Objective information about financial planning, investments, and retirement plans

Buying Life Insurance – 5 Questions to Ask

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This is post was written by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client-related issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Here Ike offers some practical advice to anyone who is considering buying life insurance.

Knowing the right questions to ask before buying life insurance is a key issue for consumers, especially considering the significant investment often involved and the exit costs involved in buying the wrong policy.

Covering all the options and nuances available in the life insurance marketplace in anything less than book form is nearly impossible. Here are 5 questions to ask before buying life insurance.

What is my annual premium and can it change?

This is the amount the insurance will cost you every year. In some cases the premium is fixed and in other cases it can change based on variety of factors such as the performance of the stock market and other indices. Make sure you understand your obligations before buying life insurance.   What you will lose or be left with if you don’t make what the policy expected and what was actually illustrated?

What does the policy illustration tell me?

I see lots of bold promises and spit-ball estimations of future performance made by insurance agents. The policy illustration is all that matters, so any conversation about what could happen if the policy exceeds the expectation that the illustration creates is moot; don’t engage in it and instead ask about the “minimum guarantees” if one exists at all. That’s the minimum you’ll earn in the policy if the worst happens. Remember, the column on the far right in most illustrations is the “perfect world” scenario, so look at and have the others explained as well.  Be sure to challenge all assumptions made in the policy illustration, as the saying goes if it sounds too good to be true it just might be.

Does this policy have a cash value?

The cash value is the amount of premium that builds up inside the policy and that may be available to the policy owner in the future. Some policies, like term insurance, have no cash value, while others have it immediately and some build it up over time. Be clear if yours does and exactly when it will be available if you need it and under what terms.

Roger’s comment:  Note that term insurance may be the appropriate vehicle for your needs.  Every situation is different; make sure that you are clear as to your reasons for buying the policy.  Life insurance is often a poor performing, high cost investment or retirement savings vehicle.  It may behoove you to pay only for the death benefit that you need and use more traditional investment vehicles for your investing and retirement savings needs.

Is my policy protected from creditors?

Know what the laws in your state of residence are and if your policy and both the cash value and “death benefit” (dollar amount paid upon your death) is protected by law or not. Asset protection of liquid assets is always a key focus of my concern. If the law is not in your favor, some simple trust planning can often protect your policy from both estate taxes and more active threats.

How long will my policies last, what is my exit strategy?

Again, this goes back to the illustration and specifies how long the coverage will be in place at a specific cost and what the death benefit will be through the term of the illustration. In some cases, keeping the policy alive may have significant increased costs while in others you may be able to reduce the death benefit to keep the premiums level or to stretch the policy for a longer period of years. Find out how flexible your policy will be in the future and weigh that as part of your risk-and-liquidity analysis.

Find out what happens if you can’t or don’t want to continue to make premium payments. With term insurance you usually lose what you paid; that’s OK, think of it the way you might car insurance. Other policies that were structured to have a future cash value or that have a current cash value early on however may have significant “surrender penalties.” Know what happens if you walk away and what options the policy may provide, including the specific surrender penalties that may be imposed in the policy. Do you have a need for life insurance in retirement for example?  The carrier could, for instance, keep all the cash value you built up if you don’t keep it for a minimum number of years.

This list just scratches the surface and is deceptively simple. Our goal here was to introduce some of the key concepts and questions you must be familiar with, so you can do your own due diligence when buying life insurance, whether a simple term policy or a complex premium-financed strategy with a triple-reverse galactic split dollar that includes a trip to the Bahamas to read the policy.

Roger’s comment:  Life insurance is a versatile and often complex financial tool that can have uses in estate planning, asset protection, as a business succession tool, and it can provide a death benefit to your family.  Make sure you fully understand why you are buying life insurance, don’t just succumb to a slick sales pitch.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com. 

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation.  

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Time for a Mid-Year Financial Review

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It’s hard to believe that the first half of the year has come and gone already.  We enjoyed having all three of our adult children home over the holiday weekend.

