What should I do with my Employee Stock Options?

One of the more common forms of compensation our clients receive comes in the form of employee stock options. Stock options are a great way for companies to reward employees. However, they come with inherit tax obligations, and diversification risks that need to be carefully considered when looking at your overall financial picture.

Employee Stock Options Basics
The word “option” can cause some confusion for people looking into the stock market. The word takes on several meanings, but they all operate with a similar idea. Options are the ability to purchase or sell an item for a specific price at a different date. If the option’s specific price is unfavorable for some reason, the holder is not required to use the option.

In the case of employee stock options (ESOs), the employer is promising to sell an employee a certain amount of stock at certain price (called the strike price). The employee hopes the stock’s value will grow and he or she will be able to use the ESO for profit: buying at the lower strike price and selling at the market value.

There are four major steps to the process of using a stock option:
Granting – The employer gives the option to the employee. The strike price is usually set as the fair market value (FMV) of that day.

Vesting – Sometimes occurring the same day as granting, vesting is the date when a stock option can be used. Many times, an option is granted to an employee upon hiring, but the vesting date is set for a number of years in the future.

Exercising – This is the employee using his or her right to purchase the stock. When the option is exercised, an employee officially exchanges the option for the discount on the stock. Though this can happen the same day as vesting, it does not have to.

Selling – The employee sells the stocks off and realizes the final profits of the ESO process.

There are different types of stock options available to businesses. Each comes with its own advantages, disadvantages and tax regulation.

Non-qualified Stock
Non-qualified Stock Options (NQSOs) are the most popular type of stock options for companies to issue. They occur when a company simply offers to sell some of its public stock to an employee at a discounted price (or give it as a gift.) NQSOs are more flexible than other options and require less certification and management. Many employees with NQSOs exercise their option and sell their stock in a single transaction; this process is known as “flipping” the option.

Taxation: NQSOs can be taxed either once or twice. When the option is exercised, the difference between the strike price and the FMV of that day is reported as taxable income, regardless if the stock is sold that year. The difference between what was paid and the stock’s value that day is considered a gain in regular income. Holders of NQSO should be aware that they will be taxed on something that, until the sale, has already cost them money. If the stock is held for more than a year after the exercise date, any profit from its sale is taxed as long-term capital.

Incentive Stock Options
While similar to NQSOs, Incentive Stock Options (ISOs) can incur less taxation than other options, but are regulated much more heavily. Among the rules, employers can only offer ISOs to employees, who can never transfer the option to another party. Violation of any rules by the company or employee will cost an ISO its favorable tax status. Taxation: An ISO can have relatively low taxation, provided both employer and employee follow ISO guidelines. An ISO must be sold at or above the FMV of the date it is granted. If the ISO is held for an appropriate amount of time (at least a year after exercising, or two after granting, whichever is longer), the entire profits are taxed as long-term capital gain, the lowest tax. If the shares are sold immediately, it is simply taxed as regular income. When an employee does not sell the shares within the year he or she exercises the option, the difference between the strike price and the FMV of the shares on the exercise date can cause Alternative Minimum Tax (AMT) laws to go into effect. Reporting your AMT can be extremely complex and result in additional taxation. Consult a financial advisor before making any decisions about handling your ISO. Compensation and Motivation Like so many other company programs, stock options are meant to bring out the best in employees. However, if handled incorrectly, stock options can be overtaxed to the point of costing an employee their own money. Both employer and employee must consider the benefits, drawbacks and goals created by stock options before putting a compensation plan into practice. When handling your employee stock options, Ferris Capital can assist you in regards to how to maximize the rewards of working at your company.

I’ve been awarded significant Restricted Stock Options by my company. What are the best ways to handle these options?

Restricted Stock
A third type of equity, restricted stock options (RSOs), is another widely used form of compensation. RSO’s are similar to NQSOs and ISOs, but place a higher importance on the “vesting” aspect. With RSOs, employers give shares (or sell them at a deep discount) to employees or other interested parties. However, though usually exercised immediately, the option does not hand over control of the shares until it vests.

With RSOs, vesting is typically tied to some event in the career of the holder. An RSO might vest once the holder has been with the company for a certain number of years, or when he or she reaches a set goal (e.g. makes a set number of sales.) Companies can use RSO vesting objectives that motivate individuals to accomplish more or remain with the company longer.

Taxation: Because RSOs restrict control of stock, many employers give shares away (not expecting people to pay for shares they “might” earn). Taxes are usually first levied upon restricted stock when it vests. Much like with NQSO, the difference between purchase price (if not given for free) and FMV is taxed as regular income. When the RSO shares are sold, the difference between their vesting price and their sale price is taxed as capital gain.

Restricted Stock with an 83(b)
When granted an RSO, the holder has the option of filling out a “Section 83(b)” for the option. Though the RSO works the same, an 83(b) allows the holder to pay income taxes on the granted value of the stock instead of on the FMV when it vests. When the restricted stock is sold, any profit is taxed only as capital gains. The 83(b) method can greatly reduce tax costs, but comes with some problems:

The 83(b) must be filed within 30 days of receiving the RSO The holder of the RSO must pay for the income tax out of his or her own pocket

Taxes paid cannot be redeemed even if the RSO is never used An 83(b) should only be used if a holder can afford to pay taxes on the gifted value of the stock and plans to be with a company until the option vests. Money spent for a future tax reduction will be permanently lost if the holder fails to reach the vesting period.

Compensation and Motivation
Like so many other company programs, stock options are meant to bring out the best in employees. However, if handled incorrectly, stock options can be overtaxed to the point of costing an employee their own money. Both employer and employee must consider the benefits, drawbacks and goals created by stock options before putting a compensation plan into practice.

When handling your employee stock options, Ferris Capital can assist you in regards to how to maximize the rewards of working at your company.

Should I rollover my 401(k) now that I have changed jobs?

Leaving your job can be hectic, whether you’re retired, laid off or moving to a new company. It may not cross your mind to take care of your previous employer-sponsored retirement plan, but this is an important box to check during your transition.

