouse. The law also allows an innocent spouse to limit tax liability if he or she has been living apart from the delinquent spouse for at least 12 months from the time the joint return was filed. Talk to a tax advisor about how this information relates to your own situation. Back to top
Dealing With Debt
Don't assume that a divorce will erase any debt. If you live in a community property state, debt -- like your assets -- will be split down the middle. You will be responsible for half of all debt in jointly held accounts and, in some cases, for half of a spouse's individual debt as well.
If you don't live in a community property state, you remain responsible for your individual debt (but not your spouse's) and any debt in jointly held accounts. One important trap to avoid is maintaining joint accounts after the divorce. Your spouse could continue running up expenses and leave you with the debt. As soon as the divorce is finalized, freeze all joint accounts and have your creditors reclassify them as individual accounts. Most creditors will do this at your request, though they are not legally required to do so. To protect your credit rating, make sure to keep up with monthly payments.
In addition, include the payment of debt as part of the settlement. Take on the responsibility for the debt yourself, if necessary, and take a share of the assets to pay the debt down.
If you and your spouse own a home that has appreciated in value, you may want to sell it before the divorce is finalized. Federal tax rules offer an exclusion of up to $500,000 in realized capital gains for married taxpayers. This amount is cut in half for single filers. Be sure to consult a tax advisor for additional information about these rules.
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If you don't live in a community property state, you remain responsible for your individual debt (but not your spouse's) and any debt in jointly held accounts. One important trap to avoid is maintaining joint accounts after the divorce. Your spouse could continue running up expenses and leave you with the debt. As soon as the divorce is finalized, freeze all joint accounts and have your creditors reclassify them as individual accounts. Most creditors will do this at your request, though they are not legally required to do so. To protect your credit rating, make sure to keep up with monthly payments.
In addition, include the payment of debt as part of the settlement. Take on the responsibility for the debt yourself, if necessary, and take a share of the assets to pay the debt down.
If you and your spouse own a home that has appreciated in value, you may want to sell it before the divorce is finalized. Federal tax rules offer an exclusion of up to $500,000 in realized capital gains for married taxpayers. This amount is cut in half for single filers. Be sure to consult a tax advisor for additional information about these rules.
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Dividing the Assets
Typically, everything you and your spouse acquired from the day you were married is subject to division. The exceptions are individual inheritances, gifts to an individual spouse, and assets acquired before marriage. When assets are divided, the court considers each spouse's earning ability, the length of the marriage, and how much each spouse contributed to building household assets.
The exception to this are the nine "community property" states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under the laws of these states, almost all assets will automatically be divided equally.
Don't try to hide assets from the court, either by neglecting to mention them or transferring them after the proceedings have begun. This can trigger an "omitted asset" penalty and force the court to redivide your property.
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The exception to this are the nine "community property" states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under the laws of these states, almost all assets will automatically be divided equally.
Don't try to hide assets from the court, either by neglecting to mention them or transferring them after the proceedings have begun. This can trigger an "omitted asset" penalty and force the court to redivide your property.
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Divorce and Your Finances
Divorce can be a complicated and challenging process in which details are easily overlooked. Protecting your financial health during this time is crucial, and no one should enter this process without a trusted attorney (specializing in divorce) on his or her side. Equally important is knowing the laws that shape divorce proceedings, and the impact they can have on your assets.
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Continuous-Time finance, R.C. Merton, Blackwell 1992
Robert Merton is one of the great economists of our time. He pioneered the use of stochastic calculus in finance and economics, using it to address problems of portfolio selection, option pricing, the capital structure of firms and market equilibrium. This book is a collection of their (most of the parts are Merton's) papers written during the past 25 years. The papers are little bit changed so as to be cross-referenced through the book. Also You can find some comments in the book for the recent literatures. As you know, Dr. Merton introduced continuous-time approaches into the finance. This book deals with basic mathematics for the continuous time finance, portfolio selection, option pricing, and theory of inter-temporal equilibrium. The value of this book is greater than that of papers copied separately in the library. Also it is a great pleasure to see how his theory has been evolved through the book.
Sunday, August 24, 2008
April Showers Bring May Flowers
From the golden-tipped fields of mid-west America to the ancient kingdoms of verdant Palestine, there is a happy truth to be shared with all who would take heed. In more recent times, this truth has been expressed as: April showers bring May flowers. This is a truth that promises light bursting from darkness, strength born from weakness and, if one dares to believe, life emerging from death. Farmers all over the world know the importance and immutability of the seasons. They know that there is a season to plant and a season to harvest; everything must be done in its own time. Although the rain pours down with the utmost relentlessness, ceasing all outdoor activities, the man of the field lifts his face to the heavens and smiles. Despite the inconvenience, he knows that the rain provides the nourishment his crops need to grow and flourish. The torrential rains in the month of April, give rise to the glorious flowers in the month of May. But this ancient truth applies to more than the crops of the fields; it is an invaluable message of hope to all who experience tragedy in life. A dashed relationship with one can open up the door to a brand new friendship with another. A lost job here can provide the opportunity for a better job there. A broken dream can become the foundation of a wonderful future. Everything has its place. Remember this: overwhelming darkness may endure for a night, but it will never overcome the radiant light of the morning. When you are in a season of sorrow, hang in there, because a season of joy may be just around the corner…
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