Financial Review

Mid-year is always a good time for a financial review and 2014 is no exception.  So far in 2014:

  • Various stock market indexes are at or near record high levels. The Bull Market in stocks celebrated its fifth anniversary earlier this year and through June 30 the S&P 500 Index is up 190% since the March 2009 lows.
  • Bond funds and ETFs have surprised us by posting some pretty decent returns.  This is contrary to what many expected, especially in the wake of weak performance in 2013.
  • After largely not participating in the in the strong equity markets of 2013 REITS have been a top performing asset class YTD through the second quarter.
  • Emerging markets equity lost money as an asset class in 2013 and has also staged a nice recovery YTD through the first half of 2014.
  • Small cap stocks have underperformed so far in 2014 after a very outstanding 2013. 

In just about any year at the midpoint there will be asset classes that outperformed and some that have underperformed expectations.  That’s completely normal.  As far as your mid-year financial review here are a few things to consider.  These apply whether you do this yourself or if you are working with a financial advisor.

Review your financial plan 

Whether you do this now or at some other point in the year you should review your financial plan at least annually.  Given the robust stock market gains of the past five years this is a particularity opportune time for this review.

  • How are you tracking towards your financial goals?
  • Have your investment gains put you further ahead than anticipated?
  • Is it time to rethink the level of investment risk in your portfolio? 

Adjust your 401(k) deferral

If you aren’t on track to defer the maximum amount of your salary allowed ($17,500 or $23,000 if you are 50 or over at any point in 2014) try to up the percentage of your salary being deferred to the extent that you can.  Every little bit helps when saving for retirement.

Rebalance your portfolio 

This should be a standard in your financial playbook.  Different types of investments will perform differently at different times which can cause your overall portfolio to be out of balance with your target.  Too much money allocated to stocks can, for example, cause you to assume more risk than you had anticipated.

While it is a good idea to review your asset allocation at regular intervals, you don’t want to overdo rebalancing either.  I generally suggest that 401(k) participants whose plan offers auto rebalancing set the frequency to every six months.  More frequent rebalancing might be appropriate if market conditions have caused your portfolio to be severely misallocated.

Note some investment strategies call for a more tactical approach which is fine.  If you are using such a tactical approach (perhaps via an ETF strategist) you will still want to monitor what this manager is doing and that their strategy fits your plan and tolerance for risk.

Review your individual investments 

Certainly you will not want to make decisions about any investment holdings based upon short-term results but here are a few things to take into account during your mid-year financial review:

  • If you hold individual stocks where are they in relation to your target sell price?
  • Have there been key personnel changes in the management of your actively managed mutual funds?
  • Are any of your mutual funds suffering from asset bloat due to solid performance or perhaps just the greed of the mutual fund company?
  • Are the expense ratios of your index mutual funds and ETFs among the lowest available to you?
  • Has your company retirement plan added or removed any investment options?
  • Is the Target Date Fund option in your 401(k) plan really the best place for your retirement contributions? 

Review your company benefits 

I know its July but your annual Open Enrollment for employee benefits at most employers is coming up in the fall.  This is the time where you can adjust your various benefits such as health insurance, dental, etc.  Take a look at your benefits usage and your family situation as part of your financial review to see if you might need to consider adjustments in the fall.

Review your career status 

How are things going in your current job?  Are you on a solid career path?  Is it time for a change either internally or with a new employer?

A key question to ask yourself is whether you feel in danger of losing your job.  Often companies will time their layoffs for the second half of the year.  Ask yourself if approached with a buyout offer to leave would you take it.

For most of us our job is our major source of income and the vehicle that allows us to save and invest to meet financial goals such as retirement and sending our kids to college.

Start a self-employed retirement plan 

If you are self-employed you need to think about starting a retirement plan for yourself.  The SEP-IRA and the Solo 401(k) are two of the most common self-employed retirement plans, but there are other alternatives as well.

You work too hard not to save for your retirement.  If you don’t have plan in place for yourself it is time to take action.

Mid-year is a great time for a financial review.  Take some time and take stock of your situation.  Failing to plan your financial future is a plan to fail financially.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

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What I’m Reading – Triple Crown Edition

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The Belmont Stakes offers the chance for California Chrome to become horse racing’s first Triple Crown winner since 1978.  Win or lose he is destined for nice life after racing as he will surely command enormous stud fees that will enrich his owner’s.  We will certainly be watching and rooting for him.

Kentucky Derby 2014-0186

Here are some financial articles that I’ve read lately that you might find interesting and useful. 

Stan Haithcock offers some great insights for annuity holders in How to evaluate your annuity contract at Market Watch.