You have four options when it comes to your retirement assets: leave them with your former employer, roll them over into your new employer’s retirement plan, roll them over into an IRA or cash out. As with most financial decisions, there are pros and cons to each choice, and your specific circumstances may make one choice more appealing than the others.

While there are various options available, and we weigh the pros and cons of all scenarios for our clients, Ferris Capital almost always recommends the option of rolling the account into an IRA for a variety of reasons. Most 401(k) plans have a very limited scope of potential funds to invest in their plans. By rolling the former 401(k) into an IRA, you now have the ability to choose from the entire universe of available low-cost ETF index funds, and actively managed mutual funds. Couple that with the higher administrative fees, and often hidden costs associated with 401(k)’s, and the IRA makes sense for most people. An IRA can also be more convenient, because you won’t have to worry about rolling it over again if you leave your job in the future. One feature unique to IRAs is the ability to take penalty-free distributions early (before the age of 59 ½) in order to pay for your first home or qualified higher education expenses. You’ll still pay income tax on the distributions, but you’ll avoid the fees that you’d accrue if you cashed out of an employer plan. An IRA can also be a great vehicle for your heirs, who have the option of stretching out required minimum distributions with a traditional IRA, or avoiding them altogether with a Roth IRA.

There are two types of rollovers, whether you’re rolling your money into a new employer plan or an IRA. A direct rollover is from plan to plan. No taxes are withheld, no penalties are owed and no money crosses your hands. For an indirect rollover, your previous plan administrator writes a check to you, withholding 20 percent for taxes. You’ll have 60 days to transfer it to your new plan or IRA. If you exceed 60 days, you won’t get the 20 percent in taxes back when you file a return, and you’ll owe an additional 10 percent penalty for early withdrawals. A direct rollover is a simpler, safer route, but you’ll have to make sure you have an IRA or new employer plan established first.

The team at Ferris Capital can help you open an IRA account, and rollover your former plan quickly and efficiently. Once the IRA has been established, our Investment Committee will help to determine the appropriate risk profile and mix of diversified investments for you.

Will I have enough money to retire?

One of the most common questions the team at Ferris Capital encounters is; “Will I be able to retire, and not outlive my money?”. Although it is the most common question, it is absolutely one of the most complex issues facing individuals and families. That is why Ferris Capital offers comprehensive goals-based planning to all of our clients, inclusive of their fee.

Ferris Capital will help you consider the factors that go into estimating your retirement savings goal and decide how much you’ll need to live on in your retirement. Our team uses detailed Monte Carlo simulations to help you plan for a variety of potential scenarios. Here are some of the key factors we will help you navigate;

Factors in the Planning Process
The amount of variable factors in the retirement planning process make it impossible to predict a precise retirement income for everyone. However, by taking a closer look at these factors, some within your control, such as your retirement lifestyle, and some subject to outside influences, such as inflation, you can determine their effect on your retirement savings and more accurately predict what is “enough” for you to comfortably retire.

Current savings
The amount you currently have earmarked for retirement will affect the amount and the pace at which you need to continue to save. This may include money you put into funds directly for retirement, such as a 401(k) or an IRA, as well as personal savings accounts.

Life expectancy
Predicting your own death may seem morbid, but having an idea of your life expectancy can help you determine how many years you need to plan for in retirement. According to the Social Security Administration (SSA), an American man at age 55 can expect to live, on average, an additional 28 years, and an American woman at age 55 can expect to live, on average, an additional 31 years. Since most people estimate their retirement savings based on how much they will use each year, it’s important to know how long you will need to depend on these savings.

Retirement age
Just as knowing your life expectancy is vital to your retirement timeline, so is choosing an age at which you hope to retire. If you want to retire by age 50, you will have a vastly different savings plan than someone who plans to retire at age 70, as that person will have 20 years of additional income to add to their savings. If you do want to retire at an early age, starting to save early is even more crucial; the more years you have between you and retirement, the less you’ll have to save each month to reach your goal.

Not only how much you can afford to save but also the amount you should ultimately put away is highly dependent on your income. Most estimates for retirement savings are either a percentage or a multiple of your income, and generally, the lower your income, the higher a portion of it you will need to save. In addition to your regular income, you should consider any other forms of income you will have in retirement, such as Social Security or a pension. Your Social Security Statement, available through the SSA, provides an estimate of your retirement, survivor and disability benefits under current law and updates your latest reported earnings. You will receive a statement by mail once at age 25 as well as regularly once you reach age 60, provided you aren’t already receiving Social Security benefits.

Investment returns
When calculating any savings you will incur from investment profits, you’ll have to calculate the annual rate of return you expect to earn. This includes savings you’ve already accumulated as well as savings you intend to make in the future, including during your retirement. These calculations will largely depend on whether the money is inside a tax-deferred account. When estimating these rates, you’ll will want to err on the side of being conservative.

Retirement lifestyle
Especially if you are far away from retirement, it can be difficult to imagine what your life will look like during this unique time in your life. It’s important to ask yourself things like the kinds of hobbies you expect to pursue, how much you want to travel, if you will pursue part-time work during this time and how frugal you realistically expect to be during this time. Although some costs, such as commuting costs, payroll taxes, retirement savings, mortgage payments, etc. will likely go down during retirement, you will also have more free time to spend your money during retirement. Even if you estimate everything else correctly, if you budget for a retirement lifestyle that’s more conservative than the one you actually live, your savings may not be enough.

Deciding How Much to Save
After considering the above factors, you will ultimately have to decide how much of your preretirement income you will need to save to enjoy the standard of living you are used to. Popular estimates usually range from 70 to 90 percent or eight to 12 times your annual income. Once you have an overall goal and considered your planning factors, it should be much more feasible to calculate an amount to save each month and each year. Your financial advisor at Ferris Capital can also help you to decide on an appropriate number.

