The Planner Tab

If you are a financial planner, you will appreciate the depth of detail and the ability to project up to 50 years in the future that you will find in the Planner tab.

To start entering data, or to view data that your client has entered and transmit it to you, click the Planner  tab at the top of the screen in the tabs header, as shown.


Figure 35 - "Planner' Tab Selected

Helpful Hint: The topics listed in the left margin of the Planner tab are organized in a suggested sequence for entering data.  However, you may enter the data topics in any order you wish.  The software will always compute results based on whatever data has been entered so far. 

In this guide, we will present the items in the following order:

 

This is the order in which items are presented on the screen.  It reflects a typical data entry sequence.  It starts with the most common items.  It progresses through the less-common items.  Finally, it ends with items that are generally entered last, such as support, alimony, and tax filing status.

Helpful Hint: Spousal Support.  In some states “alimony” is known as “spousal support.”  We use the term “alimony” throughout this guide and throughout the software.  We do this simply to avoid any confusion with between alimony and child support.  The software will attempt to use the correct term for your state.  You may change the term used on the Assumptions screen.

Whenever you see a link labeled [Fn], you may click on it to enter a footnote about the current item.

Entering Data: Background Info

 

You enter the parties’ names, genders, key dates, etc. on the background information screen.  To get to this screen, click the Planner tab, then Background Information on the left.

Helpful Hint: Throughout the software, there is extensive pop-up help available by clicking the blue underlined words.  We suggest that you read all the pop-up help as you go through the software.

In the background information screen, enter the items requested.

The most important items are contained on the top screen.

The birth dates are used to figure retirement age, used for wages, IRAs, and pension plans.  The marriage date is used only for defined benefit pension plans.  The state of residence is used to estimate state taxes, and the state of filing is used for child support and the financial forms.

In Connecticut, New York, and New Jersey, by clicking “more info,” you may specify information about city taxes and whether a party works out of state.

Otherwise, you would click “more info” only to enter information for the financial forms.

Entering Data: Children

 

Click the Planner tab, then Children on the left, to enter information about children.  Include each child whom either of the parties is supporting, whether or not they are children of this relationship.


Figure 36 - Entering Information About Children

Note that the screen will by default assume that the mother is the custodial parent and also claims the tax exemption.  You may change this by clicking on the mother’s name and selecting the father.

Helpful Hintmore info.  On this screen, as on many screens in the software, there is a “top level” for entering key data.  The software makes projections based on this key data and various assumptions.  When you are ready, you may click the “more info” link to check the assumptions and enter complete data.

For each child, enter the child’s name and birth date, and select the custodial parent.

Helpful HintJoint or Shared Custody.  In the Planner, you assign custody to one parent or the other, or neither.  The custodial parent is just the one who is the recipient of child support for that child.  The Custodial Parent matters for purposes of the Child Care Credit.  For state guideline purposes, it may also matter if the custody is shared, or how many days a child spends with a parent.  You make those entries directly in the state’s child support guidelines section, on the Guidelines tab.

 Assumptions:  The top-level screen for Children assumes:

You may change any of these assumptions by clicking “more info.”

Entering Data: Real Estate

You reach the Real Estate topic by clicking the Planner tab, then Real Estate on the left.  In the Real Estate topic, you can enter almost any arrangement involving real estate, including the following:

Because of the wide range of possibilities, and because of the key role that mortgages play in real estate, this is one the topics with the most data entry choices.

You may enter as many Real Estate properties as you wish, so you can account for second and third homes (and more).

Entering Residence Data: The Top Questions

The Residence chapter includes two different kinds of Real Estate: those that are owned currently, and those that will be purchased at a future date.

The data for these two types are sufficiently different that the top level has only the residence description and value.

 Assumptions:  Unless you change them, the various screens for Real Estate assume:

Below, we will discuss how to change these assumptions as we discuss details of keeping a residence, selling a residence, buying a new residence, and renting a residence.

The top of the Real Estate screen is a series of questions, as shown below.



Figure 37 – Questions for Real Estate

Based on your responses to those questions, the software then presents additional questions.

Entering Residence Data: Value of Residence

The following are the key data entries for this section:

Key Data Entries:

Current Value.  You can get this from an appraisal.  Leave this blank if the home is not owned by either party.  If the home is not owned by either party, also leave blank all the entries that relate to ownership, mortgage, or sale.

Anticipated Rate of Appreciation.  By default, the home will appreciate with inflation.  You may also enter an alternate rate of appreciation.  We use this appreciation to show the value of the home increasing over time.  Also, if the home will be sold, we use this rate of appreciation to estimate the value of the home at the date of sale.  You may also enter a negative rate of appreciation. 

Also, you may click the link labeled “View/Edit Annual Appreciation” and edit a different rate of appreciation for each year.  Thus, for example, you may anticipate that the residence will not appreciate at all for the next couple of years, and then will appreciate at a rate of 3% per year.

Entering Residence Data: First Mortgage and Second Mortgage

If there is a mortgage, you will be asked if the mortgage is either a new mortgage or a mortgage to be refinanced.

For either a new mortgage or a mortgage to-be-refinanced, the software will ask you to enter information about the new mortgage, including the anticipated original mortgage balance, number of years, and interest rate.

You will also be able to specify that the mortgage has a floating rate, or that the mortgage is "interest only" for a period of years.

If the mortgage is going to be refinanced, enter only the refinanced mortgage, not the current existing one. 

For a mortgage to be refinanced, at the bottom of this section, indicate the amount of proceeds that are going to pay off the bank, and the amount of proceeds that will be given to buy out one of the parties.

If there is a mortgage, the software will automatically create a mortgage amortization at the bottom of the relevant “more info” screen.

If the mortgage is not new/refinancing, the software will ask for a method by which to calculate the mortgage.  The options are “Statement Method”  or “Detail Method.”

In most cases, you will select the Statement Method. 

With this method, simply copy the mortgage information (interest rate, current balance, and monthly payment) from a current mortgage statement.  Or, you may call the bank to obtain the information you need. 

The software will then automatically calculate a complete mortgage amortization for the remainder of the mortgage term.  (You may see this by clicking the “more info” link at the bottom of the mortgage section.)

If the home is being sold, the mortgage amortization will continue only until the sale, and the final mortgage balance will reflect an estimate of the balance as of the sale date.

The Detail method is the traditional method.  You need to enter the mortgage start date, initial interest rate, and term of years.  With this method, you may enter adjustable rate mortgages and interest-only mortgages.

Here are the key data entries for this section:

Key Data Entries:

Different screens will ask for different data entries.  The following lists the key data entries for which you may be asked.

Current Unpaid Principal Balance.  Enter data here, from a recent mortgage statement.   

Helpful HintRefinancing of First Mortgage.  If there will be a refinancing of the first mortgage, do not enter the current mortgage into the software at all; instead, enter only the refinanced mortgage, by clicking Mortgage to be refinanced or new mortgage.

