The Tax Reform Act of 1984 enacted rules designed to prevent excess front-loading of maintenance payments. Recapture under §71(f) can occur only in the third post-separation year. The Internal Revenue Code under Section §71(f)(5) provides four exceptions where the alimony recapture rules do not apply:

Exception #1: Either spouse dies before the end of the third post-separation year or the spouse entitled to receive the payments remarries before the end of the third post-separation year. [§71(f)(5)(A)(i)]

Exception #2: The amount of payments fluctuates for reasons not in control of the payor spouse. For example, the payments might be a fixed percentage of income from a business or property, or from compensation for employment or self-employment.

Example 1: Mark agreed to pay Felicia 50% of the net income from his manufacturing business each year for a period of five years. In the first year, the net income from the business was $320,000 and Mark sent Felicia checks totaling $160,000. During the second year, his business was sued for a faulty product and the receipts declined. That year, the business’s net income was only $240,000 so Felicia received a total of $120,000. In the third year, due to pending lawsuits, his business suffered a loss so Mark did not make a payment to Felicia that year.

In this case, the reduction was not in Mark’s control so no recapture is required. Even if his business recovered and he was able to make substantial payments in years four and five, the first three years are the only ones that are considered.

Example 2: Kyle, who sold insurance, was ordered to pay his ex-wife 35% of his income from his commissions annually for the next four years. Twelve months after the final decree, Kyle decided he was tired of paying his ex-wife so he stopped selling insurance and started working for a friend’s business at a much lower income.

Kyle will not be able to avoid recapture because the fluctuation was within his control.

Exception #3: The payments are temporary support payments.

Example 3: While divorce negotiations were going on, Brian sent Lucy $5,000 per month ($60,000 per year) for family support and to cover a very high mortgage payment. When the divorce was final, Lucy moved to a less expensive home. She also received a large stock account in return for lower maintenance in the amount of $1,000 per month ($12,000 per year).

Even though maintenance declined from $60,000 to $12,000 in the first year after the divorce was final, the $60,000 was temporary maintenance and does not trigger recapture.

Exception #4: The alimony payments decline for $15,000 or less over the three year period.

Example 4: The divorce decree says that Brent pays Bonny alimony as follows: $36,000 in 2007, $30,000 in 2008, and $24,000 in 2009, 2010, and 2011.

The recapture provisions do not apply since the alimony payments over the first three year period do not decrease by more than $15,000.

This is an important consideration no matter which spouse loses the health insurance, especially if they have pre-existing conditions.

For example, it is not uncommon for women over 40 years of age to develop severe health problems. Some become almost uninsurable, at least at a reasonable cost. This is a real concern where they are suddenly on their own and responsible for acquiring health insurance.

And the longer the marriage lasts, the more likely it is that one spouse will leave the marriage with health issues.

The COBRA law passed in 1986 allows a spouse to continue to get health insurance from their ex’s company if it has at least 20 employees, for three years after the divorce. The normal COBRA provision states that, if an employee is fired or leaves a job, he or she can get health insurance from that company for 18 months. However, in a divorce, it is extended to 36 months.

Linda and Bob are getting divorced. Assume that Linda decides to continue health insurance under COBRA from Bob’s company. Linda must pay the premium as agreed. If she misses a premium payment, the health insurance company can drop her and they do not need to reinstate her.

Typically, Linda will not get the discounted group rate but will be charged the full rate. It is important to shop for health insurance, even though the COBRA provision may supply a quick solution to health care coverage, it may not be the best. It may be purchased at a lesser cost somewhere else.

There are two drawbacks to using the COBRA health insurance provision:

1. It’s usually very expensive because you’re getting the corporate health insurance plan but not the corporate billing rate.
2. If you have an illness or injury during the 3 years, you may not be insurable when the 3 years of COBRA is over.

If you’re healthy, I recommend getting your own health insurance policy NOW, even if you’re not yet divorced. Then if something happens, as long as you pay your premiums, you are covered. Otherwise, at the end of three years, COBRA drops you and you have to start shopping for your own insurance. At that time, you may not be insurable.

Even something like a breast cyst, anti-depressant medications, back problems or headaches can disqualify you for health insurance in some states. A friend of mine used her husband’s health insurance for acupuncture to relieve her stress and she is now uninsurable! Doctor visits, therapy, chiropractic, chiropractic and massage that’s paid for with insurance remains in your medical records when you apply for health insurance.

Most states have insurance for those who are uninsurable and cannot get health insurance any other way.  This insurance is often very costly. It is better to look ahead and get individual health insurance for a lower premium while you are still healthy than to gamble that you will still be healthy three years from now.

I know this is one of the “unfair” things about getting divorced. Health insurance is critical to your future financial, emotional and physical well-being. Our current health care laws and systems are a national disaster but you must work to make sure you and your health are taken care of.

A few legislative changes that would work in your favor are:

• A Public Option for health insurance purchases
• Elimination of disqualification for pre-existing medical conditions
• Portability – being able to take your current medical insurance to another job or another state
• Reasonable rates for self-employed or unemployed

This is a good time to let your Senators and Representatives know you need these changes to be made because all Americans need safe and affordable health insurance.