There is a new king in terms of 401(k) assets as reported in Vanguard Passes Fidelity to Become Number One in 401(k) Assets at Bloomberg.

Jim Blankenship shares Mechanics of 401(k) Plans – Loans  shedding light on this often misunderstood aspect of 401(k) plans at Getting Your Financial Ducks in a Row.

Scott Holsopple explains What to Do With ‘Orphaned’ 401(k)s at US News.

Russ Thornton discusses The Lifestyle Cost Of High Investment Expenses at Wealthcare for Women.

Michael Zhuang declares Variable Annuity: Bad Investment! at Investment Scientist.

Mike Piper of Oblivious Investor always does an excellent job of explaining complex topics in easy to understand terms, so consider checking out his latest book.

If you are new to The Chicago Financial Planner here are our three most popular posts over the past 30 days:

Financial Advisors to Follow on Social Media

Life Insurance as a Retirement Savings Vehicle – A Good Idea? 

Peyton Manning and Investment Success

I hope you enjoy some of these articles and hope you have a great weekend.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

  

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

Photo credit:  Flickr

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What I’m Reading – Memorial Day Edition

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The Memorial Day weekend is looking like a good one in terms of the weather here in the Chicago area.  It should be a great weekend for family fun and for any activities that you may have planned.  Let’s not forget what Memorial Day is all about though and give thanks to our current and former members of the military for all they have sacrificed for us.

Here are some financial articles that I’ve read lately that you might find interesting and useful.  

Josh Brown offers his unique insights into the thought process behind brokers who sell non-traded REITS to clients as only he can in Scenes from an Independent Brokerage Firm at The Reformed Broker.

Wade Slome discusses the Rise of the Robo-Advisors: Paying to Do-It-Yourself at Investing Caffine.

Jim Blankenship shares Mechanics of 401(k) Plan – Vesting shedding light on this often misunderstood aspect of 401(k) plans at Getting Your Financial Ducks in a Row.

Ryan Guina offers the AAFES Coupon Guide – How to Save Big at the Exchanges a guide to savings for eligible shoppers at the Army Air Force Exchange service at The Military Wallet.

Emily Guy Birken discusses What You Need to Know About Disability Insurance for the Self-Employed at PT Money.

Mitch Tuchman tells us that Advice seekers retire with 79% more money at Market Watch.  Food for thought for retirement investors.

Russ Kinnel tells us to Lower Your Fees, Boost Your Returns at Morningstar.  Always good advice for mutual fund investors. 

If you are new to The Chicago Financial Planner here are our three most popular posts over the past 30 days:

Life Insurance as a Retirement Savings Vehicle – A Good Idea? 

Financial Advisors to Follow on Social Media

Peyton Manning and Investment Success

I hope you enjoy some of these articles and have a great holiday weekend.

Looking for a good read this weekend, check out Still Standing by Major (ret) Steve Hirst. Steve was a year behind me in high school and was severely injured in an auto accident while serving in Alaska in the mid 1990s. The book is well written and provides an inspriational account of his long road back and some of the obstacles Steve faced along the way.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

 

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

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What I’m Reading – Mother’s Day Edition

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Started out as a beautiful Sunday here in the Chicago area for Mother’s Day, though it’s starting to look like rain.  To all of the Mom’s out there I wish you a Happy Mother’s Day.

Here are some financial articles that I’ve read lately that you might find interesting and useful.   

Jason Hull explains Why Soldiers Need Financial Help at Financial Planning online. A real eye-opener for me.

Glen Craig discusses Lifestyle Inflation: The Silent Killer of Your Finances? at Free From Broke.  This is a real issue for many at all stages of their lives.

Robert Powell writes Retirement investing: Don’t go it alone at Market Watch.  You may well need a financial advisor to help accumulate enough for retirement and to give yourself some financial peace of mind.

Christine Benz shares Concerned About Longevity: 4 Mistakes to Avoid at Morningstar.com.

Trading rules for the newly enthuasiastic retail trader provides a great discussion of renewed interest in the stock market at its current high levels and  some rules new retail stock traders should keep in mind at Abnormal Returns.

3 generations face USA’s retirement crisis is discussed at USA Today.

Jason Zweig asks Just How Dumb Are Investors? in the context of variations in the returns of many individual investors compared to popular benchmarks like the S&P 500 at The Wall Street Journal.