It’s important to reassess these factors every two to three years, as your retirement savings will have to change along with your lifestyle. It can help to set up checkpoints throughout your life to make sure you’re still on track; for example, if you plan to save eight times your annual preretirement salary by the time you retire, you could save one time your salary by age 35, three times your salary by age 45, five times your salary by age 55, etc. Estimating income needs for 30 to 40 years in the future can be difficult, but starting with a rough estimate and starting small is better than not starting at all.

Ferris Capital will aid in evaluating these factors, and ultimately in implementing a plan to help you and your family meet these goals. More importantly, the firm will keep track of your progress, and help you adjust any changes to the plan as your situation changes.

Am I gambling my financial future on my company stock?

Simply put, having a significant amount of your wealth tied up in the same company that you receive your paycheck from may not make the most financial sense. When an individual or family has a significant portion of their finances and asset allocation invested in a single company stock, this is considered a concentrated position.

It is important to diversify your holdings in order to build long-term wealth, and set yourself up for a comfortable retirement. Unless you actually exercise your stock options and sell the company stock, you have nothing more than what Ferris Capital likes to call “paper wealth”. Until the point where you “cash out” of your individual company stock, your wealth is directly correlated to that one company’s earnings and stock performance. Again, considering that you also rely on the same company for your salary creates a more volatile financial picture than most realize.

Ferris Capital recognizes that owning stock options and company stock does entail an emotional component. Most people believe in the company they work for, and in turn hope that the company stock will continue to increase in value. Your belief in the underlying company is a large reason why you work there in the first place. However, it is important to take the emotion out of owning stock, and make rational decisions that are in your best financial interest by systematically diversifying your concentrated positions and building your nest egg.

The professionals at Ferris Capital have dealt with these exact issues countless times for many of our clients over the years. We can help you take the emotional component completely out of the equation. After doing so, Ferris will assist you in determining the best course of action to sell your company stock in a responsible and calculated manner. In many instances, we work directly with your employer’s administrator to craft a 10b5-1 plan. We also have experience in navigating the tricky issues surrounding Rule-144 filings with the SEC (for our clients that are considered “insiders”).

After we have aided in divesting from your concentrated position, Ferris Capital will help you invest in a diversified portfolio that suits your risk profile. If you are currently sitting with a large portion of your net-worth in your company stock, let Ferris Capital evaluate your options.

Is my family protected?

The goal of estate planning is to direct the transfer and management of your property in a way that makes the most sense for you and your family. While this may sound simple enough, it is only through careful planning that you can achieve this result. Without careful planning, your property may pass on your death to unintended beneficiaries or may be reduced unnecessarily by transfer taxes.

While planning for your death is a significant part of the planning process, estate planning addresses more than just the transfer of your assets upon your death. Your estate plan may also provide for the transfer of assets during your lifetime through gifts. In addition, prudent planning involves evaluating the management of your assets in the event you become incapacitated or desire independent management of your assets as a matter of convenience.

There are a number of considerations that drive the estate planning process. Family considerations are important. For example, you must consider not only whom you want to receive your assets but when and how. Should your children receive their inheritance outright, or should it be managed for their benefit in trust? When should the trust terminate? Should your spouse be a beneficiary? Who should serve as trustee? Does a program of lifetime gifts make sense? Perhaps just as important as the family considerations are the tax considerations. There are federal and state transfer taxes that apply to lifetime gifts and transfers at death. It is very important to understand the important tools available to minimize total transfer taxes.

Ferris Capital has the knowledge, to help guide you in the creation of your plan, as well as in many cases, the evaluation of a current plan you may have already put in place.

What are the essential concepts and steps of trust & estate planning?

While the thought of having a personal “estate” may conjure images of Vanderbilts, Rockefellers and the other wealthy elite, an estate is probably the most common thing for a person to have. By definition, an estate is simply the property under an individual’s name. It can include everything from a home or business, to bank accounts and retirement funds.

Taking steps to plan for the future of your estate can be one of the most important things you do. In fact, dividing and bequeathing your property is the very last official action you make. To ensure that loved ones can make the most of what you are able to leave them, it is important that you learn the different parts of estate planning and consider how they might affect you.

How much planning is enough? That depends on the goals you want to reach. Using a variety of methods, there is no limit to the amount of control you can put on your estate. And while not every estate requires every method of planning, it can be helpful to know the steps of planning available to you.

Benefits to Beneficiaries

The first and easiest step to planning an estate is establishing beneficiaries of private funds or policies, like life insurance policies, 401k plans and pensions.

This is the easiest step in estate planning because it is typically requested by most plans that a primary and secondary beneficiary be listed to receive funds in the event of a death. Though some plans, like life insurance, will require the beneficiary at signup, others may make it optional to do later. People often put off establishing beneficiaries, creating problems if they die suddenly. Whenever an option to name beneficiaries is offered, it should be handled immediately.


The next major step in estate planning is establishing a last will and testament. While a person who dies without a will (dying “intestate”) still has his or her property divided up among family, there are no guarantees over who gets what. A will is a simple way to make sure specific items get to the people who ought to have them.

If children are involved, a will becomes a necessity for a responsible parent. Wills determine who gets legal guardianship over the surviving children. Though a court will take this process seriously if the decision is left up to them, it is far better for the parents to designate the people they would like to raise their children. A will stating guardianship should be top priority for anyone with children. Though useful for declaring who should receive property, wills do not automatically guarantee another person can receive it. If property is owned jointly with a right of survivorship or is kept as “community property” between a married couple, ownership may be transferred before a will goes into effect. Though most state’s marital property is not treated this way, individuals should be aware of their state’s marital property laws prior to creating a will.

Handing Over Power

Potentially as difficult as a death, the medical incapacitation of an individual can cause huge amounts of stress for a family. Living wills give instructions for the medical care of an individual given they are in an incapacitated, terminal condition. Though limited to these specific situations, living wills can spare a surviving family from difficult decisions and prevent conflict between members who have different views on treatment.

A more in-depth approach to prepare for sudden incapacitation is the creation of “power of attorney,” a document that gives a named individual the ability to act on behalf of the disabled in legal matters. Drafted for both medical and financial decision making, power of attorney documents can be extremely difficult to detail and should only be created by a legal professional.