 Helpful HintRefinancing of Separate Property.  Refinancing proceeds are treated as marital property.  If the refinancing will be of separate property, then you will need to create a second residence to reduce the marital property balance and increase the separate property balance.  In that second residence, which you may describe as "Refinancing Offset," you would set the value of the residence as zero; the amount of separate property to be the amount of the refinancing proceeds; and the amount of marital equity to be kept by the party who has the separate property in the house to be 100%.  This will create a negative entry in the amount of the refinancing proceeds in the “marital property” column and a positive entry in the amount of the refinancing proceeds in the “separate property” column.

Anticipated amount of new mortgage.  If the mortgage is a refinancing or a new mortgage, enter the amount you think the new mortgage balance will be.

Monthly Mortgage Payment.  Get this from a recent mortgage statement.

Mortgage Rate.  Get this from a recent mortgage statement, or by calling the phone number on the statement.

Helpful HintAdjustable Rate Mortgages.  To enter an adjustable rate mortgage or an interest-only mortgage, use the Detail Method.

“X” if the interest on this mortgage is tax deductible.  Interest on mortgages on first and second homes are usually tax deductible.  Interest on other mortgages are not tax deductible.

Entering Residence Data: Separate Property in the Residence

If the residence is partially, or completely, the separate property of one spouse, you may enter the separate property amount. 

Here, as with all property in the software, the software even gives you the flexibility to assign the husband’s separate property to the wife (and vice versa), if the parties so choose.

The amount of marital property in the home is based on the total value of the home, the mortgage(s) and the amount of separate equity in the home.  Because the calculation can be a bit involved, we provide a report on this page to explain it.

To view this report, click the links labeled “Click here for a report on calculation of marital equity.”

Entering Residence Data: Proposed Division of Marital Equity

In this section you divide the marital property. This is the equity that is left after subtraction of the mortgage(s) and separate property amounts.

The following are the key data entries for this section:

Key Data Entries:

Pct of Marital Equity Kept by [Party].   If you enter the percent of marital equity to be kept by the first-entered party, the software calculates the amount of marital equity.

Amount of Marital Equity Kept by [Party].  If you enter the amount of marital equity to be kept by the first named party, the software will calculate percent. 

Entering Residence Data: Sale of Residence

When you enter a “year to be sold,” or “X” the box indicating that the home will be sold, the software automatically calculates the sale price. 

It does this by starting with the current value and increasing that by the rate of appreciation from the current year until the sale year.  This capability of the software allows you to help the parties plan for a sale and see the effect on the parties of freeing cash when the home is sold.

You may override this calculation of sale price if you wish.

You will enter the cost of the home, improvements, expenses of sale, allocation of those expenses between the parties, and answer questions about how long the parties owned and lived in the home. 

Based on your entries, the software will automatically compute and show how much tax gain there is, how much gain (if any) is excluded, and how much gain (if any) is taxable.
The tax computations for the year of the sale will show this gain, if any.

Helpful HintWritten Agreement to Leave.  If a party is moving out, you should get a written agreement stating that the move is in connection with the impending divorce.  This may be necessary, when the home is sold, for the party who moved out to qualify for the exclusion of tax on gain.

When a residence is sold, the software knows the mortgage balance on the sale date, because it has computed a mortgage amortization schedule.  It knows the value on sale, based on the rate of appreciation.

The difference, with expenses of sale folded in, gives the income on sale of residence. 

The software also does an analysis of taxable gain on the sale.  To see how all of this works out, click the link labeled, “Click here to view the Sale of Real Estate report,” as shown below.


Figure 38 – Sale of Real Estate Report

The result of the sale of the property appears on the Net Worth Spreadsheet report.  Typically, the “Residence” asset is reduced and the “Accumulated Savings” asset is increased.

Taxable gain, if any, is automatically added to taxable income in the year of sale, and the resulting increase in taxes may show up on the After-Tax Cash Spreadsheet.

Note that the proceeds do not appear on the After Tax Cash Flow or the Budget Report.  This is because these proceeds, which typically occur in the first couple of years, would distort the cash flows in those years.

Entering Residence Data: Splitting the Mortgage in the Separation Year

Some couples decide to split the mortgage payment in the separation year.

You can reflect this in the software using overrides.  The following example will illustrate.

Example: 

Suppose that the annual mortgage payment is $8,000.  Of that, $5,000 is interest.  The couple agrees that, for the separation year, the wife will pay $6,000 of the payment and the husband will pay $2,000.

Reflecting in the Software:

The following steps will enable you to override the appropriate fields to reflect the income and tax effects of splitting the mortgage in the first separation year.

 

 Note that if you make changes in the residence expenses after making these overrides, you will have to adjust the overrides as well to keep the numbers current.

Entering Residence Data: Home Not Yet Purchased

To enter information about a property that has not yet been purchased, click “No” to the first question at the top of the screen, “Is this property currently owned?”

The basic information for a home not yet purchased includes the identity of the party who is purchasing the home; the date it will be purchased; an estimated purchase price; and rate of appreciation after purchase.

Often, all these figures will be guesses if the home is to be purchased in the future.

When you enter mortgage information for a home that has not yet been purchased, there is no need to enter the amount of the down payment.

The software calculates the down payment as the difference between the sale price and the mortgage. 

*Helpful HintLiquidation to Cover Down Payment.  The down payment is taken from Accumulated Savings, then from Investments, then from the IRA/401k accounts.  The software automatically sells extra investments to pay the anticipated capital gains tax, and pays income tax on the IRA/401k liquidation.

Entering Data: Wages

Click the Planner tab, then Wages on the left, to enter information about wages earned by either party or both parties.



Figure 39 – Top-Level Wage Data Entry Fields

To change the pay period for wages, click on the words “Per year.”

Enter gross wages (not the take-home amount from the pay stub). 

The software will automatically calculate FICA and Medicare (employment) taxes.

 Assumptions:  The top-level screen for Wages assumes:

You may change any or all of these assumptions by clicking the link labeled:

 more info.

If income is steady, you may indicate that…

At the bottom of the screen, you see the wages for each year. 

You may override the entries, to specify a different wage amount each year, if you are so inclined. 

There is also an option to specify that overridden wages reset base wages.

This means that if wages increase by 2% per year, and in the 3rd year, you override the calculated entry with the number $20,000, then in the 4th year, the wage will be $20,000 + 2% of $20,000, and so on.

Entering Data: Non-Wage Income

Click the Planner tab, then Non-Wage Income on the left, to enter recurring (or one-time) income other than wages.



Figure 40 - Data Entry Fields for Non-Wage Income

The kinds of income you may enter here include:

In addition, you may enter income from assets of the following types:

*Helpful HintIncome From Assets.  If you enter income from assets here, this income will always stay with the party on whose screen you enter it.  As an alternative, you may enter income from assets with the asset itself, on the appropriate asset screen (e.g., Cash & Investments, Pension Plans, etc.).  When you enter the asset on the appropriate asset screen (not here), then, when you give that asset to the wife (for example), the income will automatically transfer to the wife.  When you give the asset to the husband, the income will automatically transfer to the husband.  Enter the income either on the appropriate asset screen, or on this screen, but not both.

For each entry, you may make the data entries described below.

Key Data Entries:

Start Year.  Enter the year this income starts.  If you leave this blank, it is assumed to start in the current year.

End Year.  Enter the year this income stops.    If you leave this blank, it is assumed to run throughout the years covered by the software.

