After you have divided your joint assets according to the terms of your separation or divorce decree, it’s a good idea to close any joint bank and investment accounts you have with your ex-spouse. You should also cancel any joint credit cards and apply for an individual credit card if you don’t already have one.

It is important to separate your credit history from your spouse’s so that future reports will be based only on your own credit use. Once your divorce is final, you should notify the major credit bureaus. You should not have any joint credit accounts with your former spouse.

Update Your Beneficiaries

If your spouse is an heir in your current estate plan, you should revise your will to name another beneficiary (or beneficiaries). Since marital status is often a key factor in planning an estate, you should review your present plan with your professional advisor to adjust for your new situation.

The person you’ve named as the beneficiary of your 401(k) plan or other tax-deferred retirement plan will automatically receive all the funds in your account after your death. A divorce or other agreement generally has no effect on a beneficiary designation. Therefore, as soon as your divorce becomes final, you should give your plan administrator a new beneficiary’s name. Be sure to change the beneficiary on any Roth or other IRAs you may have.

The change in your marital status may also require a reevaluation of your life insurance policies and beneficiary designations.

Get Your Paperwork in Order

In addition to making sure you have copies of all your important legal and financial information, here’s a document you will require in your new life—a Qualified Domestic Relations Order (QDRO).

A divorce settlement often determines how any anticipated future pension and/or retirement plan benefits will be divided. You may receive part of your ex-spouse’s retirement benefits, or your ex-spouse may receive part of yours. However, until an employer receives the QDRO, they cannot distribute retirement plan benefits to a former spouse. If you are to receive benefits from your ex-spouse’s plan, obtain a QDRO and make sure that the plan’s administrator receives it.

Seek Professional Assistance

A divorce or separation may give rise to numerous legal, financial, and tax issues. Professional advisors can assist you in these areas, as well as with the following:

• Income and expenses: You may need to assess your needs and revise your budget as you transition from two incomes to one.
• Investment strategy: You may want to shift your investment goals, in which case you’ll need a new investment strategy.
• Social Security: Your ex-spouse’s work record may entitle you to receive a benefit once you are at least 62 years old and meet the law’s conditions.
• Taxes: There could be income tax implications in your division of assets. For example, tax liabilities may leave one of you with fewer net assets than the other, even though it seems as if property is being equally divided.

Divorce can be a difficult time, but if you can look calmly at your financial future, you’ll be better off years down the road.

The first step to create an estate plan is to compile a complete inventory of your assets and liabilities. This includes your primary residence and any additional homes, investments, bank accounts, family-owned businesses, and the cash value of your life insurance. Review all titles to determine ownership. Don’t forget personal property, such as antiques, jewelry, and other collectibles.

Second, review your beneficiary designation on all retirement accounts, annuities, and life insurance contracts. This seems obvious, but not naming beneficiaries is a common mistake. It’s also wise to name a contingent beneficiary.

Lay the Foundation with a Will

A will is your opportunity to protect your family’s future. In your will, you specify exactly what you want to happen to your assets after you die. With a will in hand, your family can avoid the delays and expenses of you dying intestate (without a will).

A will achieves three things:

• It states how you want your property distributed when you die.
• It names an executor or personal representative to settle your final financial matters.
• It names a guardian for any minor children or adults with special needs.

Keep in mind that if you don’t name an executor, the probate court will appoint someone to manage and distribute your property. A court-appointed administrator probably won’t know your family and their needs the way your executor would know them.

There Are Some Things a Will Can’t Do

Your will is no help if bad things happen to you during your lifetime. Fortunately, there are other estate planning tools, called advance directives, that can help.

• A living will spells out the conditions for receiving life-sustaining treatment. This document provides guidance for family members during an emotionally trying time.

• A durable power of attorney for health care (also called a health care proxy) authorizes a trusted person to make medical decisions for you if you’re unable to make them yourself.