Though many people think trusts are financial bodies that are only meant for the wealthy, the truth is they can be used by most people to create detailed control over an estate. A trust is simply a legal entity that holds property for the benefit of a few named individuals. Though the major advantages of a trust are deferring probate fees and having circumstantial control over property distribution, trusts are also useful for couples who have children from prior marriages. In a trust, a person can place property that would pay interest to help support the surviving spouse, but ultimately distributes property to his or her children, guaranteeing they receive some of the inheritance.


Individuals looking to reduce their estate before death should consider simply giving money away to loved ones later on in life. Each year, a person can give up to $14,000 tax-free to each unique individual or institution they choose. As long as the gifts stay below this amount, they will remain tax-free and still not count against the lifetime gift tax exemption. There are no transfer taxes on gifts made to public charities, regardless of size.

Securing Estate Documents After necessary estate documents are prepared, they should be adequately stored and protected. Wills are the most difficult to protect. Most states recognize only the original signed document as having any legal power. If the original is destroyed, a new will must be drafted. Typically, the law firm where the document was created will offer to keep the will in an extremely secure safe.

Other documents, such as living wills and power of attorney, can typically be copied and notarized to create duplicates that carry the same legal power as the original. As with wills, loved ones should be informed of the documents’ location so they can be accessed when needed.

Estate planning can be a difficult process for people. The concept of preparing property for an accident or death is hardly something people want to spend time considering. Though its creator will never see it used, a well-written, well-conceived estate plan can make all the difference for friends and family.

Who Owns What?

An important aspect of estate planning is determining the state of ownership of all property associated with the estate. Wills and probate only deal with the property officially belonging to the testator. Joint-ownership of property through marriage or another arrangement keeps property out of probate because it is already owned by another person.

Joint-ownership, marital property or “life tenant” policies combine the ownership of property so that a surviving partner gains full control after a death. It is important to know the details of ownership because it affects how property is handled after a death.

Filing for joint ownership seems like a great method to bypass probate and probate costs, but it comes with inherent risks. People added to a joint ownership have as much legal control of the property as the original owner. Bank accounts can be accessed and emptied by either party, causing problems if the money was relied on for future plans. Similarly, property that is jointly owned often cannot be sold or altered without permission of both owners. Because of these risks, joint-ownership titles should only be sought if both parties have similar plans for the future and trust each other implicitly.

Death and Taxes

While people make efforts to avoid probate costs and court fees for the estates they leave behind, taxation is a much more encompassing process. Probate only handles property that needs to be distributed by a will or intestate laws. Taxation looks at all property that an individual held at death and shortly beforehand. The taxable estate includes all property (owned outright and joint-owned), investments, recent donations, trusts and life insurance policies. While much of an estate can be declared either tax deferred or tax exempt if passed on to a spouse or charitable donations, estate and gift taxes on inheritances can be extremely high. Local estate taxes can vary greatly from state to state. Research and legal advice should be sought to protect against any unexpected estate taxes.

Simplifying the Future

Many people avoid estate planning because of the inconvenience of cost and the uncomfortable concept of their death. The simple fact is that death or serious accidents cannot be controlled; however, if the proper steps are taken, almost everything legally associated with an unfortunate event can be organized. A plan and proper legal arrangements keep unnecessary fees, taxes and court battles from plaguing a family after the death of a loved one.

Ferris Capital can help craft or review the plans you have laid down for the future and what else you can do to ensure property moves seamlessly between the survivors of a death in your family.

How do I turn my “paper wealth” into real wealth?

It is important to remember that stock options are different from stock ownership. Stock options are benefits that give employees the right to purchase company stock. However, until you exercise your options, you do not actually own any stock. Furthermore, simply owning company stock does not create real wealth. You do not realize a gain (or loss) until you actually sell the stock that you own. Hopefully you sell the stock at a price that is higher than what you purchased it for.

You create liquidity by selling your stock and diversifying your holdings away from your concentrated position within your company. This enables you to turn your paper money into real money and creates actual wealth. Many people fall victim to the emotional aspects that go along with owning stock.

The important question to ask yourself is this: What would hurt more, selling your stock and missing out on an extra 20% of upside appreciation, or, not selling your stock and watching it decline by 20%, thereby decreasing your net worth?

There are many more factors and scenarios to consider before selling your company stock options. Ferris Capital has the experience to help you answer these questions, and create a plan to divest from your concentrated position, while ultimately diversifying your assets into a balanced investment portfolio.

How do I manage my finances following a divorce?

Money is one of the most oft-cited divorce catalysts today, yet getting a divorce is one of the worst things that can happen to your finances. In addition to the high lawyer fees, your household will be split in two, putting a strain on both parties’ subsequent budgets. Divorce can have a major impact on the other areas of your financial life as well. This article can help you navigate the world of post-divorce finances with ease.

Custody, Alimony and Child Support

There are two types of child custody: Physical custody is the right to have your child live with you, and legal custody of a child is the right and responsibility to make decisions about the child’s schooling, medical care, religion, etc. Both types can be awarded solely to one parent or jointly to both parents. A parent who holds sole custody is called the “custodial parent,” and this can be in reference to either physical or legal custody.

When one parent is granted sole physical custody, the other parent usually must pay an agreed-upon amount of child support to the custodial parent every month. Whether you have children or not, you or your ex-husband may be required to pay alimony, as well. Alimony is tax deductible for the spouse paying it, and it counts as taxable income for the spouse who receives it. Paying alimony can actually have great tax benefits, and it’s an above-the-line deduction, so you can receive the benefits without itemizing. Child support is just the opposite: you cannot deduct it on your taxes if you’re paying it, but you don’t have to pay taxes on collected child support.


As long as you were divorced by December 31 in a given year, the taxes you file the following spring will read as if you were divorced for the entire year. Once your divorce is complete, you no longer have the option to file jointly; you’ll have to file as either single or head of household. Your filing status will depend on whether you have children. If you are the custodial parent, you can file as head of household and claim your children as dependents, reaping the benefits of the child tax credit and dependent exemptions.