Amount Per Week, Month, or Year.  You may enter the amount per week, per month, or per year.  The software will calculate the amount for the other time periods.

Non-tax.  Some items, such as child support and public assistance, are non-taxable.  These are marked as such with an “X” in the column labeled “Non tax.”  You may change those markings, and make any other item non-taxable if it happens to be treated as such.

Increase w/ Inflation.  The software assumes that non-wage items are fixed and do not increase with inflation.  However, if an item is expected to increase with inflation, you may “X” this box.

 Assumptions:  The screen for Non-Wage Income assumes:

You may change any of these assumptions by entering the change on the relevant line.

Or, you may click “[more info],” and change the item in any particular year or years.

On the “more info” screen, you may also change the rate of growth of the income items and override each year's amount if you wish.

There are blank lines at the bottom to enter other items as well.

Helpful Hint: Stock options.  You may use the lines at the bottom of the “Non-Wage Income” screen to enter stock options.  If you have a good idea when the options will be exercised, you may enter the year as both the Start Date and the End Date, and enter the net amount (after paying the exercise price and optionally any tax) that the options will bring in.  If you already subtracted the tax to be paid, mark the item as “non-tax,” by clicking the box labeled “Non/tax.”

Note that items you enter in the blank lines at the bottom will carry to the financial affidavits as “other income.”

Do I enter the non wage income for the other party, click the link at the top of the screen, as shown below.



Figure 41 - Non-Wage Income for the Other Party

In many cases, there will not be any income in any of these categories, and this screen will be left blank.

Entering Data for Income to Be Received in the Future

Income to be received in the future can include the following types of income:

 

You may choose to enter this type of income in one of two ways.

You may enter it as "Non-Wage Income," and specify the future year in which you expect it to be paid.

One advantage of this approach is that you capture not only the amount of the payment but the timing as well.  Also, for Non-Wage income you may specify a stream of payments over a period of years that you specify, as shown below.


*    *          *

Figure 42 - Data Entries for Non-Wage Income To Be Received in the Future

One disadvantage of this approach is that the Marital Property statement will not show the income that will be received in the future.

If it is important that the Marital Property statement reflect this future income, then you would discount the future payments to present value and list them as assets using the "Cash & Investments" screen.

You might enter bonuses, royalties, and an anticipated tax refund, as shown below.


Figure 43 - Data Entry Field for Cash & Investments

Entering Data: Living Expenses

Click the Planner tab, then Living Expenses on the left, to enter many of the recurring living (or “budget”) expenses.  Many of your clients will have no idea what they spend in a month or in a year.  You can use the software help your clients get organized.

The most common mistake with living expenses is to forget some.  Then later, when your client needs help paying them, it’s too late. 

There are two ways to enter living expenses:

The following sections discuss each approach.

Entering Living Expense Data: Itemized Line-by-Line Expense Approach

The approach you see when you bring up the Living Expenses topic is the line-by-line expense approach.

This is useful in building a comprehensive budget for each party.

Since usually it is not possible to maintain the pre-divorce standard of living, this section can help your client make trade-offs about what expenses to continue and which ones to cut back or eliminate.

Some living expenses – child care, health insurance, prior-relationship support and alimony – are critical to figuring the child support payment. 

The software features a list of over 100 living expenses, including rent, education, child, medical, household, etc., to help make sure you don’t forget any.

In addition, at the bottom, there are several blank lines for you to enter your own living expenses.

You can use this very complete list to make sure that the party has not forgotten any expenses.

Each expense item is keyed to a specific line item on the Financial Affidavits.  Many lines – especially at the top level -- are also keyed to lines in the Child Support Guidelines. 

The software assumes that each year’s expense increases with inflation.  If you clear the “Incr w/ infl?” box, the expenses will remain level and not increase.  Or, you may click [more info] to change the calculated values on a year-by-year basis.

Amounts you enter here will carry to the Guidelines tab as appropriate.


Figure 44 - Data Entry Fields for Living Expenses

Key Data Entries:

Start Year.  Enter the year this expense begins.  If you leave this blank, it is assumed to start in the current year.

End Year.  Enter the year this expense stops.    If you leave this blank, it is assumed to run throughout the years covered by the software.  You should usually enter End Date years for children’s expenses, and for alimony and child support from previous relationships.

Weekly Amount, Monthly Amount, or Annual Amount.  You may enter the amount per week, per month, or per year.  The software will calculate the amount for the other time periods.

Helpful HintHealth insurance.  One case where you will change tax category is with health insurance expenses.  They may be either a payroll deduction, a medical expense or a “self employed health insurance” expense.  If the party is self-employed, then you will want to select “self employed health insurance” as the tax category.

Tax category.  The software comes with the Tax Category pre-assigned, but occasionally, you may wish to change it.  If the tax category is “Payroll Deduction,” the item is deducted both for Federal income tax and FICA and Medicare tax purposes.

 Assumptions:  The screens for Living Expenses assume:

On the “more info” level, you may specify a rate of increase other than inflation.

You may also specify that part of an expense is “discretionary.” 

Discretionary expenses are treated the same as non-discretionary expenses in every way except one: Discretionary expenses may optionally be listed separately on the Budget Report.  (This is an option on the Budget Report itself.)  This lets you see what total expenses would be without discretionary expenses.  This can be revelatory, and very useful.

Entering Living Expense Data: Expense Items that are NOT on the Living Expense List

 The expense items in the following chart are special expenses and are entered elsewhere, not in the Living Expenses topic:

 

List of Expense Items that are NOT entered in the Living Expenses Topic

Special Item

Why This Item is Not Entered with Living Expenses

Where to Enter This Item

Mortgage interest 

Full amortization is calculated based on current monthly statement.

Real Estate

State taxes

Computed automatically

Enter state in “Background Info;” adjust state tax rates in “Assumptions;” see computation in “State Taxes” report.

Tuition expenses

May have special tax impacts.  Each expense may be divided between spouses.

Major Expenses

Entering Living Expense Data: Summary Living Expense Approach

 

If you do not want to use this item-by-item approach, you may enter a single total of expenses for each of the future years.  To get that data screen, you would click on the link shown above, at the top of each party’s living expense list.


Figure 45 - Link on Living Expense Page, for “Totals Only” Expenses

That will bring up a screen that appears as shown below.


Figure 46 - Summary Expense data screen

Click the button for “Use the Total Living Expense numbers on this screen (“Summary”). (Also, if you enter any numbers on this page, the option will switch automatically to “Use the Total Living Expense Page.”)

You may then enter total living expenses for each year.

If you type a number in the first year, and click the button labeled "Fill Level," the software will fill all the remaining years with the number that you entered.

If you enter a number in the first year, and click the button labeled "Fill Inflated," the software will fill all the remaining years, increasing each year by inflation.

This can be a faster way of entering living expense data.

On the first pass entering data, you may wish to enter summary expense data just to get a quick sense of expenses.  You can always later click the other box, “Use the line-by-line numbers” and enter each expense item separately.

Note: Summary Method Tax Consequences.  If you use the Summary Method, we can not take any tax consequences of the expenses into account, because we do not have categories for the expenses.  This will make the resulting reports less precise.  To see the difference, you can fill in both, then flip back and forth between detailed item-by-item method and the summary expense method.

