Objective information about retirement, financial planning and investments


Open Enrollment Exploring Your Employee Benefits


This post was written by Katie Brewer, CFP®.  Young, smart financial planners like Katie bode well for the future of the financial planning profession. Her bio and contact information are provided at the end of the post. This post is timely for those of you who are in the midst of open enrollment via your employers and Katie offers some solid tips to consider.

Is that email from HR about open enrollment buried in your inbox? If you wait until the last minute and then race through your choices, you’re not the only one. Almost half of all employees spend 30 minutes or less choosing their benefits every year. And 90% of employees choose the same benefits every year, even though your family and your benefits are constantly changing.


Employee benefits are a large part of your compensation, and it pays to make the right choices for your family. Forty-two percent of employees believe they waste up to $750 a year due to open enrollment mistakes. We’ll explore a few common employee benefits so you can feel confident that you’re making the right choice for you and your family during open enrollment.

Save for Your Future with Your Employer Retirement Plan

Many employers offer a retirement plan to help you save for a comfortable life in your later years. The name of the plan will depend on your employer. Do you have a 401(k), Thrift Savings Plan (TSP), 403(b), or SIMPLE IRA? All of these plans allow employees to contribute to a retirement account on a tax-deferred basis.

You’ll also want to look into the details to see if your employer offers a Roth option. With these plans, you pay tax now, but you’ll be able to take your contributions — and all your earnings — out tax free. It’s nice to have options about how to take money out in your retirement.

Some employers also provide a generous match to employee contributions. If your employer provides a match, you’ll want to take advantage of it. If you get a 50% match on your contributions, that’s a huge return on your money that’s tough to get anywhere else.

Protect Your Income with Disability Insurance

If you review your benefits package, you’ll probably also see some mention of long-term disability insurance coverage. This group coverage is an inexpensive way to make sure you are protecting your income. If you rely on your salary to pay your bills and save for your future, you need insurance to protect against a loss in income. Understanding the finer details will help you make the best choice for your policy.

First, what’s the elimination period (or waiting period)? You’ll want to have enough cash in your emergency fund to bridge the waiting period if you need to file a claim.

Second, is there a way to easily increase coverage? It’s a good idea to cover at least 50% of your income.

Third, do you have the option to pay tax on the premium? If so, that’s usually a good choice. It’s very inexpensive, and it means you’d receive your disability payments tax-free when you need the money the most.

Some employers offer short term disability coverage as well. You should have an emergency fund that will help you ride out any short periods away from work. But if you’re still building up your emergency fund, it can make sense to pay for a short term disability policy.

Look After Your Loved Ones with Life Insurance

Another common employer benefit is to provide some amount of life insurance for employees. It’s usually on the order of 1 to 2 times your annual salary. For most families, this is not enough.

Your employer might offer the option to buy additional life insurance without needing a medical exam at a reasonable cost. If you have medical conditions that make it difficult to get life insurance, this is a great way to increase your coverage.

Now that you know how much life insurance you have, you can also purchase your remaining life insurance on the open market. This is usually a better option as you can take it with you if you leave your job.

Cushion Your Budget with Health Insurance

Health insurance is an important part of your benefit package. You might have several options to choose from, and what plan is the right one for you will change as your family changes.

A low deductible and small co-pay plan with a wide range of specialists is important if you or your spouse are facing health problems.

If you are in good health and have the financial means, a high-deductible health plan might be the right choice. This plan has a high out of pocket deductible, but you’ll pay less in premiums, and you can take advantage of a health savings account.

Health savings accounts (HSA) are a fantastic way to build wealth. With a HSA, you contribute pre-tax money into the account to be invested. The money rolls over from year to year so you can build a balance. You can withdraw the money, including any earnings, tax-free on qualified medical expenses. Very few things are completely income tax-free! This is different than a Flexible Spending Account (FSA) or Health Reimbursement Account (HRA), so make sure you know exactly what type of plan you have.

You might also have the option to participate in a health care Flexible Spending Account (FSA). With a FSA, you put away pre-tax money to cover healthcare costs like co-pays, deductibles, and medications. These plans are “use it or lose it,” so be careful about how much you put in the account. While there’s usually a grace period for spending your funds, you can’t rollover much (if any) to the next year. If you’re at the end of your FSA year, check your balance so you aren’t wasting money.

Be On the Lookout for Other Benefits

Many employers also offer a dependent or daycare flexible spending account (FSA). This lets you put away pre-tax money to pay for expenses related to caring for dependents like kids or an elderly parent. Many parents use a dependent FSA to get a tax break on day care. If you decide to skip the FSA, you might be able to claim a credit on your taxes instead.