• A durable power of attorney for finances names someone else to act for you in financial matters if you become incapacitated.

Clearly defining your choices and identifying who can make decisions for you is an important part of any estate plan.

Consider A Trust

If you already have a will, why create a trust? Like a will, a trust transfers property. But, unlike a will, a trust can take effect at any time to distribute and manage assets and save taxes. If you have a sizeable estate, a trust may offer significant benefits. A trust can provide lifetime income to an individual and eventually pass the remaining property to heirs. A trust can also ensure professional asset management, protect assets for financially inexperienced beneficiaries, and help you take advantage of tax law benefits to reduce estate taxes.

There are several types of trusts, but all are based on one of three models.

• A testamentary trust is created by your will and funded by your estate. Its goals are to save estate taxes and provide long-term management of estate assets.

• A living, or inter vivos, trust is established during your lifetime to manage assets and transfer property outside of probate.

• A pour-over trust is created during your lifetime but funded after you die with payouts of pension benefits, life insurance, or other property that you haven’t specifically transferred to a person by gift, trust, or will.

Determining the right kind of trust for your personal circumstances is complex and requires professional guidance.

Make a Plan and Keep It Current

Once you have an estate plan in place, you should review it regularly or as your circumstances change, such as births, deaths, marriages or significant changes in your financial life. An estate plan is a wonderful opportunity to take care of the people who mean the most to you.

This article is intended to provide you information about estate planning and is not intended to imply legal advice. You should contact an attorney to discuss your specific situation.

A letter of instruction can save your loved ones time and money. It can also help to avoid misunderstandings and hurt feelings. Once the letter is provided to your heirs, everyone involved will understand why you’ve divided your assets as you have.

Your letter of instruction should cover all of the following:

• The immediate concerns of your death and burial. You should provide instructions about organ donation, funeral services, burial, obituaries and any other actions you would like to have carried out at the time of your death.
• A complete list of all assets. This should include valuables and personal property, not just financial assets.
• An explanation of how your will disperses sentimental assets or heirlooms. These are often the items that can lead to confusion or conflict among your heirs. Explaining how and why you have divided your personal property can help your heirs better understand and accept the dictates of your will.
• Financial account information to help your executor find and access your accounts. Bank/investment account numbers, passwords, PINs and other information can expedite the execution of your estate. You should also point your executor to where you store financial records and legal statements, including the location of your safe deposit box.
• Contact information for designated beneficiaries.
• Information about your wishes regarding the care of your pets.
• Information about how you would like a professional practice or intellectual property handled.
• Specific instructions about care of a minor child or an incapacitated adult child. While this should be laid out in your will, the letter of instruction allows you to explain in more detail your goals, philosophies, aspirations or concerns for the child.

Your death will no doubt be an emotional and difficult time for your loved ones. The letter of instruction can take some of the confusion out of the process. It also allows you to share a final word with them, through a personal message of your wishes and your intent.

The complexity of your estate and your family situation will determine what you need to include in your letter and how long or detailed it should be. Just like your other estate planning documents, your letter of instruction should be reviewed and updated regularly and should be stored in a safe place that is accessible to your relatives or executor.

This article is intended to provide you information about estate planning and is not intended to imply legal advice. You should contact an attorney to discuss your specific situation.

How can you overcome your prehistoric conditioning? Keep this one simple fact in mind. People who wait out market volatility have, over time, tended to make more money than people who cut and run.

Here’s a hypothetical example. Let’s start at the market peak of October 2007 with a 60/40 index strategy portfolio of $100,000. Lehman Brothers collapsed in September 2008—a defining moment in the great financial crisis of that year. At that point, investors were faced with three choices:

Option 1: Stay the course and make no changes at all. At the end of 2010, this portfolio would have been valued at $104,502.

Option 2: Pull out of the 60/40 portfolio and go straight to a cash portfolio. By the end of 2010, this portfolio would have been whittled down to $85,469.

