In our last post, we discussed a few aspects of estate planning that a couple with minor children and a relatively simple estate might want to address during divorce mediation. Today, we will continue looking at our example couple, Deena and Greg, as they consider educational planning for their two younger children, 14-year-old Brian and 12-year-old Lindsey.
As we previously discussed in College Planning and Mediation: Part I, there are circumstances under which divorced parents In New Jersey can be held responsible for funding post high school education for children. Educational expenses typically include tuition and fees, room and board, and books and supplies. Other associated costs include things like college prep exam fees and review courses, application fees, travel expenses for college visits and necessary and discretionary expenses during college (clothing, travel, entertainment, etc.). Absent an agreement between parents about how to cover costs, a court would apply the criteria set out in the 1982 case of Newburgh v. Arrigo.
If your children are young, it might seem like a better idea to wait and address this issue later. After all, many things can change over the years, and you already have plenty to worry about. Mediation, however, is an ideal forum for addressing parental contributions to children’s higher education expenses. Courts tend to uphold agreements between parents about contributions, as long as they are specific and clear. If college is still a few years away, you can write up an agreement that provides for an income-based cost sharing plan while leaving out specific dollar amounts. Putting your plan into your Marital Settlement Agreement (MSA) allows your attorneys to review it along with your other terms. You can also include a clause agreeing to return to mediation to refine the agreement later.
Educational Contributions and Parental Income
Deena and Greg currently have very similar incomes and plan to share parenting equally. They were happy therefore, to take child support off of their current list of concerns. Nevertheless, they should be prepared for the possibility that this might change. What if one of them gets a new job or starts a lucrative business during the next few years? At that point, the less financially well-off spouse might wish they had thought about college funding sooner. They might even want to change their mind about getting a child support agreement.
To get an idea of how New Jersey courts calculate child support for parents who share custody, Deena and Greg can look at the New Jersey Shared Parenting Worksheet. The first figure in the support calculation is “gross income.” This includes both earned and unearned income. Part C of the Family Case Information Statement (CIS) includes a more detailed breakdown of what income includes. As we have previously discussed, it is usually a good idea for couples in mediation to complete and exchange at least a rough draft of the CIS, even if, as in Greg and Deena’s case, their financial situation is pretty simple. Sometimes completing the CIS reveals things that no one previously considered. Other times it simply ensures that all income and assets are taken into account.
Although the New Jersey child support guidelines do not apply to children who are in college and not living at home, they can provide insight into how parents might set up an agreement for income-based college contributions. The next step will be to decide how to budget for the planned contributions. The parents can then incorporate the contribution agreement into their MSA.
Funding Higher Education for Children
Deena and Greg do not currently have any savings designated for their children’s education. They do, however, have good salaries and well-funded retirement accounts. Greg has a traditional IRA and Deena has a 401k. In some cases, it is possible to use retirement accounts for educational expenses. Withdrawals from both traditional and Roth IRAs before age 59 ½ that are used for qualified higher education expenses are not subject to the usual 10% early withdrawal penalties. They are, however, still subject to income taxes. Qualified expenses generally include tuition, fees, books, necessary supplies and equipment, and room and board for students enrolled at least half time in a degree program.
There are, of course, downsides to using retirement funds for education, the most obvious of which is that the funds would no longer be available for retirement. It is also only IRAs that can be used in this way. Deena’s 401k would not qualify. It might be possible for her to borrow from her vested balance in the 401k to pay for college expenses. Before considering this option though, she should discuss the financial impacts with a financial advisor. Pursuing other student loan options will usually be a better choice.
Another option that is usually better than dipping into retirement savings is opening 529 plans. Although it would have been ideal for them to begin earlier, Greg and Deena still have time to do this. Each parent could open an account for each child and fund the accounts on a regular basis going forward. Any loans or retirement withdrawals would then be only back-up options. If the parents can agree on how much each of them will contribute, they can coordinate setting up the plans with the rest of their asset distribution in divorce.
Including Children in College Planning Discussions
Deena and Greg should also decide how and when to include their children in college planning discussions. Brian will be old enough for that within a couple of years. Lindsey is still young, but because of her disability, her future education may require earlier and more extensive planning. Parents often want children to understand that there is a “cap” on how much they will be able to contribute. The earlier they make this clear, the less likely a child is to become excited about possibilities that do not make sense financially. If children may need to work part time or take out loans themselves, that is another important topic of discussion.