Entering Data: Major Expenses

Use the Major Expenses to enter education expenses, camp expenses, or other expenses that will stretch over several years.  To reach this topic, click the Planner tab, then Major Expenses on the left.


Figure 47 - Data Entry Screen for Major Expenses

Key Data Entries:

Approximate Date Expense Starts: Enter the approximate date the major expense will begin.  For college, for example, you might enter “9/1/2018” or simply “9/2018.”  The software will automatically pro-rate the expense in the first year, and the last year.  If the expense is currently being paid, enter just the current year (e.g., 2010 or 2011).

Num Years Exp Runs:  Enter the number of years (typically 2 or 4) the major expense will continue.

Increase with Inflation?  “X” this box if you think the cost of this expense will increase with the general inflation rate.

Percent of Increase of this Item:  If you think the cost of the item will increase by a rate other than the inflation rate, enter the percent by which the cost of this item will increase each year.  For example, if this is college expense for a private college, you would enter the anticipated rate of education inflation (which may be double the general inflation rate).

Dollars (Present or Future) in First Year.  Typically, select “Present.”  This means that you are entering the current cost of the item, and the software should project the cost in the first year of the expense, using the annual percent of increase specified. 

% Paid by [First Party]:  This expense may be divided between the parties.  Enter the percent of the expense that will be paid by the first party entered (whose name is shown in the “% Paid by…” column).

 Assumptions:  The screens for Major Expenses assume:

To change these assumptions, click the “more info” button.

Helpful HintEducation Credit. The software has extensive pop-up help to determine if the Lifetime Learning Credit or Hope Credit applies.  If an education credit might apply, and both spouses are paying, enter that expense as two separate expenses, one for each spouse’s share.  The pop-up help explains further.

You may also enter one-time major expenses such as legal fees, a wedding, a bar-mitzvah, or a special vacation.  You do that by specifying that the event will continue for just one year.  The inflation rate is used to figure the cost of this expense if you are giving the price in present dollars.

 Entering Data: Cash & Investments

Use the Cash and Investments screen to enter the parties’ bank accounts, non-retirement securities investments, and real estate investments.  You reach this screen by clicking the Planner tab, then Cash & Investments on the left.

Note: Enter IRAs and 401(k)s in the “IRA and 401(k)” topic, not here.


Figure 48 - Top-Level Data Entry Screen for Cash & Investments

Key Data Entries:

Investment Type: Investment Type is either “Financial” or “Real Estate.”  You may enter both cash and securities (“Financial”) and investment real estate (“Real Estate”) in this section.

Value of Investment.  Enter the fair market value of the investment.

Rate (%) Int/Div.  This is the percent of cash payments (as a percent of the value of investment) received each year.  Depending on the investment type, the cash payments may take the form of interest, dividends, or rent. 

Helpful Hint:  Rate of cash payments.  If you don’t know the percent of cash payments, and you have no basis for forming an educated guess, you might guess 3.5% for bond income and 1% for stock income.

Or: Net Cash Flow.  For real estate investments, or bonds, you may wish to enter an annual cash flow instead of a rate of return.  Enter the net cash flow after all expenses. 

Rate (%) Growth.  This is the rate of growth in value.  If you don’t know the rate of growth in value, you might guess 0% for bond growth and 6 % for stock growth.

Helpful HintStocks vs. Bonds.  In general, it is best to have a balanced portfolio of stocks and bonds.  This advice applies only to investments that people do not expect to need in the near term.  For investments that will be spent in the near term, perhaps bonds, which tend to retain their value better in the short term, are a better bet.

Tax Category.  For stocks or mutual funds, select “Dividend.”  For bonds or bond funds, select “Interest.”  For tax-free bonds, select “Tax Free.”  For Real Estate, select “Real Estate.”  For stocks or funds whose income comes mostly as capital gains (this is rare) select “Capital Gain.”

Helpful HintCapital gains.  Income could come mostly as capital gains if the investment is appreciating without paying dividends, and the client is selling a bit each year.

 Helpful HintPart Capital Gain, Part Dividend.  If the income is significant, you might want to break a security into two parts.  For example, if the investment is $1 million, and you think 30% of the income is from capital gains and 70% is from income, you might enter it as two investments.  One investment, for $300,000 (30% of $1 million) would be a “Capital gains” investment.  This would have a 0% rate of interest and dividends.  The other investment, for $700,000, would be a “Dividend” investment.  It would have a 0% rate of capital gains.   Thus you can accurately reflect, from a tax perspective, the different types of income generated by the investment.

Pct of Marital Equity Kept by [Party]:  This is the percent of the marital equity in this investment that will be kept by the party named.  As with any entry in the software, this can easily be changed later in the course of the negotiation.

Amount of Marital Equity Kept by [Party]:  If you enter percent, the software will calculate amount; and if you enter amount, the software will calculate percent. 

 Assumptions:  The screens for Cash & Investments assume:

Helpful HintAppreciated Securities.  Some securities may have increased substantially in value.  If these securities were to be sold, there would be significant tax to pay.  If your client is taking these appreciated securities, you want your client to be compensated for this impending tax bill.  In the “more info” screen, you may enter the original cost of each item.  The software will automatically compute and graph the amount of taxable gain that is “built up” in all securities for each party.  You can find this graph by clicking Planner / Graphs / Built-In Gain.

Separate property.  You may indicate that an asset is either entirely the separate property of one party or the other, or partially separate property.  You may also indicate that a party will transfer his or her separate property to the other party.  You do that by clicking the link shown below.


Figure 49 – Transfer of Separate Property for Cash & Investments

The software will calculate the value of the investment as it grows each year.  You may change this calculated value by clicking [more info], then clicking View / Edit Annual Value of this Asset.

Helpful HintTax Basis.  If you wish to use the software's report on the after-tax value of property division, or if one of the parties will be liquidating his assets because current expenses exceed current income, then it is important to enter the tax basis of the securities.  That way, the software can accurately calculate the tax effects involved.

On the “more info” screen for cash and investments, you may override:

This gives you a lot of flexibility to handle assets situations such as an asset that will be paying income to the parties for a limited time, or an asset that will not start producing income until a future date.

On the “more info” screen, you may also indicate that the asset is a “child’s asset,” as shown below.


Figure 50 – Child’s Property on Cash & Investments Screen

If an asset is a child’s asset, it will not appear on the marital property report in either party’s column, but it will be listed at the bottom of the marital property division report.

 Entering Data: Debts

 

Use the debts screen for college loans, bank loans and credit card debts.  You reach this screen by clicking the Planner tab, then Debts on the left.


Figure 51 - Top Level Data Entry Screen for Debts

Key Data Entries:

Current Balance: Enter the current debt balance, from a recent statement.

Interest Rate.  Enter the annual interest rate, from a recent statement.

Monthly Payment.  Enter the monthly payment, from a recent statement.

Marital/Separate.  Enter the legal status of the debt.  Debts incurred before the marriage are typically “separate.”  Debts incurred after the separation are also typically separate.  Debts incurred during the marriage are typically “marital.”  If the debt is incurred during the marriage on a credit card that was issued before the marriage, the debt is marital, but the legal liability may rest only with the spouse who acquired the card.