Some employers also offer the option of pre-paid legal services. If your family needs estate planning documents or other legal services, this can be an inexpensive way to get these papers in place. Other employers offer free or reduced tuition to college or training programs. Benefits like these can add up to a significant sum.

There’s such a wide variety in employee benefits that it’s difficult to name all the possible benefits you might receive. Read the fine print of your package to make sure you’re taking advantage of every benefit you can.

Make this year the year that you take the time to understand your employee benefits. Employee benefits are an important part of your compensation. Be sure to get what you deserve by making the most of open enrollment.

Katie Brewer, CFP® is a financial coach to professionals of Gen X & Gen Y and the President of Your Richest Life. She has accumulated over 10 years of experience working with clients and their money. Katie has been quoted in articles in Money, The New York Times, Forbes, and Real Simple. Katie resides in the Dallas, Texas area, but works virtually with clients across the country. You can find Katie on Twitter at @KatieYRL and email her at info@yrlplanning.com. 

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.  

American’s Attitudes About Their Money


Americans have varying attitudes about their money. The infographic below sheds light on our attitutudes about our finances across various demographic lines including age and income level.

Please take a look and see how your attitudes about your finances compare.

It’s never too late to get started on your financial plan.  Its never to late to move forward and to take the actions needed to get your financial situation on track whether you need to prepare for retirement or beef up your emergency fund.

Please contact me with any questions you may have or with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

personal finance
Source: Masters-in-Accounting.org


Financial Planning Steps for the rest of 2015


Labor Day is here and the college football season started with our local Big 10 team Northwestern scoring an upset win over a ranked Stanford team. Next weekend is the first full weekend of NFL football with my Green Bay Packers visiting Soldier Field where they should continue their winning streak over the hapless Bears.

With a bit less than a third of 2015 left there are a number of financial planning steps you should be taking between now and the end of the year. Frankly I wrote a similar piece at this time last year Eight Financial To Do Items for the Rest of 2014 and I would encourage you to check this piece out as these eight items are just as applicable in 2015. The eight items (for those who prefer the Cliff Notes version) are:

While all eight of these items are critical financial planning steps to be tended to or at least reviewed this year or in any year, the environment in the financial markets has changed from this time a year ago.

August and so far early September has proven to be a rough patch for the stock market with much volatility and pronounced drops from highs reached earlier in 2015. The financial press is filled with stories about what to do and this has become a major event for the cable financial news stations.

In this context here are a few thoughts regarding some financial planning steps for the rest of 2015.

Get a financial plan in place or update your current one 

To me a comprehensive financial plan is the basis of an investment strategy and frankly all else in your financial life. If you have a plan in place, revisit it. If you don’t this is a great time to find a qualified fee-only financial planner and have one done.

Where are you in terms of financial goals like retirement and saving for your children’s college education? Do you have an estate plan in place?

With the markets taking a breather this is a good time to see where you are and what it will take to get you where you want to be financially. An investment strategy is an outgrowth of your financial plan and this plan is something to fall back on in times of market turmoil like the present.

Review your investments and your strategy 

How has the recent market decline impacted your asset allocation? Does your portfolio need to be rebalanced? Is your asset allocation consistent with your goals, risk tolerance and time horizon as outlined in your financial plan?

While I don’t advocate making wholesale changes to your portfolio based on some temporary stock market volatility it is always appropriate to do a periodic review of your overall portfolio, your asset allocation and the individual holdings in your accounts. These include mutual funds, ETFs, individual stocks and bonds and so forth.

The recent weakness in the markets may have created some opportunities for year-end tax loss harvesting in your taxable accounts. This refers to selling shares that show a loss to realize taxable losses. If you want to do this but also want to continue to own these or similar investments be sure to consult with a financial or tax advisor who understands the wash-sale rules.

More likely you have many investments that have appreciated nicely and these represent and excellent vehicle to make charitable contributions. Not only do you receive a tax deduction for the value of the gift, but you eliminate the tax liability for any capital gains on the holdings. 

Review your 401(k) 

The current situation in the stock market is a good time to check your account and rebalance your holdings if needed. Better yet if your plan offers it sign up for automatic rebalancing so you don’t have to worry about this.

Fall open enrollment is often the time when companies roll out any changes to the plan in terms of the investments offered, the company match or other aspects of the plan. Additionally most plans were required to issue annual disclosures by the end of August so be sure to review yours to see where the investments offered are compared to their benchmark indexes and how much they are costing you.

Lastly check to see how much you are contributing to your plan. If you are not tracking toward the maximum salary deferrals of $18,000 or $24,000 (for those who will be 50 or over at any point in 2015), try to increase your contributions for the rest of 2015.