Deena and Greg decide to build future college planning meetings into their MSA. They set three dates, the first for a meeting between the two of them, and the second and third for meetings between both parents and each child. They also agree to add additional meetings with a mediator if necessary to resolve any disagreements. A tentative checklist of topics for the meetings includes the following:
- The Child’s Educational Goals
- All Estimated Costs of the Education
- Current Savings and Future Savings Plans
- The Child’s Expected Contribution.
- Each Parent’s Expected Contribution
- Mechanics of Payment
For more detailed information on college planning and mediation, including more on the list of topics to address, see: College Planning and Mediation: Part II.
If you and your spouse or former spouse would like to discuss educational planning for children and mediation with one of our experienced family mediators, take advantage of our initial consultation and contact us today.
Educational Planning in Mediation
In our last post, we discussed a few aspects of estate planning that a couple with minor children and a relatively simple estate might want to address during divorce mediation. Today, we will continue looking at our example couple, Deena and Greg, as they consider educational planning for their two younger children, 14-year-old Brian and 12-year-old Lindsey.
As we previously discussed in College Planning and Mediation: Part I, there are circumstances under which divorced parents In New Jersey can be held responsible for funding post high school education for children. Educational expenses typically include tuition and fees, room and board, and books and supplies. Other associated costs include things like college prep exam fees and review courses, application fees, travel expenses for college visits and necessary and discretionary expenses during college (clothing, travel, entertainment, etc.). Absent an agreement between parents about how to cover costs, a court would apply the criteria set out in the 1982 case of Newburgh v. Arrigo.
If your children are young, it might seem like a better idea to wait and address this issue later. After all, many things can change over the years, and you already have plenty to worry about. Mediation, however, is an ideal forum for addressing parental contributions to children’s higher education expenses. Courts tend to uphold agreements between parents about contributions, as long as they are specific and clear. If college is still a few years away, you can write up an agreement that provides for an income-based cost sharing plan while leaving out specific dollar amounts. Putting your plan into your Marital Settlement Agreement (MSA) allows your attorneys to review it along with your other terms. You can also include a clause agreeing to return to mediation to refine the agreement later.
Educational Contributions and Parental Income
Deena and Greg currently have very similar incomes and plan to share parenting equally. They were happy therefore, to take child support off of their current list of concerns. Nevertheless, they should be prepared for the possibility that this might change. What if one of them gets a new job or starts a lucrative business during the next few years? At that point, the less financially well-off spouse might wish they had thought about college funding sooner. They might even want to change their mind about getting a child support agreement.
To get an idea of how New Jersey courts calculate child support for parents who share custody, Deena and Greg can look at the New Jersey Shared Parenting Worksheet. The first figure in the support calculation is “gross income.” This includes both earned and unearned income. Part C of the Family Case Information Statement (CIS) includes a more detailed breakdown of what income includes. As we have previously discussed, it is usually a good idea for couples in mediation to complete and exchange at least a rough draft of the CIS, even if, as in Greg and Deena’s case, their financial situation is pretty simple. Sometimes completing the CIS reveals things that no one previously considered. Other times it simply ensures that all income and assets are taken into account.
Although the New Jersey child support guidelines do not apply to children who are in college and not living at home, they can provide insight into how parents might set up an agreement for income-based college contributions. The next step will be to decide how to budget for the planned contributions. The parents can then incorporate the contribution agreement into their MSA.
Funding Higher Education for Children
Deena and Greg do not currently have any savings designated for their children’s education. They do, however, have good salaries and well-funded retirement accounts. Greg has a traditional IRA and Deena has a 401k. In some cases, it is possible to use retirement accounts for educational expenses. Withdrawals from both traditional and Roth IRAs before age 59 ½ that are used for qualified higher education expenses are not subject to the usual 10% early withdrawal penalties. They are, however, still subject to income taxes. Qualified expenses generally include tuition, fees, books, necessary supplies and equipment, and room and board for students enrolled at least half time in a degree program.