Pct Paid by Party.  As between the parties, indicate how the parties have agreed to divide the debt.  As with any entry in the software, this can easily be changed during the course of the negotiation.

Helpful HintAssignment of Debt.  Even if one party agrees to pay the debt, both parties may still be legally liable.  Both parties will still be legally liable if the debt was taken out in joint names or charged to a credit card issued in joint names.  If possible, this may be a good moment to refinance the debt, and get the refinanced debt legally assigned to the party who has agreed to pay it.

Helpful HintCanceling the Credit Cards.  Because both parties will be liable on the marital credit cards, you might want to have the parties cancel the existing cards and sign up for new cards in the individual names of each party.  A non-working spouse may find this difficult to do.

Typically, you will not use this “Debts” topic to enter auto loans.  Typically, auto loans are entered with living expenses because typically, auto loans are thought of as an ongoing Living Expense.  As soon as the loan is paid off, people purchase a new car and create a new set of payments.  However, if there is an expectation that no new car will be purchased after this car is paid off, then it would be appropriate to enter a vehicle loan here.

On the [more info] screen, you may enter early payoff of loans (balloon payments), or loans that have payments until a final single payment (bullet payments).

You may also specify that the debt was incurred after the start of the current year.

On the debt payment schedule at the bottom of the screen, you may also enter a different-than-scheduled principal payment, to indicate an expected advance or missed principal payment.

 Entering Data: Personal Items

Use the Personal Items screen to enter cars, furniture, CDs, appliances, boats, art, or any other items that you wish to divide between the parties.  You reach this topic by clicking the Planner tab, then Personal Items on the left.


Figure 52 - Top Level Data Entry Screen for Personal Items

Key Data Entries:

What is the item worth.  Enter the current value of the item.  Often items have little value, and are being entered here solely to help indicate who gets what.  There is no need to get an exact valuation of items that have little value.  If the item has a lien against it (e.g., a car loan), enter the net value.  The net value is the market value less the outstanding balance on the lien.

Marital or separate?  Typically, items acquired before the marriage or after the separation are separate.  Other items are typically marital.

Who will keep the item.  Enter which spouse will keep the item.  As with any entry in the software, this can easily be changed later in the course of the negotiation.

In addition to recording and dividing value, you can use this as a handy record of “who gets what” among the personal items.  If the item is divisible, such as jewelry, you may wish to make two line items, one for the jewelry that the husband will keep and one for the jewelry that the wife will keep.

In dividing personal property, you can help your clients distinguish emotional value from financial value.  Sometimes, merely showing that the item has little financial value can be helpful in this process.

Listing each significant item of personal property can also help you organize the situation of who gets what.

Helpful HintArt and other Valuable Personal Property.  Some items, such as some art objects, are very valuable and may have increased substantially in value during the marriage.  If such items were to be sold, there would be significant tax to pay.  If your client is taking these items, you want to be compensated for this impending tax bill.  In the “more info” screen, you may enter the original cost of each item.  The software will automatically compute and graph the amount of taxable gain that is “built up” in all personal assets for each party.  You can find this graph by clicking the Planner tab, then Graphs on the left, then Built-In Gain from the list of graphs that appears.

On the [more info] screen, you may indicate that the item is increasing or declining in value.

You may also indicate that the asset is a child’s asset, as shown below.

Figure 53 – Child’s Property on Personal Items Screen

 Entering Data: IRAs, 401(k)s, etc.

 

On the IRA, 401(k) screen, enter the parties’ “defined contribution” retirement plans (see “Helpful Hint” below).  You reach this topic by clicking the Planner tab, then IRA, 401(k), etc on the left.

Helpful HintWhat is a “Defined Contribution” Plan.  A “defined contribution” plan is any retirement plan where the employee and/or employer contribute specified amounts, choose investments to make, and get regular statements of the value of those investments.  This is the most common type of retirement plan today, by far.  The other kind of plan, “defined benefit plan” typically involves a promise by the employer to pay a specified amount for life, starting at retirement.  You reach the defined benefit screen by clicking the Planner tab, then Pension Plans on the left.

People deposit money into IRA and 401(k) plans for the tax advantages. 

The money usually escapes being taxed in the year it is earned.  In addition, it accumulates tax free in the plans. 

Then, when the cash in the plan is distributed (starting between ages 59 ½ and 70), it is treated as ordinary income.

There is a penalty, equal to 10% of the amount taken out, for “early” withdrawal. 

“Early” withdrawal generally means withdrawal before age 59 ½ (there are a few exceptions to the penalty if money is only borrowed from the plan). 

The software takes care of calculating growth tax-free, applying the tax on early distributions, handling distributions at retirement, and applying tax on those distributions.


Figure 54 - Top Level Data Entry Screen for IRA and 401(k)

Key Data Entries:

Whose Account?  This entry does not affect who will keep the account.  It is used only in the event of a one-time early distribution in the year of divorce, to determine if the 10% penalty applies.

Current Value: You can get this from a recent statement, or by calling the fund administrator.

Pct of Marital Equity Kept by [Party]:  This is the percent of the marital equity in this account that will be kept by the party named.  As with any entry in the software, this can easily be changed later in the course of the negotiation.

Amount of Marital Equity Kept by [Party]:  If you enter percent, the software will calculate amount.  If you enter amount, the software will calculate percent.  In this case, you would usually enter the marital amount, not the marital percent. 

                                     Helpful HintMarital Equity of Defined Contribution Plan.  The marital equity of a defined contribution plan is the value the account had at date of marriage.  If you do not know that value, you may calculate the marital equity as follows: account current value * (# days account was open during marriage / total # days account has been open).

% Growth.  Enter the anticipated rate of growth of the plan.  The software creates an initial entry of 5%, but you should feel free to change this entry if that is not the growth rate anticipated from this particular IRA investment.

“X” if Roth.  This check box indicates whether the plan is a Roth IRA.

Amount of Marital Equity Kept by [Party]: The software will calculate amount a party will keep if you enter the percent.  It will calculate the percent if you enter the amount.

 Assumptions:  The top-level screen for IRA and 401(k) assumes:

You may change any or all of these assumptions by clicking the [more info] link and clicking on further links from there.

If expenses exceed income, the software distributes Accumulated Savings, then Investments, then IRA/401(k) accounts.  The software calls this a “liquidation.”  If the IRA/401(k) account is liquidated before the party reaches age 59 ½, the software automatically calculates the 10% tax. 

You may also specify regular contributions to be made to the IRA.  The amount you specify will be contributed each year until retirement.  The amount contributed comes out of current income or accumulated savings, and it is deducted from federal income taxes.  You specify an annual contribution by clicking on the [more info] link.

You may also specify employer contributions. These are treated the same as the party’s contributions, except they are not subtracted from taxes.

You specify a different contribution each year by clicking on the View / Edit Annual Retirement Contributions link.

You may also specify current year distributions.  The questions on the screen will walk you through the considerations that determine if the 10% penalty applies.