Many recently divorced women find themselves without access to credit because all of the bills and credit accounts were in their husbands’ names. Your first step to building credit is to get a copy of your credit report, which you can get for free once a year. The next step is to cancel any joint accounts or credit cards you held with your spouse. If you don’t have any cards in your name, sign up for one. You may not be eligible for a very high credit limit, but getting into the habit of using your card and paying it off each month will slowly build your credit so you can eventually apply for more.

Returning to work

Many women elect to stay home if their husbands’ salaries are enough to support the family. If you find yourself in need of a job after an extended absence, it’s best to explain that absence to prospective employers. You may want to adapt your resume to a skills-based format rather than using a chronological structure, to de-emphasize your time off. If you took classes or volunteered, describe your experiences and skill building in business terms—don’t get emotional or nostalgic.

Retirement Benefits

Your and your husband’s retirement benefits should have been divided during the divorce proceedings. If you received a distribution from his 401(k), you’ll need to either roll it into yours, if you have one, or set up an IRA.

If your husband contributed to the Social Security system, you may be entitled to receive half of his Social Security benefits after you divorce. You are eligible if:

• Your husband is eligible

• You were married for at least 10 years

• You have been divorced for at least two years

• You have not remarried (unless your second marriage occurs after you turn 60 years old)

• You are at least 62 years old

• Your own Social Security benefits would be less than your husband’s Insurance

If you were covered under your husband’s employer’s health plan and his company employs at least 20 people, they are obligated to inform you about the option to receive continued coverage for 36 months post-divorce under the federal Consolidated Omnibus Budget Reform Act (COBRA). You must enroll in COBRA within 60 days of the divorce becoming finalized or else you waive access to continued coverage. Because COBRA expires after 36 months and is expensive, it’s usually better to go through your own employer or obtain individual coverage if you can. Though most employers only have open enrollment once each year, yours might make an exception for life events such as divorce.

In addition to health insurance, you may need to replace other insurance coverage that you had under your husband’s employer or get new coverage, such as disability, life or renters insurance, that you may not have needed when you were married. If you’re receiving alimony and child support, you may want to see if you can get something written into your divorce agreement that requires your ex-husband to buy a life insurance policy so that his obligation to you and your children could be fulfilled in the event of his death.


If you weren’t in charge of the household finances while married, you’ll need to get up to speed now. Gather important financial documents and take inventory of your spending habits and regular income so you can create a budget. Between the loss of your husband’s income, the addition of new bills and the need to purchase new housewares, you may find that you can no longer afford the lifestyle you’ve grown accustomed to, but you should be able to adjust your budget accordingly.

Estate Planning

After your divorce, you’ll want to change your will, power of attorney and beneficiary designations. Most states will automatically block a former spouse’s inheritance in a pre-divorce will, but it’s still a good idea to alter your will to reflect the change. Your beneficiary selections are not automatically blocked when your divorce is finalized, and they can actually trump your will if the two are in disagreement, making them an important part of your post-divorce to-do list. However, make sure you consult your attorney before making any changes to beneficiaries. If you do so before the divorce is finalized, you could be accused of attempting to remove your husband’s access to benefits.

Divorce can be a stressful time, both on your emotions and on your finances. Getting your to-do list set and checking items off can be a good way to alleviate stress. This list may seem daunting, but if you tackle one task at a time, you can be on your way to financial independence in the next chapter of your life.

Ferris Capital can aid in re-evaluating your specific financial picture following a divorce, and ultimately crafting a plan to move forward. Our team has helped numerous clients and families organize, and clarify the financial components that are often left in disarray after this difficult event.

What are some “Value-Add” tax strategies Ferris Capital can provide?

Another component of Ferris Capital’s family office approach, is our firm’s ability to consider the tax implications our clients face as a result of their entire financial picture. Our team works hand in hand with our clients and their CPA’s to ensure we are being as thoughtful and thorough as possible when it comes to minimizing tax liabilities for clients.

Every family’s situation is unique, and is taken into consideration. However, our firm has found there to be some core strategies in adding value for clients in this area. The most direct way in which Ferris Capital adds value for clients is tax loss harvesting.

Tax loss harvesting is a strategy that takes your current investment losses and uses those to reduce your tax bill for the year. The strategy attempts to do this without disrupting your asset allocation. In short, you can take some of your investing lemons and make lemonade.

The Tax Benefit

Tax loss harvesting allows you to use current, taxable investment losses to pay less in taxes now and defer taxes on capital gains and income. When you realize a capital loss (by selling the position), you can offset capital gains you’ve realized for the year on your tax return. If you have a net loss, you are allowed to offset up to $3,000 of income. If you still have excess losses, those are carried forward onto future tax returns.

When you sell a security but repurchase shortly after, you are effectively trading paying taxes now for paying them later. The reason has to do with your cost basis in the security. For instance, if you purchase a single stock for $100, your initial cost basis in the security is $100—the amount you paid for it. Then, when you sell and repurchase it for $80, your cost basis becomes $80 rather than $100. Let’s say the stock then increases to $150. Without tax loss harvesting, you would be paying capital gains on $50 dollars of gains ($150 minus $100). With tax loss harvesting, you get an initial tax benefit, but then pay taxes later on $70 ($150 minus $80) worth of gains.

For many, there is great value in deferring taxes on their investments. Generally, money now is worth more than money later because you have the power to invest it. Furthermore, many people anticipate being in a lower tax bracket in the future because they will be earning less or will be in a more advantageous tax situation for other reasons. In these cases, it makes sense to defer taxes so that you can pay them at potentially lower rates.

The Strategy

Tax loss harvesting goes beyond a simple sell strategy and attempts to take losses in your portfolio while not significantly disrupting your overall investment strategy. To do this, you would sell a security to capture the loss, then buy the same amount back shortly after in order to return to your original position. For example, if you originally purchased one share of stock for $100 and it is currently worth $80, you would sell the stock, taking a $20 loss, and then buy one share of stock shortly after, likely at a similar price. This gives you the capital loss for tax purposes, but then returns you to your original position in your portfolio.