There are, of course, downsides to using retirement funds for education, the most obvious of which is that the funds would no longer be available for retirement. It is also only IRAs that can be used in this way. Deena’s 401k would not qualify. It might be possible for her to borrow from her vested balance in the 401k to pay for college expenses. Before considering this option though, she should discuss the financial impacts with a financial advisor. Pursuing other student loan options will usually be a better choice.
Another option that is usually better than dipping into retirement savings is opening 529 plans. Although it would have been ideal for them to begin earlier, Greg and Deena still have time to do this. Each parent could open an account for each child and fund the accounts on a regular basis going forward. Any loans or retirement withdrawals would then be only back-up options. If the parents can agree on how much each of them will contribute, they can coordinate setting up the plans with the rest of their asset distribution in divorce.
Including Children in College Planning Discussions
Deena and Greg should also decide how and when to include their children in college planning discussions. Brian will be old enough for that within a couple of years. Lindsey is still young, but because of her disability, her future education may require earlier and more extensive planning. Parents often want children to understand that there is a “cap” on how much they will be able to contribute. The earlier they make this clear, the less likely a child is to become excited about possibilities that do not make sense financially. If children may need to work part time or take out loans themselves, that is another important topic of discussion.
Deena and Greg decide to build future college planning meetings into their MSA. They set three dates, the first for a meeting between the two of them, and the second and third for meetings between both parents and each child. They also agree to add additional meetings with a mediator if necessary to resolve any disagreements. A tentative checklist of topics for the meetings includes the following:
For more detailed information on college planning and mediation, including more on the list of topics to address, see: College Planning and Mediation: Part II.
If you and your spouse or former spouse would like to discuss educational planning for children and mediation with one of our experienced family mediators, take advantage of our initial consultation and contact us today.
Minor Children and Estate Planning in Divorce
In our last post, we looked at how a couple with a complicated estate and grown children could incorporate estate planning into their divorce mediation. In this post, we will look at how a couple with minor children and a simpler estate can consider both estate planning and educational planning as they attempt to settle their divorce.
Deena and Greg have three children, ages 22, 14 and 12. Both parents have similar incomes and plan to share parenting time of the two younger children equally. They are not, therefore, particularly concerned about child support. They are, however, interested in planning for 14-year-old Brian’s and 12-year-old Lindsey’s future education expenses. 22-year-old Molly has already completed college with very little student debt, and they would like Brian and Lindsey to be able to do the same someday. They also have a special concern for Lindsey, who has a visual impairment resulting from premature birth.
Neither Deena nor Greg has any kind of estate plan. Their only substantial assets are a marital home, which they plan to sell, and their retirement accounts, which they fortunately have funded well up to this point. Greg has a traditional IRA and Deena has a 401k. They are concerned not only with their children’s educations, but also their long-term futures, and they are wondering what would happen to these accounts if either of them was to pass away after their divorce. They decide to talk about estate planning first, and then consider how to address educational planning.
Estate Planning Basics
Greg and Deena’s mediator is an experienced family law attorney who also handles estate matters. She advises them that some aspects of estate planning can be coordinated with marital settlement negotiations, while others cannot. She outlines some of the basics for them, including the following:
Intestacy Laws
Once their divorce is final, they will no longer automatically inherit anything from each other under New Jersey intestacy laws. They will also cease to be the beneficiaries of each other’s retirement accounts.
Minor Children and Inheritances
If they do not make separate estate plans after the divorce, and either of them passes away without remarrying, then the children would inherit everything from that parent. Because minors cannot be direct beneficiaries of assets (including so-called “non-probate” assets like retirement accounts), the other parent, as legal guardian, would manage funds for any child still under the age of 18. If the other parent is no longer living, the court would appoint a guardian.
Remarriage
If Deena remarries, her new spouse will automatically become her 401k account beneficiary unless the spouse signs a waiver. This is not something that Greg and Deena can provide for in a Marital Settlement Agreement as it requires the future consent of a third party. This automatic rule does not apply to IRA’s. If Greg remarries, he can continue to designate the children as beneficiaries.
Wills and Guardianship Designations for Minor Children
Wills would not apply to non-probate assets but would allow Deena and Greg to direct distribution of other assets as well as to designate alternate guardians for Brian and Lindsey in the event that the other parent predeceases them.