You may arrange Section 72t distributions; the software assumes that no penalties apply to any regular distributions (other than possibly current-year distributions).

If distributions begin before age 70, and you have specified “minimum required distributions,” the software simply distributes 2% of the assets per year.  The IRS's formula for minimum required distributions does not actually begin before age 70.  The IRS table will require a distribution of around 4% in the first year, so there will be a jump in distributions at age 70, if you have specified minimum required distributions and a start year before age 70.

529 Plans.  You may enter a 529 Plan by entering it as an IRA/401k asset, and then indicating that it is a child’s account.  You do this by clicking “more info,” then “value, division, and separate property,” and then X’ing the box to indicate that this is a child’s asset.  The plan will not be included in either party’s list of assets, but it will appear at the bottom of the Marital Property Division Report as a child’s asset.

 Entering Data: Pension Plans

On the Pension Plans screen, enter the parties’ defined benefit pension plans.  You reach this screen by clicking the Planner tab, then Pension Plans on the left.

Defined benefit plans were much more common in the 1980s than they are today.  Today, people who have defined benefit plans tend to be older or to work for government entities.

Helpful HintWhat is a “Defined Benefit” Plan.  A “defined benefit plan” is a plan whereby an employer promises to pay a specified amount for the rest of the employee’s life, starting at retirement.  The amount is based on the employee’s salary for some specified time period, for example his or her highest-paid three years.  It is also based on the number of years the employee works for the employer.  Usually, the company will provide you with an estimate of the benefit, calculated “as if” the employee were to stop work today, or “as if” the employee were to work until retirement.

A defined benefit plan can be a very substantial asset.  The software will help you value the plan and help you divide it between the parties.



Figure 55 - Top-Level Data Entry Screen for Pension Plans

Key Data Entries:

Who Owns This Plan.  Enter the employee, the person in whose name the plan is established.

Date Employee Started in Plan.  You can get this from the plan administrator.

Cut-Off Date: Plan No Longer Marital.  Typically, this will be the separation date.  It could also be the date of filing, or even the date of the divorce order.

Date to Evaluate Plan.  This is typically today’s date.

Monthly Benefit Estimated by Plan.  Typically, the plan administrator will give you an estimate of the monthly benefit.  This estimate will be based on an assumption as to how long the employee continues to work for the company.  Typically, the administrator will have assumed that the employee continues to work only until the cut-off date.

Cost of Living Pct.  The Cost of Living Adjustment (“COLA”) percent is a percent by which the monthly payment amount will increase each year, after the benefit starts being paid.  It is part of the plan and you can get it from the plan administrator.

Pct of Marital Equity Kept by [Party]:  This is the percent of the marital equity in this plan that will be kept by the party named.  As with any entry in the software, this can easily be changed later in the course of the negotiation.

Helpful HintDividing the Pension.  A critical decision for the non-employee spouse can be whether to take a share of the pension, or whether to take other property instead.  The pension tends to be valued as if the employee stopped working today.  The ultimate value of the pension will be much higher if the employee’s salary will increases substantially before retirement.  It may also be much higher if the employee will keep working for the employer for many years.  If the non-employee spouse thinks those things might happen, she or he might strategically decide to keep a share of the pension, rather than taking other property instead.  That way, when the value increases, the non-employee spouse will share that value.

Dollars of Marital Equity Kept by [Party]:  If you enter percent, the software will calculate amount; and if you enter amount, the software will calculate percent. 

Helpful HintSetting up a QDRO.  If a non-worker spouse is going to retain a share of the pension, you must fill out some forms to create a qualified domestic relations order (QDRO, which is pronounced “quadro.”).  Essentially, a QDRO compels a sometimes-unwilling employer to carve out a defined benefit account for the employee’s soon-to-be-ex-spouse out of the employee’s account.  This is a case where the exact format must be followed.  If you do not feel expert in this, find someone who is.

Interest Rate (Discount Rate):  By default, the software uses a current 20 year United States treasury bill rate, which we update regularly.  Although there is no theoretical justification for using multiple tiers of interest rates, some evaluation methods currently use three (or more) tiers of interest rates.  You may do that, by clicking the link shown below.  You may specify three tiers of interest rates, or more.  The software allows you to specify a different interest rate for every year, if you so desire.



Figure 56 – Multi-Tier Interest Rates for Pension Plans

 Assumptions:  The top-level screen for defined benefit pensions assumes:

 

You may change any of these assumptions by clicking the [more info] link and clicking on further links from there.  There is pop-up help to explain all these choices in the “more info” page.

You should always click “more info” and examine the assumptions carefully.

Below we discuss pension valuation in general, using the value of an outside actuary, and making choices about pension distributions.

Entering Pension Data: Pension Valuation

Just as a bond has a value, a defined benefit plan has a value.  Both represent the present value of a stream of payments being made in the future.

But there is more uncertainty with a defined benefit plan than with a bond. 

One key item of uncertainty is how long the employee will live.  Using the mortality table you select, the software does a very detailed year-by-year estimate of the likelihood of an employee living to each year, and the value of the payments if he does.

You can see this worked out if you click the [more info] link, then scroll down and click the link near the bottom of the screen for the detailed audit trail, shown below.


Figure 57 - Links for the Audit Trail and Client Pension Evaluation Reports

The software also generates a “client report,” the link for which is at the bottom of the “more info” page and is shown above.

The defined benefit pension is the only asset for which the software calculates the marital portion.  (For other assets, you enter the marital portion directly.)

The marital portion is that fraction of the value that was earned during the time that the employee was both married and employed.  This fraction is also known as the “coverture fraction.”  The coverture fraction is calculated and displayed on the “more info” page.

There is extensive pop-up help on the “more info” page.  You may use it to understand more about defined benefit pensions and about the software’s calculations.

Often the non-employee spouse has a choice.  He or she can take cash or property for his or her share in the plan.  Or, he or she can take a share in the payments when they are made.  This software lets you try it both ways, and see the financial outcomes.

Helpful HintValue of Defined Benefit Plans After Retirement.  A Defined Benefit plan continues to have a value after the party retires.  A bond, which will make a certain number of interest payments, then a principle payment, has a present value.  In just the same way, so too does a defined benefit plan that has already started making payments.  The software shows the value of the defined benefit pension declining over time, as there are fewer and fewer payments remaining to make.

Note: The software does not calculate the value of a “joint life” pension, where the company promises to pay the monthly payment until both spouses die.

Note: The only entries that affect the value of the pension are:

 

The remaining entries affect the coverture and marital portion.

However, the software will not calculate the plan value unless all of the date fields are entered.

Entering Pension Data: Showing Pension Values on Net Worth Spreadsheet.

In reality, the value of a defined benefit pension increases each year, as the employee gets closer to retirement. 

This value is reflected annual on the Net Worth Spreadsheet. 

However, some planners would prefer to see this value omitted from the Net Worth Spreadsheet. 

You may do this.  There is an “X” box in the section of the more info screen where you indicate the pension valuation method.  To omit the pension value, you would clear this box.



Figure 58 – Field to Clear to Omit Pension Value from Net Worth Spreadsheet

Entering Pension Data: Using a Pension Value from an Outside Actuary.