Here is my latest for the US News Smarter Investor blog 3 Things to Know About Bond Funds.  The environment for bond investors going forward will be challenging to say the least.

If you are new to The Chicago Financial Planner here are the three most popular posts over the past 30 days:

A Pre-Retirement Financial Checklist

Life Insurance as a Retirement Savings Vehicle – A Good Idea? 

4 Signs of a Lousy 401(k) Plan

I hope you enjoy some of these articles and have a great rest of your weekend.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services

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Is Your Noncompete Enforceable?

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My thanks to Chicago attorney Daniel N. Janich for contributing this post with his thoughts and suggestions on what you should do if you find yourself dealing with a noncompete agreement from an employer.  While a career management post might seem out of character for this blog, in reality for most of us our earning potential is a key driver in our ability to accumulate assets for financial goals like retirement.

So you decided that a job change is in order and you embark on the adventure of finding your new position. Suddenly you remember that when you were first hired or sometime during your employment you signed an agreement with your current employer that included a noncompete provision prohibiting you from taking employment elsewhere for a specific period of time and within a certain geographic area following your employment termination. Perhaps you realized this when you interviewed at your prospective employer, who mentioned that you would need to sign a declaration that you are not subject to a noncompete should you be offered and accept employment with the company.

Most likely you did not pay close attention—or perhaps none at all—to this provision when you first accepted employment at your current employer or when a separate document entitled “Noncompete” was circulated sometime after you were already hired and working at your current employer. No matter the circumstances of your signing this agreement, you are now worried about its impact on your new job search, your ability to obtain other suitable employment within a reasonable time after you resign or may be let go from your current job, and your own risk tolerance if you’re tempted to simply ignore the language in your noncompete where your current employer threatens you and your new employer with a lawsuit for its violation.

What should you do if you find yourself in this position? How will you know if you have a good reason to worry whether your current employer can enforce the noncompete against you? When is it best for you to consider whether to hire experienced legal counsel to help you ferret out your options, i.e., ignore the restrictions in the provision, beat your current employer to the courthouse and seek a court declaration of unenforceability, contact your current employer to seek a partial or complete waiver of the restriction, or strictly adhere to its terms during the stated relevant period that it is enforceable?

The following discussion is intended to provide you as the employee subject to a noncompete, with a general outline of how to assess whether your noncompete is enforceable and when it might be advisable for you to seek experienced legal counsel to help you minimize your risk before making your move.

Three Factors Courts Generally Consider 

At the outset it is important to emphasize that the laws governing the enforceability of noncompete provisions—whether embodied in a statute or developed by case law or perhaps from both–are not uniform. One court’s decision about enforceability may be entirely at odds with that of another court—even among courts located within the same state—and even involving identical noncompete provisions. Some states are known to strictly uphold these provisions while others—notably California—and Massachusetts may soon join California— by statute prohibit their enforcement all together. Confusing? Perhaps. Notwithstanding this apparent confusion, there is a common set of factors that courts typically will look for and apply in their analysis of the specific facts involved.  These factors are outlined below:

In general, courts address the enforceability of a noncompete provision using a 3-prong test that examines whether:

  • the employer involved has a legitimate business interest that needs to be protected;
  • enforcement of the noncompete as written will create an undue hardship on the employee; and
  • the geographic and time period restrictions are reasonable.

Each of these factors is examined in the specific factual context of the employee and employer involved in the matter. Thus, there is no “magic language” that all employers may use which would establish the enforceability of the noncompete in all factual circumstances. However, in general, courts have suggested that the absence of one or more of these factors may be enough to render the noncompete unenforceable.

#1.  Does the Employer Have Protectable Business Interest?  Whether the employer has a protectable business interest is determined by assessing whether the employee (you) gained “confidential” information through your employment such as trade secrets, customer lists, financial information that would otherwise not be available to the public and if disclosed to a competitor would endanger the employer’s business position. In cases involving customer lists, Illinois courts have also examined whether the employer’s relationships with its customers are nearly permanent.  An employer who cannot affirmatively establish these criteria quite likely would have a difficult time proving that it has a legitimate business interest that needs to be protected by a noncompete.