In the meantime, however, you will have been out of the position you sold, so you may have missed out on potential gains made during that time. To alleviate this issue, an additional step would be to invest in a different, but correlated investment during the 30 days you are not invested in the sold position.

*Avoiding Wash Sales *

You must wait 31 days to repurchase a security after selling it due to the IRS wash sale rule, which disallows a loss on a “substantially identical” security purchased 30 days after or before the sale. This means that purchasing the same security you just sold within 30 days would violate the rule. As a result, the safest way to avoid a wash sale is to simply repurchase the stock 31 days later without replacing it in the meantime.

If you are going to replace the sold security with another during those 30 days, it’s best to be cautious when choosing a replacement security. For instance, if you sell an S&P 500 index fund and replace it with another S&P 500 index fund from a different company, it is possible you may have violated the wash sale rule. The IRS does not clearly define a “substantially identical” security and hasn’t issued any guidance on this specific example, but it would be a risky move nonetheless. Work closely with your financial advisor and accountant to determine the best course of action.


Because tax loss harvesting is not an exact science, there are risks to be aware of. One is that if you use the strategy to effectively defer paying taxes, there is a chance that your tax situation in the future may not be as favorable as it is now. Whether it’s because you are earning more than expected or because future tax law changes will increase tax rates, a less favorable tax situation can mean paying more in capital gains taxes rather than less. While no one can tell the future, it’s best to discuss this issue with your financial planner and accountant.

Another issue that can arise is due to switching to a temporary investment during the 30 days after you harvest your losses. If the temporary investment gets significant gains and is then sold, you’ll be subject to short-term capital gains, which are taxed at higher rates than long term gains. Granted, you’ll receive a net benefit from selling at a gain, but it would mean a higher tax bill for the year. Of course the opposite result is possible as well; that the temporary investment drops, creating greater losses.

Tax Gain Harvesting

While tax loss harvesting is helpful when you want to reduce the impact of a large tax bill, tax gain harvesting can be helpful when your tax situation is unusually good. The same general principles apply but in reverse. You would sell the security to realize gains for the year and then repurchase the security to be in the same position but with a higher cost-basis. You will pay less in taxes later because of the higher cost basis but will pay them this year when your tax situation is potentially more favorable. One major difference is that there are no “wash sale” rules for realizing gains. You may repurchase the security immediately after selling.

Ultimately, tax loss and gain harvesting can be powerful strategies when used well. However, there are risks involved, and because the future is unpredictable, the strategies may not end up being as effective as you intended. That is where Ferris Capital’s family office approach can look at each client or family as a unique case, and evaluate the merits of such strategies accordingly.

Please reach out to Ferris Capital in order to cover the entire list of other tax advantage strategies, and see which may apply to your specific situation.

How do I sell my business?

*The basics of buy-sell agreements *

A chief concern among business owners is what will happen if one of the owners leaves the business: how will it affect the business, the other owners and the former owner’s family? The remaining owners want to ensure continuity of ownership, and avoid having ownership fall into the hands of the potentially inexperienced former owner’s family. In addition, they want to protect themselves and the company financially. On a personal level, owners also want to ensure that their family is financially secure and compensated fairly if something happens to them. A buy-sell agreement can address all of these concerns. It is a contract among business owners that, upon the death, disability, retirement or divorce of one of the owners, requires the remaining owners or the company itself to purchase that owner’s interest in the company, according to the agreed upon terms of the contract. In addition, the former owner’s family is required to comply by selling its inherited interest at the previously agreed upon price. Buy-sell agreements can help business owners:

• Establish a valuation of a deceased owner’s interest in the business for estate tax purposes

• Establish a mutually agreeable price and terms to reduce future potential litigation and friction

• Facilitate a smooth transition of management

• Ensure the family of the deceased owner receives cash instead of unmarketable stock

Buy-sell agreement triggers

Many events can cause a buy-sell agreement to go into effect, and it’s likely that each of these events will require slightly different sale conditions. Buy-sell agreements will usually specify restrictions and limitations for a variety of these triggering events in order to plan for all possible situations. Some events that might trigger a buy-sell agreement include:

• Death

• Disability

• Retirement

• Divorce

• Resignation

Some events, such as death or resignation, would obviously require an owner to give up the entirety of his or her interest in a business. However, other events, such as divorce, may not affect the owner’s interest at all, but simply require the owner’s former spouse to sell any interest received in a divorce settlement back to the company. It’s important to think of all possible scenarios when establishing a buy-sell agreement--even those that may seem unlikely to occur.

Determining business value for a buy-sell agreement

One of the most difficult parts of setting up a buy-sell agreement is determining how much your share of the business is worth. This requires a delicate balance of ensuring you or your family will receive fair compensation for your share while also giving your co-owners a fair price. Setting a dollar amount for your business interest well in advance of an actual sale helps to determine the most objective price for all. Consider the following valuation methods for your buy-sell agreement:

• Prices for comparable businesses in your market

• Value of business assets, including liquidation value

• Historical earnings

• Future earnings

• Combination of business assets and earnings

Choosing a valuation method is a complicated process, and it is likely to require professional advice.

Funding a buy-sell agreement For the remaining owners to buy out a former owner’s business interest, they must have funds available. But what happens if business owners find themselves unable to afford the additional business interest when this time comes? The easiest way to avoid this scenario is to set up funding for the buy-sell agreement as soon as it is established. There are various options for funding a buy-sell agreement, but some carry more risk than others do. Some owners choose to open a company savings account to pay cash should the death of an owner occur. The main problem with this strategy is the uncertainty of the future: what if a catastrophe happens next week, or even next year? Relying on such a savings account presupposes that nothing will happen to the owners for many years while money accumulates in the account. Another option, which also carries heavy risk, is to wait and simply take out a loan should something happen to one of the owners. This can create unnecessary financial risks for both the surviving owner and the company itself.