Option 3: Pull out of the 60/40 portfolio and put your trust in Treasuries. At the end of 2010, this portfolio would have decreased to $94,451.

(Source: Russell Investments)
The lesson here is that a balanced portfolio will usually recover a greater percentage of its lost value, and at a faster rate, than an investment strategy based on all cash or all Treasuries.

When the market goes haywire, get your neocortex back in the game. I am always happy to talk about your investing hopes and fears. We can look at past market declines and see how the subsequent rebound played out. We can’t predict the future, but we can work together to imagine what might happen and what we can do about it.

Politicians like to talk about cutting spending. All you have to do is cut spending on the wasteful programs and our deficit will disappear, right? Spending is certainly part of the equation. But revenue is an equally important part.

According to the U.S. Office of Management and Budget, the federal government since the end of World War II has had an average annual “income” (from taxes and other sources) of approximately 18% of our gross domestic product (GDP). At the same time, the government has been busy spending 20% of GDP. You wouldn’t want to run your household checkbook like that, but it works for Uncle Sam.

In 2010 the federal government spent $3.5 trillion. The top three expenses were Social Security (20.4%), defense (20.1%), and Medicare (13.1%). In fifth place was interest payments on the federal debt (5.7%), topping even low-income assistance (5.3%) and unemployment compensation (4.6%).

The economic collapse of 2008 accelerated government spending. Some of this spending was the result of policies that had been set in motion before the collapse. Some was automatic, as more people ran into financial trouble and entered the social safety net. The government spent 20.7% of GDP in 2008. This year it’s estimated that the government will spend 24.3% of GDP, the highest since our all-out effort to defeat Germany and Japan.

On the revenue side, the government took in 17.5% of GDP in 2008. This year it’s likely to be 15.5%. What happened to the government’s income? The stock market and the housing market declined, steeply and quickly, erasing enormous amounts of value. Unemployment and underemployment skyrocketed, holding wages down along with the taxes that workers would have paid on them.

In addition, individual income tax receipts are down considerably following the Bush tax cuts: 10.2% of GDP in 2000, 6.2% in 2010. When you consider that individual income-tax payers provided 41.5% of all federal revenues in 2010, you can imagine the enormous effect of this drop.

Corporate Taxes

As the presidential campaign season heats up, we’re hearing talk about the heavy tax burden on U.S. corporations. Granted, the official tax rate on corporate income, 35%, is one of the highest in the world. Even the effective rate (what companies actually paid) was nearly 28% from 2006-2008.

However, if you look at corporate taxes as a percentage of corporate profit, you see a downward trend. According to the U.S. Department of Commerce, in 2006 corporations paid income taxes equal to 29.4% of their profits. This dropped to 20% in 2009. Tax revenue rose to 22.8% in 2010, but this is still a significant overall decline in just five years.

Why is Corporate America paying less tax as a percentage of their profits? Because the losses that corporations sustained during the economic collapse are helping them now. Businesses do much better tax planning than the average person. Also, businesses can take advantage of such devices as “net operating loss carry-forwards,” in which past losses offset present gains and reduce taxes.

The Bottom Line on the Deficit

At the beginning of this article we asked, how did we get in this mess? In a nutshell, we are spending more while taking in less from taxes. Ultimately, the federal government must find a way to balance cutting expenses and raising taxes. That sounds simple, but few people like paying more taxes or cutting defense spending or assistance programs for retirees or the poor. We will be debating what actions to take to tame the deficit for some time to come. Keep in mind that political statements made in the heat of an election campaign are not necessarily objective or even true. It will help if we can all take a calm, clear look at the deficit and its causes.

According to the FTC, some victims of identity theft can resolve their problems quickly and without outside help. But other people might find themselves mired in a lengthy, expensive process to save their good name and repair their credit record. Because a little outside help might save a lot of time and trouble, we present here an overview of several popular identity theft protection services. (The services named below are included for information only. We do not endorse a particular identity theft protection service.)