#2.  Will the Noncompete Pose an Undue Hardship for the Employee?  Even assuming a legitimate business interest, if the noncompete will virtually preclude the employee from earning a living through using his or her primary skills and experience in the workplace with other potential employers (all competitors), it is likely that most courts would find that the noncompete creates an undue hardship on the employee. In such a case, the noncompete would be considered unenforceable. 

#3.  Is the Scope of the Noncompete Reasonable?  This relates to the geographic reach and duration of the noncompete. What is acceptable in one industry may not be acceptable in another. Illinois courts, for example, have found 12 months to be a reasonable duration in many industries. However, in the tech industry 12 months may be a “lifetime” due to its fast paced nature of development, and thus such duration may be unenforceable. The geographic limits must also bear some semblance to where your current employer operates or is expected to operate in the foreseeable future.  If your noncompete covers all of Illinois, for example, you should ask: Does the company do business throughout Illinois? Is it expected to establish business operations in other parts of the state sometime in the next few years? If not, the geographic limit used may be inappropriate and therefore overly inclusive thus rendering the noncompete unenforceable. 

Employees May Be Able to Take Advantage of a Poorly Drafted Provision 

An unclear or vague noncompete provision may also be unenforceable. A noncompete is unclear or vague when the employer is unable to specifically identify: 1) which particular interest is being protected; and/or 2) who the competitors are from an industry wide viewpoint. In such cases courts are inclined to find that the employee should not be bound by the noncompete because the employer who drafted it in the first place did not give the employee sufficient information as to what his/her obligations were under the contract. 

Employers Must Provide Adequate Consideration for an “At Will” Employee to Sign a Noncompete

Courts are increasingly scrutinizing the enforceability of noncompete provisions in new hire situations where the employee is “at will.,” i.e., can be fired at any time. Specifically, courts are questioning whether it is fair to jeopardize an employee’s future employment opportunities as soon as s/he is hired by virtue of the noncompete if the employer reserves the right to terminate that employee at any time, including the right to terminate the worker’s employment immediately after signing the noncompete.

Non-competes Appear in Other Employment Related Agreements 

Often noncompete provisions will find their way into other employment related documents where additional benefits are being provided, such as a grant of employer stock or stock options. In such cases, courts have generally upheld these agreements as enforceable without engaging in the same scrutiny as when an employee’s continued livelihood is at stake because the violation of a noncompete in such cases simply results in a forfeiture of the employee’s vested interest in the stock or stock options. Generally, as an employee you must be mindful of all agreements that you are subject to that contain a noncompete provision and be aware of the consequences of violating it.  In cases where you have to forfeit benefits because you accept employment with a competitor, you want to negotiate a harder bargain with your new employer to make up for the anticipated loss involved in forfeiting appreciated stock grants.

In sum always be aware and wary of anything an employer may want you to sign as there are always consequences in doing so.

Daniel N. Janich is a Partner in the Employee Benefits and Executive Compensation Practice Group at Greensfelder, Hemker & Gale, P.C. in Chicago.  He has extensive experience representing clients in a broad range of benefits and compensation matters, including the drafting, negotiation and litigation of employment agreements and separation packages.  He can be reached at dnj@greensfelder.com or 312-558-1070.  Check out Dan’s profile on LinkedIn as well. Dan is an excellent resource should you find yourself in this position.  Also check out Dan’s prior contribution to this blog YOU RECEIVED A PINK SLIP AND SEPARATION AGREEMENT – NOW WHAT?

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

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What I’m Reading – March Madness Edition

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It’s a bit of a lazy Sunday here and I am half surfing the web and half watching the NCAA Men’s basketball tournament.  I’m not the college basketball fan that I once was, but I still love March Madness and watch every game that I can.

In 1939, H.V. Porter of the IHSA coined the te...

Here are some financial articles that I’ve read lately that you might find interesting and useful:

The Ultimate Guide to Understanding Your 401(k) A great piece loaded with information for those who might be new to 401(k) investing or who just want to learn a bit more by Harry Campbell on his blog Your Personal Finance Pro.

Five strategies to get the most Social Security another excellent and informative piece by Robert Powell at Market Watch.

And You Thought Just Tuition Was Expensive a nice piece on the Morningstar site that discusses how college expenses other than tuition can really put a strain on parents and students trying to pay for college.

Are You Paying Too Much For Mutual Funds?  Dana Anspach does a good job of addressing this important question at U.S. News.