One option that carries less risk is using life insurance to fund a buy-sell agreement. It ensures that funds are immediately available when a death occurs; plus, death benefit proceeds are generally income-tax free. In addition, the funds used to buy the deceased’s share are purchased for pennies on the dollar and the premiums will likely be significantly lower than the cost of repaying loan interest.

When choosing the amount of insurance coverage to fund a buy-sell agreement, the coverage on your life should equal the value of your ownership interest. This ensures that when you die, there will be enough funding from the policy to pay for your full share of the business. Since the value of the business is likely to change over time, consider specifying within the buy-sell agreement how that valuation difference will be handled to ensure that your family receives the full value of your business interest and any excess proceeds will be divided correctly.

No matter what method you use to fund a buy-sell agreement, consider these three basic structures for structuring agreements:

Cross-purchase plans

Under this type of plan, the owners enter into an agreement with each other. Each owner agrees to buy a share of the departing owner’s interest. If you are using life insurance to fund the agreement, each owner would purchase a life insurance policy on the other owners and be named the beneficiary of the policy. Upon the death of an owner, each surviving owner receives life insurance proceeds tax-free, heirs receive an agreed-upon payment for their business interest, and the surviving owner(s) use the proceeds from the life insurance policy to redeem the deceased owner’s interest in the company.

Entity plans

In this type of agreement, the business rather than the individual owners is obligated to buy the interests of each departing owner. If using life insurance, the company purchases life insurance policies on each owner, naming the company as the beneficiary. When an owner dies, the company receives the life insurance proceeds and uses said proceeds to purchase the deceased’s business interest, while the heirs receive an agreed-upon payment for their business interest.

Wait-and-see plans

This option is a hybrid of the previous two. It is used when owners are unsure whether the business or the owners will buy the departing owner’s interest. Typically, the business is given the opportunity to buy, and if it chooses not to, the remaining owners are given their opportunity. If the remaining owners choose not to buy, due to financial circumstances or any other reason, the business is then obligated to buy the interest.

A buy-sell agreement can be essential to the survival and efficient management of a company. By establishing a buy-sell agreement early on and reviewing it as your business changes, you can ensure the best possible outcome for your business, no matter what the future may bring.

In addition to the broader team, Ferris Capital has two attorneys in-house who can advise you on such plans. All of this is inclusive of the firm’s fee and falls under its core belief in the family office approach to servicing our clients.

I just came into a large inheritance. Now what?

When a loved one dies, it’s already an emotional time, and receiving an unexpected windfall only complicates things. An inheritance can completely change your lifestyle or at least bolster your financial outlook, but only if you make sound decisions. The most important thing to keep in mind when dealing with an inheritance is to create a plan for its use. Because of the emotional circumstances surrounding your inheritance, it may be best to wait before making any decisions so you have time to process your thoughts and develop a coherent plan. As a family CFO, Ferris Capital can act as the quarterback of this plan. We’ve encountered many different situations, and unique issues in our combines decades of experience that can serve your own inheritance issues.

Make a Plan

Take all the time you need in order to formulate a plan for your inheritance. In the meantime, you can keep the money in a high-yield savings account, CD or money market account, as long as it is safe and liquid. This waiting period will help you clear your head and avoid making rash spending decisions.

To make your plan, you should first get a clear picture of your current financial situation. How much debt do you have and what are the interest rates? Do you have an adequate emergency fund and insurance? Are you saving enough for retirement? Do you have enough money to pay your monthly expenses? Once you answer these questions, you can identify weak areas and allocate inheritance money there. While making your plan, keep in mind that your goals shouldn’t change after an inheritance; rather, you should use the money to reach the goals you already had.

Pay down debts. High-interest debts should be your first priority, because the money you pay in interest can never be recovered. Credit cards, consumer loans and car loans are all examples of “bad debt” that you should prioritize over lower-interest debts, such as your mortgage or student loans. If you decide to put extra money toward mortgage payments, make sure you’re not losing the mortgage interest tax advantage.

Add to an emergency fund. You should have a savings account with money readily available for emergencies such as unexpected car repairs, health expenses or job loss. Most experts agree that you should save between three and six months of expenses. You should keep your emergency fund in a safe and liquid account so you can easily access it in an emergency.

Invest it. If you determine that your odds of living comfortably in retirement are low, use the inheritance to fund your retirement account, choosing the appropriate risk level for your age and tolerance. Ferris Capital can aid in determining your proper risk profile, and ultimately investing the inheritance in a well-diversified basket of investments with goals ranging from income and capital preservation, to aggressive growth.

Other. If your finances are already in good shape, there are many other ways you can use your inheritance. First, you can use a portion of it as fun money without feeling guilty. You may also consider donating it to a cause your benefactor would have supported, or spending it in another way that keeps his or her legacy alive. Another worthy use of an inheritance is saving for your child’s or grandchild’s college fund, or even going back to school yourself. Things to Consider

• Your inheritance might come with tax implications, so make sure that is factored into your overall plan to avoid unpleasant tax surprises.

• If your inheritance significantly increases your estate, you may need to create or tweak your estate plan.

• Certain inheritances, such as expensive jewelry, come with added insurance needs.

• Beware of lifestyle inflation, because you may get used to an inflated lifestyle, run out of money and be forced to give up comforts you’ve come to expect.

• If you’ve inherited an IRA from your spouse, you can roll it into your own. But if it’s not from your spouse, you’ll be required to make a minimum distribution each year, for which you should create a plan. If it’s a Roth IRA, you won’t have to pay taxes on distributions.

• Oftentimes, heirs make irrational decisions because they consider the money to be “found money,” and thus less important than earned money. Having a smart plan for your inheritance will help you treat it rationally.

How do I avoid running out of money?