In the meantime, seek out an independent health insurance broker to find an individual policy for yourself NOW. Put it at the top of your list of “to do’s”!

To determine if a consensus exists about how divorced baby boomers are holding up, a National Poll on Divorce was conducted by the National Association of Divorce for Women and Children and the Baby Boomer [Knowledge Center].
Questions:

Participants in the poll were asked three fundamental questions about the divorce process, the relationship with their “former” spouse and inevitability the affects of divorce has on the dynamics of the family.

1. What was the most challenging part of getting a divorce: custody of the children, dividing the assets or finances?

2. What life skills would have been helpful when going through your divorce: stress management, coping skills and/or communication skills?

3. What is your relationship now with your former spouse: amicable, have learned to tolerate each other for the sake of the children or can’t be in the same room together and do not speak to each other?

Results:

o Of the people participating in the poll, it was not surprising to see the majority (41%) report that dealing with the finances was the most challenging part of getting a divorce. Second most challenging was the dividing of the assets at 19% and a pleasant surprise was the custody of the children being the lowest percentage at 13%.

o The majority of the participants (41%) report that coping skills would have been a helpful life skill during their divorce. Stress management was 28% with communication skills a close third at 26%. This shows how divorce really is an emotional roller coaster ride.

o Even though the results revealed that 55% of the participants reported have an amicable relationship with their former spouse after their divorce, the comments did not coincide with that high percentage (see respondent testimonials below). Participants reported that 15% cannot be in the same room with their former spouse and do not speak to each other, and only 4% reported they have learned to tolerate each other for the sake of the children. “Other” came in at a high 19%.

Even though the % showed finances were the most challenging part of getting a divorce, the comments revealed more about the sadness and embarrassment of divorce such as “tearing apart the family,” “becoming a single mom,” “telling my friends I was divorced,” “realizing that I had failed,” “learning to be on my own and not growing old with my husband.”

Although the majority of respondents stated they had amicable relationships with their former spouse, many of the comments were far more negative, such as “no relationship as we hardly speak,” “nonexistent,” “never see or speak to him,” “only e-mail,” “no contact,” “over-not part of my future,” and “not involved in each other’s lives at all.”

Methodology:

During the month May 2009 the poll was available to both men and women baby boomers on National Association of Divorce for Women and Children and the Baby Boomer [Knowledge Center]^TM.  To achieve maximum participation the poll was also published on: Menopauserus.com, WrightMinded.com, Wise Heart Coaching, Cyber Hot Flash, the National Association of Baby Boomer Women, Kalon Women, and over 30 experts from the National Association of Divorce for Women and Children. A total of 1,876 people responded to the poll. To achieve maximum candor for respondent participation and comments, all responses were anonymous.

About National Association of Divorce for Women and Children
The www.NADWC.org is a 24/7 on-line Resource Center to support, encourage and inspire women going through a life-changing experience such as divorce who want to rejuvenate their own lives and the lives of their children.

About Baby Boomer [Knowledge Center]^TM
Baby Boomer [Knowledge Center]^TM is an information destination where you can explore new frontiers for living in a world that offers daily fresh challenges, choices and opportunities. Our mission is to connect Baby Boomers to high-value content in real time – no matter how specialized or specific – as quickly as possible. (http://BabyBoomerKnowledgeCenter.com)

Notice:
This poll may be reproduced in its entirety or in part with the appropriate attribution and acknowledgments.
© Copyright, 2009 – National Association of Divorce for Women and Children, Baby Boomer [Knowledge Center]^TM

In a recent survey conducted by the Institute for Divorce Financial Analysts^TM of 270 Certified Divorce Financial Analysts^TM from across the country, 68 percent indicate that they have seen clients who could not afford to get divorced because of recession-related financial problems; 63 percent of respondents says this number has increased since the previous year. Those surveyed believe this will result in delayed or drawn-out divorce proceedings as well as an increased number of couples trying to save money through DIY divorces, foregoing professional legal services.

“It’s imperative for divorcing couples to keep in mind that the current economic conditions will indeed change, and planning for their future is paramount,” says Fadi Baradihi, president and CEO of The Institute for Divorce Financial Analysts^TM (IDFA^TM). “With people cutting back on legal and other professional fees, it’s even more imperative that they understand how to plan for their long-term financial stability. Working with a Certified Divorce Financial Analyst^TM can help to preserve the family’s finances – which is crucial in today’s economy.”

Working with clients and their attorneys, a Certified Divorce Financial Analyst^TM(CDFA^TM) forecasts the long-term effects of the proposed divorce settlement. CDFAs assist attorneys by helping the client make financial sense of proposals, and they also give attorneys the tools they need to help prove their cases. While lawyers serve a crucial role as individual legal advocates, they are not necessarily there to explain financial consequences in detail, or to empower their clients with the knowledge they need to make smart financial choices.

Check with your tax preparer and/or attorney if you think this situation may apply to you.