Living or Testamentary Trusts
Greg and Deena can also consider establishing one or more trusts for the benefit of the children. Either a living trust, or a testamentary trust established under a will, might be appropriate. Trusts have designated administrators (trustees) who manage trust assets for beneficiaries. A trustee could disburse assets to the children periodically. Trusts can also protect assets from creditors. This can be helpful for parents with minor or young adult children and critical for parents with special needs children. Special needs trusts can protect social security disability payments and provide support to a disabled child or adult. It is possible to name a trust as the beneficiary of a retirement account. It is important, however, to first understand the full financial ramifications of such a decision. Both a financial advisor and a trusts and estates attorney can be helpful in this regard.
Life Insurance to Protect Minor Children
Either or both parents can also take out life insurance policies for the children. Life insurance can protect children from potential loss of a parent’s support. This is one of the simplest and most popular options for estate planning during divorce.
Coordinating Estate Planning with Educational Planning for Minor Children
Deena and Greg feel that in their case, estate planning must be intertwined with educational planning for Brian and Lindsey. They therefore decide to move on to discussing educational issues before making any decisions. As their mediator has told them, there are circumstances under which divorced parents in New Jersey may be held responsible for funding post high school education for children. Divorce mediation is therefore a good forum for them to work out any disagreements about future plans. Courts tend to uphold agreements between parents about college education contributions, as long as they are specific and clear. The wording of an agreement is integral to its enforcement, so attorney review before finalization is critical. In our next post, we will look at some of things Greg and Deena will want to keep in mind.
If you and your spouse or former spouse would like to discuss either estate planning or educational planning in divorce with one of our experienced family mediators now, take advantage of our initial consultation and contact us today.
Estate Planning in Divorce Mediation
Couples going through divorce mediation often wish to consider financial matters beyond immediate spousal or child support and property division. Two issues that commonly come up are college planning and estate planning. Not only can such issues impact divorce negotiations, but many divorcing couples are approaching them for the first time and will benefit from the support of a mediator during the process. Even if you already have an estate plan, you will generally need to revise it during divorce. Read more
Beyond Child Support: Educational and Estate Planning in Divorce Mediation
Deena and Greg, who are both in their forties, have recently decided to divorce. They are on good terms with each other, and they believe that they could resolve all of their issues amicably in divorce mediation. They are planning to meet with a mediator together before consulting with separate attorneys. One major concern is bothering them though. How can they plan financially for their children’s futures? Read more
Reducing Conflict in Mediation by Leaving Blame Behind
The New Year is finally here, and many people are more than ready for a new start. If your new start includes moving forward with your divorce, it might be time to take a look at the level of conflict between you and your spouse. High conflict can make mediation less successful, but there are some ways to address this. If your conflict level is high, it might be worthwhile to consider what lies beneath that conflict. Is it based on rational disagreements? Or is it mainly fueled by anger and blame? Once you have answered these questions, you can consider whether or not there are steps you can take to reduce the conflict. Start by asking yourself where you fall on the following spectrum:
How Conflict Affects Mediation
While it is true that high conflict can make mediation less successful, it is also true that the process itself tends to reduce conflict. Starting off with relatively high conflict, therefore, does not necessarily mean that you should give up on the idea. If you can succeed in lowering the temperature of your interactions, you are likely to benefit from the lower expenses, faster time frame, and vastly reduced stress that mediation can offer. How can you do this? The first step is to look more closely at what is going on. Notice that the categories above identify two distinct types of conflict. Differentiating between these is often the key to success.
The Cycle of Blame
The first kind of conflict is interpersonal and is based on blame and anger. Couples who have low or moderate conflict overall generally understand that blame in a divorce tends to be counterproductive. Even if one spouse did, in fact, do something egregious, the other does not want to focus on this and prefers to focus on the future instead. Couples in the high conflict category, on the other hand, tend to actively blame each other. Typically, one spouse believes that the other cheated on them, lied to them, or abandoned them in some way, and uses this to deny parenting time, demand more alimony, deny alimony, or complain about the division of property. The blamed spouse reacts defensively to these provocative moves and tries to turn the blame around onto the other spouse.