Sometimes you may wish to use the value from an outside actuary, rather than the software’s valuation.  There may be complications in the plan which make it unsuitable for the software to value.  Or perhaps the other party will trust only an outside valuation.

In any case, you may enter such a value into the software.  Click more info and scroll down to the section labeled “Valuation Information.”  Then, click the “value prepared elsewhere” selection and enter the value, as shown below.



Figure 59 - Fields for Entering AValue Prepared By an Outside Actuary

The outside actuary will also have calculated the marital and separate property portions of the pension.  To enter those portions, click the link shown above labeled “Click here to enter any separate property portion.”

Entering Pension Data: Coverture Calculation.

The software calculates the coverture fraction automatically, based on the following entries:

The software shows and explains the calculation, as shown below.



Figure 60 – Coverture Fraction Calculation

If you wish, you may override any portion of this calculation, and the coverture fraction will recalculate from that point forward.

Entering Pension Data: Pension Distributions.

When the pension is actually distributed, the recipient typically has the choice to receive the pension either as a lump sum all at once, or as a stream of monthly payments for life.

If the person receives a lump sum, the amount received will be the value of the pension payments (discounted for interest and mortality) as of the day the pension begins.  The software calculates this amount automatically.

Helpful HintLump Sum Distributions.  For a few  employees, there is a tax advantage to receiving the lump sum payment rather than monthly distributions.  The software asks the necessary questions and calculates the revised tax automatically.

The software assumes that each party who is receiving a pension will choose to receive the monthly payments.  If the parties are not near retirement, we suggest that you leave this as is.

However, if the parties are nearing retirement, they may want to try both ways, to see which they prefer.  In that case, click more info, then the link shown below.


Figure 61 – Link on Pension Screen for Pension Plan Distributions Screen

This will take you to a new screen about plan distributions, shown below.


Figure 62 - Pension Plan Distributions Screen

There, you may make the entries relating to lump sum distributions.

 Entering Data: Social Security

 

Use the Social Security screen to enter current or estimated future social security income of each party.  (This screen is not for the FICA or medicare deductions.  The software calculates those automatically.)  You reach the Social Security screen by clicking the Planner tab, then Social Security on the left.

Key Data Entries:

Estimated Dates.  If the party is not receiving social security currently, you have to guess at which age the party will begin receiving Social Security.

Helpful Hint:  Age to Begin Receiving.  Social security rewards late retirement (by increasing monthly benefits) and penalizes early retirement (by reducing the monthly benefit).  The software automatically calculates the reduction or increase in social security.

Estimated Amounts.  You also have to estimate what the amount would be if the party retires at regular retirement age.

Helpful HintAmount at Regular Retirement Age.  The social security administration allows you to view an estimate of the amount the party will receive at retirement.  You may request this estimate on the Social Security administration’s web site, www.ssa.gov.

There are special rules for social security benefits for divorced spouses. 

The non-worker spouse from a 10-year marriage may get a monthly payment of half the worker spouse’s benefit.  This starts once the worker spouse is eligible, and the non-worker spouse reaches age 62.

(If the worker spouse dies, the non-worker spouse may collect benefits at age 60, or age 50 if the non-worker spouse is disabled.)

If the worker spouse is not receiving benefits, the non-worker spouse must be divorced for at least two years before the non-worker spouse can collect the 50% benefit.

This non-worker spouse benefit does not reduce the worker spouse’s benefit.

If the divorced spouse worked, the government pays the larger of a divorced spouse’s own benefit and half the other spouse’s benefit, e.g., the larger of the wife’s own benefit or half her husband’s benefit.

The divorced spouse benefit is suspended for any month during which the divorced spouse is remarried.

Note: The software currently does not calculate the divorced-spouse benefit amount.

If the parties are young, you might skip this chapter entirely.  The closer they are to receiving social security, and the more significant social security is in the picture, the more important it is to complete this section.

 Entering Data: Life Insurance.

Sometimes, the parties will use life insurance to make sure that the obligation to pay child support or alimony continues to be met, even if the payer dies.  You reach this screen by clicking the Planner tab, then Life Insurance on the left.

This is something you always want to consider, and often recommend, if the payer’s ongoing obligations are significant to the recipient.


Figure 63- Top Level Data Entry Screen for Life Insurance

Key Data Entries:

Annual Premium Paid by [Party]: Enter the annual premium paid by each party.  Typically, for a given policy, there will be only one payer.

Term or Cash Value: The most cost-effective life insurance is term life insurance.  This is the simple, “if the insured dies, we pay $100,000” type of contract.  The other kind of insurance is “whole life.”  A whole life policy has a savings component and thus can have a cash value.  

Helpful HintTerm vs. Whole Life.  The advantage of whole life is that the savings accumulate tax-free.  The disadvantage is that the premiums can be much higher, and there are steep fees.  On balance, whole life is usually not as good an investment as simply putting the incremental premium amount into a broadly-diversified mutual fund.

Cash Value.  We consider term life insurance as having no cash value.  Only “whole life” insurance (which goes by a raft of other names) can build up cash value.  The insurance company can tell you the cash value of a given policy.

You may also specify a number of years to pay a premium, debt against the policy, separate property in the policy, and a rate of growth of the cash value, by clicking the [more info] link.

 Entering Data:  Business.

Enter any business in the Business screen, from solo consulting businesses to partnerships to large family-owned enterprises.  You reach this screen by clicking the Planner tab, then Family Business on the left.



Figure 64 - Top Level Data Entry Screen for Family Business

Key Data Entries:

Form of Business.  The choices are “Individual,” “Partnership” or “Corporation.”  This choice has tax consequences in the treatment of income.  It also affects the ways the business itself may be leveraged to buy out a party’s interest.  (“Individual” is the same as “Sole Proprietorship.”)

Pre-Tax Net Cash Flow.  This is the pre-tax cash flow to the parties in the form of net income (if an individual), dividends (if a corporation), or partnership payments (if a partnership).  If there are actually salary payments which are reported on a W-2, then enter those payments in the “Wages and Salary” topic, not here.

Helpful HintNet Cash Flow.  If you wish, you may enter the business’s income and expense and have the software calculate cash flow.  Do this on the Income & Expense worksheet on the“more info” screen.  The software is interested in cash flow, so there is no entry for depreciation.  This is usually fine, because under Section 179, most small businesses are able to currently deduct all expenses for equipment.  If you do need to represent depreciation, you may override the tax amount for business on the View/Edit Taxes report, to subtract the depreciation.

Pct of Cash Flow Kept by Party.  The software allows you to allocate ownership of the business in a different percent than cash flow.  The spouse who works in the business may keep the cash flow, but both spouses may have an ownership interest.

Pct Growth Cash Flow.  Enter your best guess of the rate at which cash flow will grow.  For many stable businesses, this entry will be zero.  You may view and edit the cash flow of each year on the “more info” screen.

Value of Business.  Enter the amount the business is worth.  You may wish to have the business appraised. 

Helpful HintBusiness Valuation.  If the value is substantial, you might want to suggest that each party hires one appraiser, and those two together pick a third.  The software does not attempt to determine the value of the business.  In determining value, the key question is: If the current owner left, how much would someone else pay to step into his or her shoes?  Often, the business depends solely on the personal services of the owner, and the number to enter here is zero.