Labor Day is here and summer is unofficially over. Use the remainder of 2015 to tackle these issues and to get your financial situation where it needs to be.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Check out Carl Richards’ (The Behavior Gap) excellent book The One Page Financial Plan. Carl is a financial advisor and NY Times contributor. This is an easy read and offers some good ideas in approaching the financial planning process. 

8 Year-End Financial Planning Tips for 2014


When I thought about this post I looked back at a post written about a year ago cleverly titled 7 Year-End 2013 Financial Planning Tips.  The year-end 2014 version isn’t radically different but it’s also not the same either.

Here are 8 year-end financial planning tips for 2014 that you might consider:

Consider appreciated investments for charitable giving 

This was a good idea last year and in fact always has been.  Many organizations have the capability to accept shares of individual stocks, ETFs, mutual funds, closed-end funds and other investment vehicles.  The advantage to you as the donor is that you receive a charitable deduction equal to the fair market value of the security on the date of the completed transfer to the charity.  Additionally you will not owe any tax on the gains in the investment unlike if you were to sell it.

This does not work with investments showing a loss since purchase and of course is not applicable for investments held in tax-deferred accounts such as an IRA.  I suggest consulting with a financial or tax advisor here.

Match gains and losses in your portfolio 

With the stock market having another solid year, though not nearly as good as 2013 was, year-end represents a good time to go through the taxable portion of your investment portfolio to review your gains and losses.  This is a sub-set of the rebalancing process discussed below.

Note to the extent that recognized capital losses exceed your recognized gains you can deduct an extra $3,000.  Additional losses can be carried over.  This is another case where you will want to consult a tax or financial advisor as this can get a bit complex.

Rebalance your portfolio 

With several stock market indexes at or near record highs again you could find yourself with a higher allocation to stocks across your portfolio than your financial plan calls for.  This is exposing your portfolio to more risk than anticipated.  While many of the pundits are calling for continued stock market gains through 2015, they just could be wrong.

When rebalancing take a look at all investment accounts including your 401(k), any IRAs, taxable accounts, etc.  Look at all of your investments as a consolidated portfolio.  While you are at it this is a good time to check on any changes to the lineup in your company retirement plan.  Many companies use the fall open enrollment event to also roll out changes to the 401(k) plan.

Start a self-employed retirement plan 

There are a number of retirement plan options for the self-employed.  Some such as a Solo 401(k) and pension plan require that you have the plan established prior to the end of the year if you want to make a contribution for 2014.  You work too hard not fund a retirement for yourself.

Take your required minimum distributions

If you are one of the many people who need to take a required minimum distribution from a retirement plan account prior to the end of the year you really need to get on this now.  The penalties for failing to take the distribution are steep and you will still owe the applicable income taxes on the amount of the distribution.

Use caution when buying mutual funds in taxable accounts 

This is always good advice around this time of year, but is especially important this year with many funds making large distributions.  Many mutual funds declare distributions near year-end.  You want to be careful to wait until after the date of record to buy into a fund in your taxable account in order to avoid receiving a taxable distribution based on a few days of fund ownership.  The better path, if possible, is to wait to buy the fund after the distribution has been made.  This is not an issue in a tax-deferred account such as an IRA.

Have a family financial meeting 

With many families getting together for the holidays this is a great time to hold a family financial meeting.  It is especially important for adult children and their parents to be on the same page regarding issues such as the location of the parent’s important documents like their wills and what would happen in the event of a long-term care situationWhile life events will happen, preparation and communication among family members before such an event can make dealing with any situation a bit easier. 

Get a financial plan in place 

What better time of year to get your arms around your financial situation?  If you have a financial plan in place review it and perhaps meet with your advisor to make any needed revisions.  If you don’t have one then find a qualified fee-only financial advisor to help you.  Just like any journey, achieving your financial goals requires a roadmap.  Why start the journey without one?

If you are more of a do-it-yourselfer, check out an online service like Personal Capitalor purchase the latest version of Quicken.

These are just a few year-end financial planning tips.  Everyone’s situation is different and this could dictate other year-end financial priorities for you.

The end of the year is a busy time with the holidays, parties, family get-togethers, and the like.  Make sure that your finances are in shape for the end of the year and beyond.  

Buying Life Insurance – 5 Questions to Ask


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.  

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Is Your Noncompete Enforceable?


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?

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Six Things Your Divorce Attorney May Not Tell You


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.  In short your attorney may not be well-versed in divorce financial issues.

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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 with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Photo credit:  Flickr

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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 at Holifield – Janich and works in the firm’s Chicago office.  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 djanich@hapc-law.com  or 312-22-4222.  Check out Dan’s profile on LinkedIn as well. Dan is an excellent resource should you find yourself in this position.

Photo credit:  Flickr

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