PRODUCTION — PLEASE NOTE BULLETS MEL POTESHMAN According to recent statistics, the average employee will change jobs at least five times. Switching jobs, whether you’re leaving your job because you’ve found a new one or have been “downsized,” can have a significant impact on your current and future financial health. You should take the time to negotiate your leave-taking so that you can maximize any severance pay due you and carefully coordinate your benefits. -Make the most of your buyout package. A typical severance package gives you a week or two of pay for each year of service; but it’s possible to negotiate more. If you’re being offered severance, ask to see your company’s formal severance package; then find out what former co-workers in similar situations were offered. Knowing a company’s policy and how others have been treated in the past may help you obtain a better offer. Some companies give you a choice between taking your severance in a lump sum or spreading it over a period of weeks or months. Although cash is worth more up front, by receiving regular payments over time, you may be able to continue receiving full benefits, such as health insurance. -Protect your retirement funds. In most cases, when you leave your old job, you have three options of what to do with your 401(k) or other tax-sheltered retirement money. You can leave your money in your employer’s plan, transfer it to your new employer’s plan, or roll it over into an Individual Retirement Account (IRA). Whatever you decide, be sure to vest all of your retirement funds. Generally, if you withdraw any funds before you reach age 59 and a half, you’ll pay a 10-percent penalty plus income taxes on the amount withdrawn. Your former employer must allow you to keep your retirement money in the 401(k) plan you set up through the company, provided you have more than $3,500 in the account. You won’t be allowed to make any additional contributions, but your retirement funds will continue to grow tax-deferred. If your new employer offers a 401(k) plan, or if you’ve decided to manage your retirement funds on your own, you can open a “rollover” or “conduit” IRA. A rollover IRA gives you more investment options than most employer-sponsored plans (a good feature if you’re investment-savvy). Otherwise, you might fare better having your old or new companies manage your funds. An important caveat: When you choose to take your retirement funds out of your former employer’s plan, have your old employer transfer the funds directly to the new plan’s trustees. Should you request a check for the proceeds, your employer must withhold 20 percent for federal income taxes, even if you immediately deposit it in a new plan. What’s more, you are requested to replace the 20 percent from your own pocket within the 60 days allotted for a rollover. Otherwise, the amount withheld and not included in your rollover will be considered a withdrawal and this “withdrawal” will be subject to both taxes and penalties. -Bridge gaps in your health insurance. Don’t put your family at risk by going uninsured even for a few weeks. With the cost of health care today, an uninsured illness or surgery can result in financial ruin. If you worked for a company with 20 or more covered employees, you’ll most likely have the option under federal law (COBRA), to continue your present health insurance at your own expense. In most cases, you pay the same rate your company was paying, plus an administrative fee of up to 2 percent. COBRA insurance covers you for 18 months; after that, you’re on your own. As a worker who is not eligible for group insurance under COBRA, you may be able to pursue a short-term policy from a national insurer to fill the gap while you shop for a plan that meets your family’s needs. Even if you have a new job, don’t assume insurance coverage from day one. Some companies require a waiting period before health insurance becomes effective, and some plans exclude coverage for pre-existing conditions for up to 12 months. Finding out the facts about your health care and other benefits before you switch jobs will help you plan for a more secure financial future. Divorce can be taxing Obtaining the most equitable divorce settlement requires more than simply dividing your property in half. There are income tax ramifications to virtually every financial decision made in connection with the divorce. Understanding the tax impact of your decisions will help you obtain and/or assess a fair divorce settlement. Child support payments are not deductible for income tax purposes by the parent making the payments and, likewise, are not taxable income to the receiving parent. Accordingly, the payments not being deducted may have significant income tax implications if one parent is in a higher tax bracket than the other parent. Alimony payments are treated differently from child support. They are generally deductible by the payer and taxable to the recipient. To determine how much monthly support, if any, is due a spouse, courts consider the potential recipient’s needs and earning power as well as the payer’s income. If you expect to be the payer of alimony, keep in mind that alimony payments needn’t last your lifetime. Sometimes the amount and duration of alimony is dependent on the length of time a financially dependent spouse needs to become self-supporting. Such “rehabilitative alimony” may last only a few years. To be considered alimony, payments must be made by cash or check and, like child support, must be paid under a decree of divorce, legal separation agreement, or decree of support. Any additional payment provided voluntarily to your spouse or former spouse does not qualify as alimony for income tax purposes and cannot be deducted. In general, divorced or legally separated parties may not live in the same household, and the spouse’s liability to pay alimony must end on the death of the receiving spouse. The largest asset of most couples is their home. In general, married couples can defer taxes on the sale of their residence if they purchase a new residence within two years before or two years after the sale date of the old residence. If you both elected on a joint return to defer tax on a previous gain on the sale of your residence and then you divorce, the deferral rules apply separately to each spouse. Tax law allows each former spouse to take advantage of this tax deferral provided the new home costs at least as much as one spouse’s portion of the adjusted sales price of the old home. If you and your spouse are age 55 or over and the value of your home has appreciated, you may qualify for an even better tax break an exclusion of up to $125,000 of the gain from taxes. Mel Poteshman is a certified public accountant and president of Poteshman Consulting International & Co., a West Los Angeles-based business consulting firm providing general business, real estate and international trade advisory services.