Pct Growth in Value.  Enter the rate (% per year) that the value of the business will increase.  This is often a number like 0%, 1% or 2%, unless the business is growing very quickly.  Be aware that, with any number larger than 5%, the value of the business may appear to grow very quickly over more than five years.  The percent growth in value would normally be the same as the percent growth in cash flow.  You may view and edit the business value each year on the “more info” screen.

Pct of Marital Equity Kept by [Party].   You may enter either the percent of marital equity, or amount of marital equity, to be kept by the first-entered party. 

Amount of Marital Equity Kept by [Party].  If you enter percent, the software will calculate amount.  If you enter amount, the software will calculate percent. 

 Assumptions:  The top-level screen for business assumes:

You may change any or all of these assumptions by clicking the more info link.

If the business is going to help pay for the buyout, there are several options, all indicated by links such as, “Click here to enter data for a buyout note or other debt of the business,” as shown at the bottom of the screen detail below.


Figure 65 - Detail of Business Screen for Buyout

On the “more info” screen, you may also specify that part or all of the value of the business is separate property.

 Entering Data: Child Support.

Use the Child Support screen to enter child support.  You reach this screen by clicking the Planner tab, then Child Support on the left.

If you work in a state where the software calculates child support guidelines, you may specify that the software should calculate child support (this is the default).

This chapter will describe both the direct entry of child support, and the use of the Guidelines tab to calculate child support in your state.

Entering Child Support Data: Direct Entry

The Child Support data entry screen is shown below.



Figure 66 - Data Entry Screen for Child Support

Key Data Entries:

Child Support Payer.  Enter the party who will be paying support.  You have to choose a payer, or no support amounts will be calculated.  If this is a state for which we do the child support guideline calculations, you will see an option to use that calculation.

Initial Support Amount for This Order.  Here, you enter the monthly or annual payment amounts.  Enter the month and year the payments will start, and the year through which they will continue.

First Modified Level of Support, Second Modified Level of Support.  You may establish up to three levels of support.  For example, if there are three children, and support will be reduced as each child turns 18, then you would enter three levels of support, each lower than the last.  You may have the software calculate these reductions by clicking the checkbox, “Modifications: Click here to use the software’s calculation for modifications of child support.”

Helpful HintChild Support vs. Alimony.  Child support is not tax deductible to the payer, and it is not included in the income of the recipient.  The software takes care of this.  It also lets you easily change child support vs alimony amounts.  By inspecting the totals, you can see the tax effects.

You may also specify each year’s payment by overriding the calculated annual amounts shown at the bottom of the screen.

This can be useful if, for example, the last year of support is a partial year.

If you see a link for Quick Child Support Calculator, as shown below, be sure to click it.



Figure 67 - Link for Quick Child Support Calculator

It will contain fields specific to your state that are relevant to child support, including calculations relating to the allocation of health insurance expenses to the children, split custody, or number of overnights.

 Entering Data: Alimony.

You enter alimony on the Alimony screen.  You reach this screen by clicking the Planner tab, then Alimony on the left.

Unlike child support, alimony typically is not legislated, but is negotiated between the parties.

Often, alimony is negotiated toward the end of the process, after the parties see how they will do without alimony payments or receipts.

Typically, there is no formula for alimony, but there are common factors, mostly relating to the duration of the marriage, the children’s situation, and income-earning abilities of the spouse.

In many states, there seems to be a relatively bright line at a ten-year marriage, which entitles the non-working spouse to alimony, or to more substantial alimony.

There is help on all these topics in the pop-up help at the bottom of the Alimony screen.

The alimony entries are made in exactly the same manner as the Child Support entries.

Tax law provides that alimony that ends (or is modified) when child support might be expected to end (or be modified) might be recategorized for tax purposes as child support.  This would mean that the payer would lose the tax deduction.

There are a variety of dates that can trigger this provision, including milestone birthdays, starting work, and so on.  The software is not automatically calculating those dates.  This is up to you.

You may specify that alimony payments will increase with inflation, and also that the alimony is not taxable (that is, not taxable to the recipient and also not deductible to the payer).

Entering Data: Property Settlement

A property settlement is an arrangement under which property will be transferred from one spouse to another in years after the divorce (typically between one and six years after).

Property transferred is neither taxable to the recipient spouse, nor tax deductible to the payer spouse.

For tax purposes, the payment will be considered as alimony or a taxable gift if the property transfer is not "related to the ending of the marriage."

Any payments made in six or fewer years after the date the marriage ends will be considered "related to the ending of the marriage" and will be treated as property settlements if the parties designate them as such.

Property settlement payments made more than six years after the date the marriage ends might still be considered as "related to the ending of the marriage," if the couple proves to the IRS that the payments were intended to be paid within the first six years, but were unavoidably delayed by business or legal factors.

You may enter the face amount of the property settlement note, the start year, the number of years that the payment will take and an interest rate. 



Figure 68 – Entering Property Settlement Amounts

The property settlement note is treated as income to the recipient as it is paid, and an expense of the payer.

The software will automatically calculate the interest, which is taxable to the recipient but not deductible to the payer.

Ordinarily, the property settlement will be counted counted toward the equalization payment in the Marital Property Division totals.  (On the Marital Property Division report, you have an option to change this.)

Also, for any property settlement, you may check the box labeled “Reimbursement.”  This indicates that the property settlement is made to compensate the recipient spouse for the paying spouse’s expenditure of separate funds, and so this particular property settlement note should not be counted toward the equalization payment in the Marital Property Division totals.

Entering Data: Tax Filing Status

Enter tax filing status on the Tax Filing Status screen.    You reach this screen by clicking the Planner tab, then Tax Filing Status on the left. 

“Tax Filing Status” refers to the question whether the parties will file jointly, separately, single, or as head of household on their tax returns.

Figure 69 - Tax Filing Status Screen for One Party for the Current Year

The key questions that arise around filing status are:

The software has entry fields for each party for each of these questions, one of which is shown above.

Helpful HintThe Importance of Filing Status.  The tax code allows some degree of choice of filing status.  This is a place where you can save your clients money – sometimes thousands of dollars – simply by telling them which box to “X” on their tax return.  As such, it is a place where you can add significant value as an advisor. 

The software gives you a number of screens to help you make this decision. 

Of course, you can’t pick any filing status you want.  The pop-up help screens on the Tax Filing Status page explain your options. 

Helpful HintChoosing Filing Status.  During the last year married, the best choices usually are either: 1) Joint filing; 2) Separate filing; or 2) One spouse single / one head of household. 

The “single / head of household” option is available only if the parties are separated before June 30 of the last year married and there are children.

If there are no children, both parties might be able to file as “single” if  
the parties are separated before June 30 of the last year married.

In general, if both spouses are income-earners, the single/single or single/head of household option is better.

In general, if only one spouse is an income-earner, the married filing jointly option is better. 

However, there are enough phase-outs and special cases built into the tax law, that the best way to see is to try each possibility and see which results in the highest after-tax net income.

For more details, click the Planner tab, then Tax Filing Status on the left, then click the pop-up help on the page.