Ron L. Deal
This is deleted sections from chapter
10 of The Smart Stepfamily Revised and
Expanded Edition by Ron L. Deal (Bethany
House Publishers, 2014). Used with permission. All rights reserved.
a copy of The Smart Stepfamily: Seven Steps to a
Healthy Family by Ron L. Deal on
for a qualified financial advisor with an understanding of family relations
law? Smart Stepfamilies recommends:
A. Sims, JD PhD
and Chief Compliance Officer
16603 Cantrell Road, Suite 3
Little Rock, AR 72223
From the Pensions and Other Retirement Benefits section:
Two methods of dividing the
Pension and Retirement plans are being used in these cases. One is to buy out
the Pension holding spouse’s share by offering lump sum cash payment or making
up the difference with other marital assets.
The second method is for the pension holder
to pay the other spouse when they are actually paid by using a Qualified
Domestic Relations Order or “QDRO”. This saves the Pension holder from having
to pay before the pension is actually paying out.
The Qualified Domestic Relations Order may
also allow the Pension holder to avoid all the taxes on paying a life time of
pension income out to the ex-spouse and instead will require the spouse that
gets the QDRO to pay the taxes as money is received in lump sum.
From the Stock Options section:
If you are awarded stock options
during your marriage, most courts will consider those options to constitute
marital property even if you do not actually exercise those options during your
This is still
the case even if the stock options are not yet vested at the time of the
divorce and you must hold them for more time before exercising.
options, as valuable forms of “alternative compensation”, usually take one of
two forms. This can be seen when people are willing to take lower cash forms of
compensation in exchange for more remuneration in the way of these stock options.
In the event
of an unforeseen divorce, courts usually must first determine what portion of
the stock options was actually earned during the marriage. This could be
somewhat complex because there are two forms of stock options: One is given as
an incentive to work hard in the future and another as “thanks” for hard work
done in the past. So it may be difficult at first to determine which type that
the option is and therefore how much of the stock option is considered “marital
property”. The courts may award completely opposite rulings based on their view
of forward or backward looking options.
take the following into consideration when trying to determine how much of the
options were marital property:
· Were the stock options offered as a
bonus or as an alternative to a fixed salary?
· Where either the value or the
quantity of the stock options tied to future performance?
· Was the stock option plan used to
attract key personnel from other companies?
· What did the stock option contract
specify with respect to the reason for the granting of the stock options?
answer to the marital property issue will conclude that part of the stock
option was for work during marriage and part after getting married (or before).
Some formula will be applied.
courts must decide what the value of the option is! They may start by
subtracting the strike price from the current trading price. But then the stock
price could jump higher or lower at any point so this in itself may not be
reliable. The most complicated formula used is the “Black-Scholes” formula
which takes in to account the value and market price of the underlying stock,
the exercise price of to options, the volatility of the underlying stock, and
the amount of time left before the expiration date, and the current interest
As if that
were not complex enough the actual dividing of the stock options can also be a
challenge. The "Option Holding spouse" may buy out the other spouse’s
share of the options but this holder could end up overpaying or underpaying
because the price of stock could change at any time.
another method is for the holder to divide the options themselves and then the
two of them agree that at any time after divorce the ex-spouse provides the
holder with the funds necessary to buy or sell the stock at issue. The downside
to this solution is that in this scenario the holder of option is liable for
all of the taxes at exercise since stock options are typically nontransferable
From the Professional Goodwill
In these situations, the only asset
of any real value is the practice’s reputation and prestige. Though the
practice might have a very low business valuation using traditional methods of
valuation there are other ways to value in these cases. Yes, you can’t deposit
in a bank your reputation but the goodwill value of the business ensures that
the business will be profitable in the future.
the unique facts in each case and the state in which you live, the goodwill
value of your professional practice may or may not be considered marital
property. One method commonly used is the capitalization of excess earnings
method. The earnings of your practice are compared to the earnings of an
average professional in your field and geographical area, with experience,
expertise, and education similar to your own. The difference in your earnings
and the average earnings of a comparable professional is called your “excess
earnings” and is then multiplied by a capitalization factor to arrive at a
value for your professional goodwill.
Therefore, it might be your best interest to consider a prenuptial
agreement which outlines exactly how your professional goodwill is to be
handled in the even of a divorce.
It is a
mistake to think that a common “buy-sell agreement” will be enough which sets
for the value for your practices’ professional goodwill. The courts do not
“automatically accept the goodwill values set forth in partnership agreements
when making decisions in a divorce. Your partnership agreement might provide
that your practices’ goodwill is worth zero, for example, so the partnership
will have to pay as little as possible if one partner decided to leave the
practice. A divorce court, however, might still decide that your practices’
goodwill is worth several hundred thousand dollars, despite the provisions of
your partnership agreement.
certain automatic rights to one another’s estates. Thus your business assets
might end up distributed completely different than your intentions without a
Shared Covenant Agreement in place.
From the When to Start Planning
Together with your partner and a Christian trust and estate
lawyer you will want to discuss:
the Agreement affects all of your current and future property rights as
well as those of your children and grandchildren from all marriages.
the Agreement considers career sacrifices you may make during the
on college funding for his, hers, and “theirs” children. Who will be paying
what amounts or percentages of the college bill? Is our philosophy the
same for all of the children? What about advanced degrees? Keep in mind
that all spouses including ex-spouses have assets and income that will be
looked at for the FAFSA when college aid applications are made.
to handle the support of elderly parents and other family issues involving
long term care.
guidelines on roles in the budgeting, asset management, and debt
management for each spouse. Should accounts be joint, separate, and if so
what amounts or percentages?
current estate planning documents, their purpose, and who to contact
(phone numbers, addresses of all key financial advisor team members, etc.)
business planning documents like the buy-sell agreement. Include in simple
terms the intentions of owner-spouse.
such as living wills, final illnesses, burial arrangements, and memorial
Want to learn more about money and the stepfamily? Read this series of articles: Step-Money