The IRS Releases Their “Dirty Dozen” Tax Scams for 2014 was featured on Jim Blankenship’s excellent blog Getting Your Financial Ducks in a Row.

Americans and Retirement: 3 Worrying New Findings discusses EBRI’s most recent Retirement Confidence survey on Wall Street Cheat Sheet.

If you are new to The Chicago Financial Planner here are the three most popular posts over the past 30 days:

Your 401(k) is not Free

Life Insurance as a Retirement Savings Vehicle – A Good Idea?

7 Retirement Investing Tips

Well that’s it I hope you enjoy some of these articles and the rest of your Sunday.  I’ve watched a couple of good tournament games so far with hopefully more to follow.  Cool and sunny here today, but none the less good grilling weather, chicken is on the menu for tonight.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or check out the selections in our Book Store.

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Six Things Your Divorce Attorney May Not Tell You

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This post was written by fee-only financial advisor Michelle Fait.

You may think coming to terms in your settlement puts the work of your divorce behind you.   The good news is, for the most part that’s true.  But before you pay that final invoice to your attorney, make sure you cover the following issues.  Your divorce attorney is trained in family law and the drafting of documents, but may not be as savvy in making sure those paper promises in your settlement are implemented, and that can put a bump in your path to a new life.

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You May Not Be Able to Cancel Your Own Credit Card

If you are the secondary person (your name is listed second) on a joint credit card, the credit card company may not recognize your authority to close the account, even though you would be liable for any charges to it.  Make sure your attorney arranges for your ex-spouse to contact the credit card issuer to close your joint account, and ask for written verification of its closure.

Your Divorce May Not Trigger COBRA Eligibility

If you are expecting to be eligible for COBRA after your divorce, your ex-spouse’s benefits department will have to acknowledge that you are terminated from their plan. Unfortunately, you may not be able to do this directly.  Have your attorney ensure that your ex-spouse terminates you from the employer’s health care plan if you intend to move to COBRA, and coordinate this termination with your new coverage. Otherwise, you may have to appeal to the state authority and could risk losing your eligibility.

The Small Stuff Might Be Big

All those times work interfered with vacations or holidays?  All those business trips?  Your spouse may have a valuable stash of frequent flyer miles and vacation pay that should factor into your financial settlement.  Ask for an accounting of this information from the employer for accumulated vacation pay, and of your spouse for information on any frequent flyer accounts.

Here are Your Assets – Would You Like a Tax Bill With That? 

Especially with a rising stock market, you may be awarded assets that have an unrealized capital gain.  When sold, these assets could trigger a nasty tax bill for which you alone will be responsible. Your attorney might not assess your assets keeping in mind any tax liability that goes with them.  Consult with a CPA or other tax professional to calculate the after-tax value of any non-retirement assets you are splitting with your ex-spouse.

Filing a Joint Tax Return May Save You Tax But Cost You Anyway

Filing a joint return will almost always be more beneficial from a tax standpoint than filing separately.  But first make sure you are comfortable that all information has been disclosed.  You may not have knowledge now of any information that leads to an audit and/or tax bill and penalties later on, but you will be responsible for it nonetheless by signing a joint return.  In addition, be sure to ask for half of any refund or otherwise ask for consideration in exchange for the benefit of filing jointly. 

You May Not Have All the Facts

If you suspect your soon-to-be former spouse has not been forthright in disclosing information, have your attorney demand a credit report to check on any and all accounts that your spouse may have.  Follow-up with a request for statements for any accounts you don’t recognize.

Divorce is a difficult process at best.  But don’t be surprised by what your divorce attorney may not tell you – or know.  Their main responsibility is helping you through the legal maze of divorce.  Tax advice, health care insurance eligibility, and even estate work may not be their purview, but issues in these areas will impact your settlement and you must be vigilant in seeking the right expertise.

Michelle A. Fait, MBA, CFP®, EA founded Satori Financial LLC in 2001.  Michelle is a CERTIFIED FINANCIAL PLANNERTM professional (CFP®) with expertise in investments and tax.  She holds an MBA in Finance from Yale University, a bachelor’s degree in Economics from U.C. Berkeley, and is an IRS Enrolled Agent.  Her experience includes work as an investment banker in New York and Seattle for a major broker-dealer, and work for two start-up companies.   Immediately prior to founding Satori, she served as Treasury Manager for Starbucks Coffee Company, where she was responsible for cash and investment management and financial risk management. 