Sometimes both spouses blame each other from the outset. Regardless of how the cycle begins, however, it tends to escalate once a divorce is in progress. One spouse might file a fault-based complaint alleging that the marriage failed due to the other spouse’s misconduct. Proving this requires producing evidence of the misconduct. Even if the complaint does not specifically allege a fault ground for the divorce, there are likely to be affidavits full of aspersions against the other spouse. Once the mudslinging has begun—even if it was justified at the start—it becomes hard to stop. The cycle feeds on itself.
Resolving the Cycle
The point is not that blaming your spouse is “wrong.” In many cases, blame is justified. The point is that holding onto the blame is likely to be counterproductive for you. If all you want is for your spouse to acknowledge that they wronged you and apologize, then by all means, ask for that. If you speak authentically from your heart, you might even get it. Or you might not. Either way, the next step is to ask yourself what is best for you. If the answer is that letting go of your anger will benefit you, but you just can’t seem to do it on your own, then individual therapy can help.
If your spouse is the one caught up in blame, you have a harder task, but there are still things you can do on your own. Therapy might help you limit your reactivity and learn better responses to the escalation of conflict. It can be surprising how much a mutual cycle of reactivity can change for the better even if only one party decides to change.
Separating Rational Disagreements from Blame
The second kind of conflict is different. It is based on realistic disagreements with the other spouse. Couples experiencing this kind of conflict usually understand that the division of property should be fair, that support payments should be based on one’s party’s need and the other party’s ability to pay, and that parenting agreements must be based on the best interests of the children. They simply disagree on what is fair, on who needs what, or on what is actually best for those children. Simply having many disagreements about these types of issues does not make mediation a poor choice. In fact, the more complex your divorce is, the more you stand to gain by staying away from the high expenses of the courtroom.
The problem for many couples is that the two types of conflict tend to intersect. If you are focused on blaming your spouse, it can be difficult not to see everything the spouse proposes through a lens of feeling victimized or of wanting to punish the spouse. Couples who are not focused on blame find it much easier to commit to keepings things amicable and fair.
If you are having a lot of trouble coming to an agreement, it might be time to reassess the degree to which blame might be coloring things. You can then take steps to move forward.
Considering a Structured Process
If, in spite of all your efforts, you and your spouse seem hopelessly locked into anger and blame, you still might not have to give up on mediation entirely. You can look into trying a more structured mediation process. Start by finding a mediator who has experience working with high conflict couples. Look for someone who:
Pre-mediation coaching can improve your communication skills and ability to maintain composure under emotional stress, as well as to set and stick with firm personal boundaries. Ground rules and caucuses exist to help participants move forward without getting caught up and bogged down in emotional turmoil. Attorney participation can help everyone focus on the law and separate real issues from reactive responses.
Are you wondering whether or not divorce mediation is right for you? One of our caring and experienced mediators can help you decide. Contact us today for an initial consultation.
Post-Divorce Modification in the Covid-19 Economy
In our last post, we talked about possible ways to achieve a modification of a divorce settlement proposal if your financial situation has changed drastically due to the pandemic. If you have not yet signed a Marital Settlement Agreement (MSA), you have options in addressing property distribution issues such as marital home or business buyouts. If you have already signed your MSA, however, your options are more limited. Read more
Financial Impacts of COVID-19 in Divorce Mediation
Way back in March of this year, which to many of us feels like eons ago, we talked about the importance of addressing the potential financial impacts of COVID-19 in divorce mediation. With the pandemic still raging, unemployment high, and the damage to many businesses ongoing, now is a good time to look a little more closely at what this might mean. Read more
The Mediation Process: How to Finalize Your Divorce
Finally, the day has come. You have hammered out all of your issues and your mediator has drafted a Memorandum of Understanding (MOU). Are you finally done with your divorce? What happens next? If you are both happy with the MOU, then you are almost at the finish line, but not quite. You still have a few loose ends to tie up before you can finalize your divorce. Read more
Reviewing the Mediation Process: Negotiation
In our last post, we reviewed the beginning of the mediation process, including ground rules and opening statements. In this post we will talk about the heart of the process: Negotiating. Read more
Reviewing the Mediation Process – Part I
If you have decided to try divorce mediation, you may still have questions about how the mediation process works. Experienced divorce mediators generally stick to the same basic framework, but within that framework, there are individual differences. Read more