What do most identity theft companies do?

In general, these companies provide some combination of the following:

• Fraud alerts
• Credit reports and monitoring
• Credit card monitoring
• Database monitoring
• A guarantee to restore your identity, if stolen
• Identity theft insurance
• Removal from credit card and other junk mail offers

Sadly, there really is an Internet black market in which stolen credit card and other financial and personal information is bought and sold. It’s the aim of the following services to keep your information out of the hands of unscrupulous people.

Suze Orman’s Identity Protector
www.trustedid.com/suzeidprotector
Suze Orman, a popular personal financial expert, has teamed with another company on our list, TrustedID, to create a service bearing her seal of approval.

Suze Orman’s Identity Protector offers all of the following:

• Monitoring of the Internet, public records, and all three credit bureaus
• Credit reports, scores, and alerts
• Anti-spyware
• Resolution service
• Warranty

Each of these popular services offers a $1 million warranty. This sounds good, but losses from identity theft are usually far lower. The real cost of identity theft is the loss of credit, the injury to your reputation, and the time and trouble it takes to clean up the mess.

TrustedID
www.trustedid.com
IDEssentials from TrustedID is basically the same as Suze Orman’s Identity Protector. The company also offers a less expensive alternative, IDFreeze, which does everything except credit monitoring.

Identity Guard
www.identityguard.com
Identity Guard provides all of the protection mentioned above but adds protection for your mobile devices, more frequent credit monitoring, and lost wallet protection. (If you lose your wallet, Identity Guard will cancel your credit cards and advance you up to $2,000 in cash.)

LifeLock
www.lifelock.com
LifeLock’s features are similar to other services discussed here. LifeLock does not provide credit alerts or anti-spyware software solutions. This service does monitor the Internet’s black markets not just for misuse of your credit cards, but also for your driver’s license, Social Security number, home address, or other personal data.

PrivacyGuard
www.privacyguard.com
PrivacyGuard does not monitor the Internet black market. However, their system includes Norton Internet Security Online, which offers the latest in anti-virus, anti-spyware, anti-spam, and anti-phishing applications, among other online controls. PrivacyGuard puts more emphasis on credit monitoring and online data storage than the other services on this list.

Conclusion

There is plenty of information available online about identity theft. You’ll find horror stories of thieves who stole identities and committed serious crimes and innocent victims who spent a year or more trying to regain their good name. You’ll also find that the probability of having your identity stolen is quite low.

Everyone in this digital age must weigh the pros and cons of subscribing to an identity theft protection service and come up with their own answer. I hope that this overview will help you make an informed decision.

We generally think of harvesting as something farmers do at certain times of the year. But you can also “harvest” tax losses, and you can do so in any season. In fact, tax-loss harvesting could be a delicious way to add value to your portfolio on an after-tax basis.

Find the Silver Lining in Losses

Tax-loss harvesting is when you sell securities at a loss to offset a short-term capital gains liability. Short-term capital gains are usually subject to higher federal income tax rates (35%) than long-term capital gains (up to 15%). You can apply $3,000 in net losses ($1,500 if married and filing separately) against other income in one year. Excess losses are carried forward to the next year, when they are matched against other short-term gains. This continues indefinitely until you have used up all of your losses.

A simple example of tax-loss harvesting in action is a portfolio that includes a U.S. equity index fund. Let’s say the fund has sustained a substantial loss. You could sell the fund and immediately replace it with a similar fund – something with a comparable risk profile and expected return. You would then harvest the tax loss and use it to reduce taxable gains elsewhere in this portfolio.

Harvesting tax losses can be executed in any portfolio and with all types of securities, but it is especially efficient with index funds.

If you’re in one of the upper tax brackets, the possibility of reducing your short-term capital gains exposure is particularly attractive. Tax-loss harvesting can’t restore your loss, but it might soften the blow. And because the funds involved are similar, there would be no change to your overall investment strategy.