Satori Financial LLC is a boutique fee-only financial advisory firm that works with clients who want a partner to help them organize, simplify, and manage their financial lives in today’s chaotic world. Satori focuses its work on the planning needs of clients who are single, whether by choice or by chance, particularly those beginning again after divorce, and working professionals who want to outsource help with their financial lives.  Michelle is happily divorced and living in San Francisco.  You can reach Michelle at (206) 320-9263 and michelle@satorifin.com. You can follow Satori on FaceBook, its blog Eyes Wide Open, and Michelle’s crazy single life (along with the occasional tax tidbit) on Twitter: @michellefait

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

Photo credit:  Flickr

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YOU RECEIVED A PINK SLIP AND SEPARATION AGREEMENT – NOW WHAT?

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The end of the year is a time to celebrate the holidays with family and friends.  Sadly it is often the time of year when many employers look to reduce employee headcount.  My thanks to Chicago attorney Daniel N. Janich for contributing this guest post with his thoughts and suggestions on what you should do if you find yourself being let go by your employer now or at some point in the future. 

Okay. So you have just been notified that your employment has been terminated. Perhaps you just came back from a meeting with the boss, or you received an email or other written notice from the HR department simply informing you to clean out your desk.

Lady Justice

 

Overcoming the initial shock

After overcoming the initial shock of this news, you soon realize that you were handed some papers from your employer to sign. Among them is a proposed separation agreement with the terms of your severance package.  Upon your brief initial review of the agreement you learn that you will receive your severance only if you agree to sign a release.

What are the issues that you should watch out for before putting pen to paper? Should you sign the severance agreement “as is” or do you believe you have any leverage to negotiate for a better deal and perhaps modify some of its terms?  What should you do before signing a separation agreement?

First, before doing anything else, thoroughly read through the entire separation agreement.  Make notes if necessary of provisions which may be of concern or which you do not understand or you think you might want to modify or even delete. You should also review any other employment or compensation related agreements that you may have signed with your former employer in the past as well as your Employee Handbook. The purpose of this review is to ensure that all the terms in your separation agreement are consistent with those in other documents. If they are not, your separation agreement will most likely expressly provide that its terms supersede those of any earlier agreement or understanding, thus effectively nullifying these earlier agreements if and when you sign the separation agreement.  In such case you need to be keenly aware of exactly just what it is that you are giving up by signing the separation agreement.

If you are at all uncomfortable with any of the provisions in the separation agreement, and there is a big enough severance amount involved in your deal, you will likely benefit by hiring an experienced attorney to review the agreement for you and provide you with an analysis and recommendations. You may also want the attorney to negotiate with your former employer on your behalf. The fees involved may be money well spent because you will be made aware of potential problems with the agreement that you did not spot on your own, and you will be provided with practical solutions that will not only preserve your severance benefits but might also provide you with more favorable terms for your agreement. Additionally, the attorney may also uncover claims against your former employer you may not even been aware you had.

Review the agreement

Second, regardless of whether you hire an attorney, determine if the agreement presents issues that either need to be resolved or clarified before you are ready to sign it. Here is a list in no particular order of importance—and by no means exhaustive—of the typical provisions in a separation agreement which might cause problems for employees, and therefore, which you should review very carefully:

  • Termination date.  Your termination will end your participation in the company’s benefit plans.  When will you be required to transition your health coverage under COBRA?   Under COBRA the entire cost of your health insurance premiums under the company’s group coverage will generally be paid out of your own pocket. (See COBRA discussion below).
  •  Severance amount.  Is your severance consistent with the company’s severance policy and practice? Are you being downsized and perhaps entitled to participate in a company sponsored severance plan?  Is the severance amount that is being offered sufficient to justify you signing a release?
  • Method and manner severance is to be paid.  For how long will you be receiving severance payments?  Does the structure of your severance payouts comply with Internal Revenue Code Section 409A’s deferred compensation rules? (Ask the company’s HR department or your lawyer about this issue as the penalties for non-compliance could be great.) When will severance payments begin and under what circumstances might they end before you receive the entire amount?
  • Scope and duration of the noncompete. A noncompete provision in your separation agreement means that you might be prevented from seeking other viable job opportunities in your field within your former employer’s industry for a certain period of time and within a designated geographic area after signing the separation agreement. What is the duration of your noncompete? How big is the geographic area?  You should ascertain whether you could obtain a waiver of these restrictions if necessary.
  • Nondisparagement.  Will you be prevented from saying anything negative, even if it is truthful, to anyone either orally, in writing or through social media regarding your former employer or the products and services provided by your former employer?  Is this provision mutual, which would prevent your former employer from saying negative things to others about your character or job performance? Should you negotiate receiving a letter of recommendation from your former employer or a positive recommendation if a prospective employer should contact your former one?
  • COBRA coverage.  When will your COBRA coverage begin? Have you received your COBRA notice and election form? When is your election form due?  When is your first premium payment due? You might be able to negotiate that a portion of your COBRA premiums be subsidized by your former employer.  Are there any circumstances that might extend your COBRA coverage, if necessary, beyond the initial 18 months following your employment termination?
  • Continuing Cooperation.  Are you required under the separation agreement to be available to your former employer if needed as a witness or to participate in a legal investigation on behalf of the company?  If so, how will you be compensated for your time and your out-of-pocket expenses?  Is there flexibility in the amount of time you are required to provide and when you must make yourself available to your former employer?
  • Scope of general release.  Is the general release that you are required to sign prepared broadly to cover any possible claim of any kind and at any time in the past, present or future, in connection with your former employer?  Or does it address only claims relating to your employment relationship and its termination?  When must you sign and return the release? Is this at the same time as the date your separation agreement must be signed and returned?

Some additional pointers

If the provisions of your separation agreement require negotiation of its terms, then you should seek at the outset a written extension of time to sign and return the separation agreement and release.  In fact, it is a good idea to obtain a written  extension as soon as the need for it is apparent to give you sufficient time to resolve issues of concern in the agreement or release without undue pressure to accept terms you might not otherwise agree upon simply to avoid forfeiting the severance amount that was offered to you.

Prior to signing any release you should consider and discuss with your attorney whether you have any potential claims—which would most likely be employment or benefit related—that you would be giving up by signing the release.  Your attorney should confirm with you after reviewing your employment related documents, including your written employment agreement if any, and copies of any retirement or welfare plan documents, as to whether the severance payout under the separation agreement is a sum that justifies your signing the waiver of claims under the release.  To this end, any compensation and benefits that you already earned prior to the termination of your employment should not be counted as part of your severance amount.

If you are participating in various stock-based compensation plans and programs, you should assess prior to signing your separation agreement whether you are “leaving money on the table” in the form of appreciated but unvested shares, options or units as of your effective termination date.  If so, you may consider whether some or all of your unvested interests can be vested as of your termination date, or whether you can receive an extra amount of cash to compensate you for this forfeited benefit.

Your qualified and non-qualified retirement benefits are generally governed by plan documents other than your separation agreement. Again you will need to assess whether and how your employment termination will affect your vested interest in these retirement plans. Although not of immediate concern, you should also eventually determine whether it might be best to rollover any retirement benefits from your 401(k) plan into an IRA or another 401(k) of your next employer.

Before signing the release you should understand exactly what it is you are signing.  Once the release has been signed, you will have permanently given up your rights in exchange for the severance payment agreed upon in the separation agreement.  There cannot be any lingering doubts or other second thoughts about whether you should have signed the separation package and release.  Once it is done there is no looking back.

This blog post is certainly not intended to be a complete discussion of all potential concerns and issues that may arise in connection with your decision whether to sign the proposed separation agreement.  In fact, your circumstance may call for your separation agreement to be dealt with differently from the way your co-worker deals with an identical separation agreement.  That is why when your livelihood and rights are at stake, consulting with an experienced attorney may, in the long run, be the right decision for your career.

Daniel N. Janich is a Partner in the Employee Benefits and Executive Compensation Practice Group at Greensfelder, Hemker & Gale, P.C. in Chicago.  He has extensive experience representing clients in a broad range of benefits and compensation matters, including the drafting, negotiation and litigation of employment agreements and separation packages.  He can be reached at dnj@greensfelder.com or 312-558-1070.  Check out Dan’s profile on LinkedIn as well. Dan is an excellent resource should you find yourself in this position.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

Photo credit:  Flickr

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