The Divorce Factor in Do-It-Yourself Wills

H&R Block recently launched a new product, WillPower, a software program that helps people draw up their own estate plans, trusts, and wills. You can learn more about it in this article in the Cape Cod Times – or you may have read it your local newspaper by now.

While I’m all for getting your ducks in a row, estate planning for people who have been married before is complicated at best. Here’s a piece of the article that illustrates my point:

"Those little kits could work if you have the training, education and expertise to use them properly," said Lee Davis, a Johnson City, Tenn., lawyer and president of the National Association of Estate Planners & Councils.

"However, there also is lot of potential for someone insufficiently versed in legal matters to create major problems for heirs, for example by leaving out something important or using incorrect or ambiguous language," Davis said.

"Hiring a lawyer also becomes an increasingly better idea if your estate becomes bigger or more complicated, or if your or your heirs' circumstances are changed by death, divorce, remarriage or some similar event," Davis said.

"Kits just don't cover all those conditions," he said.

So before you sign up for the do-it-yourself kit, keep in mind a few important factors:

 The current wife may not have access to her husband’s estate if alimony, child support, or family support obligations to the “first family” have not been satisfied.

 The current wife may not have access to her husband’s retirement accounts, if the ex-wife is listed as the beneficiary.

 Children from the second marriage may not have access to their father’s estate, if obligations to the “first children” have not been met.

So if you or your spouse has been married before, you’re better off consulting with an attorney who will make sure all of the factors are considered. Which doesn’t mean you shouldn’t pick up WillPower or a comparable product. The software can help you organize your papers and make important choices about where your estate, which will help you save big on your legal fees.

Do you have all of your important legal and financial documents in one, safe place? If not, don’t fret. Most people don’t have every key document at their fingertips. February is a great time to gather these documents in preparation for tax season, and of course, life’s little surprises.

A complete document checklist is available in my book, Every Single Girls’ Guide to Her Future Husband’s Last Divorce, and in the coming weeks I’ll be providing you with tons of helpful advice about how to organize (and find) the documents on the list.

So stay tuned!

Before You File: Recapture Rule Basics

Recapture. It sounds like a Lifetime Movie of the Week, in which the same villain kidnaps the heroine – twice. Or perhaps it’s a romance where an estranged couple ends up stranded in a mountain cabin where they “recapture” the spark that brought them together.

Unfortunately, where the IRS is concerned, it’s less entertaining. The recapture rule applies to many types of tax, but in this instance, I want to bring your attention to how it affects alimony payment deductions.

If you or your husband pays alimony to a former spouse, deducting those payments feels like a year-end bonus after twelve months of cutting checks to the ex. The alimony deduction can add up to a hefty sum, and keep that tax payment down to a manageable amount.

BUT, the IRS has rules about alimony payments, and if you don’t follow them to the letter, you could end up having to pay back the entire deduction – with penalties and interest. I cover this at length in my book, and here’s a link to the IRS page on alimony.

A quick snapshot of some of the issues pertaining to the alimony recapture rule:

 Alimony payments must be made in cash (including check or money order).

 Alimony payments must not include child support or a child-related expense. So, if you or your spouse pays family support (a combination of alimony and child support) you could have a problem.

 If alimony payments decrease or terminate in the first three years of the settlement, the payments could be subject to recapture.

It’s a good idea to read the alimony information at www.IRS.gov, because it also shows how some of your other financial obligations to the ex may be considered alimony and therefore would entitle you to additional deductions. Life insurance premiums and mortgage payments on a jointly owned property, for example.

If you or your spouse ay alimony, take five minutes to read the section in my book about the recapture rule, consult with a tax attorney or CPA, or read the fine print on the IRS website. Because if your sizeable alimony deduction is recapture, you could end up a subject of a Lifetime Movie, a fixer-upper tale that goes something like this: newlyweds go bankrupt and have to start over from scratch. Yup. A real feel-good flick.