When Opportunity Knocks, Open the Door

Most tax planning occurs as the end of the year looms. December inspires action because it’s the last chance to make tax-related trades for the tax year. However, letting the calendar dictate when to engage in tax-loss harvesting is not wise. If there’s an opportunity in March, July, or October, for example, there’s no reason not to act in those months. That opportunity might easily be gone by December.

Tax-loss harvesting thrives on volatility. An ongoing approach will outperform a simple year-end strategy, because volatility is not bound by the calendar. You should consider tax-loss harvesting an important tool that is best used year-round.

The Big Tax Picture

Studies have repeatedly found that investors tend to hang on to losing investments. No doubt many people are convinced that selling a losing fund only “locks in” their losses. Keep in mind that selling winners and holding losers is not an ideal investment strategy.

It may be that tax-loss harvesting is not the right decision for you. Even if you find the perfect replacement fund, the trade still has to make economic sense. Will you generate a sufficiently high level of after-tax return to offset the costs of implementation? Are the available alternative funds suitable?

An even bigger question is how the IRS will view your actions. Repurchase of substantially the same investment within 30 days of the sale will disqualify the loss for tax purposes. For example, if you were to sell an index fund based on the S&P 500 and replace it with another fund family’s S&P 500 index fund, it would be considered a “wash sale”, and the loss would be disqualified. If you were to purchase an actively managed fund or one based on a different index, the loss will qualify for tax purposes.

Working together, your financial advisor and tax professional can review your entire financial picture, analyze the pros and cons of tax-loss harvesting, and guide you through any wash sale complications. With your long-term financial goals in mind, they can advise you when it’s time to gather in the harvest.

Gather every bill that has a balance on it, then pull out the ones where you’re being charged interest you can’t deduct on your taxes. Credit cards and auto loans will be the biggest culprits for most people. If you’ve missed payments on any of these, bring those current first. Then line your bills up in order of interest rates (not by the dollar amount you owe). The banks or stores that are charging you the highest interest are the ones you should clean up first.

You might be stretched so thin financially that you can’t pay these off right away. Time for Plan B: Budget more than the minimums. Review your expenses and determine the maximum amount you can put toward repaying your debts each month. Keeping your goal in mind will help motivate you to find the extra money you need to pay more than the minimum amounts due. Put these additional amounts toward the card with the highest rate until it is paid off, then move on to the card that’s next on your list. Try to avoid new charges on your target card and continue to pay the minimum amounts due on your other cards.

Every dollar you can scrape together to add to the minimum amount due is a huge help. Consider a credit card balance of $4,000 with an interest rate of 15%. Let’s say the minimum amount due is 4%, or $160. Even if you never charge another purchase on that card, if you made only the minimum payment every month it would take you 10 years and 10 months to retire this debt. But if you add just $25 to your monthly payment, you could erase this debt in two years and four months.

Now Figure Out What You Spend

We live in a society that encourages us to shop. Our willpower is often overwhelmed by outside influences. In addition to the lure of credit cards, shopping is easier than ever with online browsing and one-click purchasing.

What can you do? One suggestion I can offer is to make it harder to spend your money. You’ll spend less if you have to reach into your wallet for cash rather than slide a credit card through a scanner. A more realistic strategy in our cashless society is to switch from credit to debit cards. Since the debit card is linked to your checking account, this is a way for you to pay cash without actually carrying cash. It also means you’ll always know what’s in your checking account, because you won’t want to overdraw it.

You can link your debit card to a financial tracking program such as Quicken, Mint, or Adaptu. Use one of these programs to track your spending for a month. By the end of that time you’ll be able to identify the things you can live without and create a budget that covers your basic expenses, provides for at least a little fun, and directs a set amount toward paying off your debt.

I’m always ready to offer my counsel on your financial situation. Working together, we can put you on the road to a debt-free life and start you on a saving and investing plan for a brighter future.