One of the biggest risks an investor faces is running out of money in retirement. This would of course be a tragedy for you and your loved ones. People work their whole lives to accumulate enough wealth to live a comfortable lifestyle only to find they come up short. To help mitigate this risk there are four things that you will need to keep in mind:

  1. Risk Management
  2. Time Horizon
  3. Valuations
  4. Cash Flow

Ferris Capital works with clients to help plan for and determine clients’ needs in retirement. After going through multiple variables, our team works to determine probabilistic scenarios clients may face in their lifetime. By running various scenarios, and establishing a long-term plan, Ferris can monitor client goals on a regular basis. This goals-based planning approach helps the advisor and client work in tandem to ensure that the client is prepared for their retirement years, even if there have been challenges along the way.

Should I pay off my current debt?

For many people, debt is a necessary evil, or even something to avoid at all costs. But debt is actually not a black and white issue. Not all debt is bad, but not all debt is good either. In order to avoid financial ruin and maximize your money’s potential, it’s important to know the difference between good and bad debt, how much debt you should have and how to make debt work to your advantage.

Bad Debt

Paying interest on an item that depreciates in value over time is the definition of bad debt. Most credit card debt, especially when used to purchase clothing, electronics or other everyday items, is bad debt. Using this definition, a car loan is also an example of bad debt. Your car loses value as soon as you drive it off the lot, yet you’ll be paying interest on the loan you took out for years. Going into debt for vacations, food or other consumables is a bad use of your money because you’ll be paying interest long after the purchase has been consumed.

Good Debt

Student loans, business loans and mortgages are generally considered to be good debt. That’s not to say you are in bad shape if you don’t have these debts, but rather, it’s not a bad financial move to take out a loan for educational expenses or a home if you can’t afford to pay cash. What makes these purchases different? They all have the ability to increase your wealth over time. You’re taking on debt to invest in something and potentially make more money in the long run.

A student loan is an investment in yourself; the idea is that you’ll have better job prospects with a college degree, which will allow you to not only repay your loans and interest, but also continue earning more throughout your life. Similarly, a business loan allows you to create a new way of earning money—assuming your business is successful, you’ll be able to pay off your loans and still continue to build wealth. It takes money to earn money, so a loan may be the only way you can afford to start a business. A home mortgage gives you a place to live and the opportunity to build equity when you most likely couldn’t afford it on your own. Real estate generally increases in value over time, so mortgages are also seen as good investments for the future.


Leveraging your debt—borrowing at a low interest rate and investing at a higher rate of return—is also good debt. The most common occurrence is investing in a home through the use of a mortgage. But there are other ways to make your money work harder using debt.

When you take on a loan, you owe a certain percentage of interest on that loan. Similarly, when you invest in the stock market, you get a percentage of interest added to your investment, depending on how well the market does. If the percentage of interest you earn is greater than the percentage you pay, you’re successfully leveraging your debt. When done correctly, leveraging can be extremely effective at building wealth. This type of investing can have much higher returns than regular investing, but it also carries higher risk—if your investment doesn’t pan out, you not only lost the amount you invested, but you also owe interest on your loan. Leveraging also doesn’t work if your interest rate is too high or your rate of return is too low. Investing when you have credit card debt is a bad idea, because no investment can guarantee a return higher than your credit card interest rate. It’s also a bad idea to borrow money just to have it sit in a low-interest savings account—the interest you’re paying must be lower than what you’re earning on the investment, or you’re not successfully leveraging your debt.

How Much Debt Should You Have?

If you have too much debt, lenders may be less willing to extend further credit to you, and you risk not being able to pay it all back. If you don’t have enough debt, your money might not be working as hard as it could be. There’s no scientific way to quantify exactly how much debt each individual should have. Many experts agree that your monthly debt payments should not exceed 36 percent of your monthly gross income. This ratio will change depending on your living expenses, lifestyle and personal feelings about debt. There are three factors to consider when deciding how much debt you can comfortably take on:

Your assets: savings, investments and your overall liquidity

Your job security and potential for income growth

Your discretionary income—what’s left over after you pay all necessary monthly expenses

You can use several ratios when determining how much debt is appropriate. You can compare your monthly debt payments to your monthly income, your combined debts to your assets, your housing expenses to your monthly income or your monthly consumer credit payment to your monthly income, among other ratios. Advisors will recommend various ratios as ideal—your housing expenses shouldn’t exceed 28 percent of your income, and your monthly credit card payments shouldn’t exceed 20 percent—but it’s important to take your own unique situation into account.

It’s important to understand that debt is not all good or all bad. If you acquire the right kind of debt, in the right amount, and use your credit cards wisely, you can become more financially successful than you would have without the use of debt.

Ferris Capital helps clients define their current debt obligations, and evaluate in detail whether or not taking on new debt is a sensible action. Many of our clients even call us for advice from the sales office of a luxury car dealer to determine whether it makes more sense to finance or pay cash. The answer is different in every situation depending on the client, but our firm is there to serve as a true family CFO, and be there for clients to help determine the answer to these kinds of questions.

How do I navigate changing jobs, and new job offers

Changing jobs can be an exciting, yet busy time. Setting up for the next chapter of your life often entails important decisions that should be made with the best information available. Understanding all of the elements within your new position is critical to ensuring your happiness at your next place of work. It’s important to understand the following before accepting an offer:

Culture and atmosphere at the office

Job function and reporting responsibilities

Compensation elements



Stock Options


Deferred Compensation

Health insurance and other benefits

Retirement planning and 401(k)

Management responsibilities

Time off and vacation

Do you know your options for moving retirement assets?

Throughout the busy process of leaving your job, you’ll have many financial to-do’s to take care of and choices to make. We can answer these questions and more.
Should you keep your retirement assets with your former employer or roll them over?
How can you complete a rollover without owing taxes and penalties?
How will you maintain insurance coverage when you’re between jobs?
Can you afford to pay the bills if you’ve taken a pay cut or lost your job?
How will your tax situation change when your income changes?

The professionals of Ferris Capital are here to assist you. We’ve helped many workers and retirees navigate their finances after leaving a job, in areas such as:
Rolling over retirement assets
What to do with former employer stock options and vested assets
Continuing insurance coverage
Re-evaluating a personal budget

Rolling over your retirement assets may be the last thing on your mind during a job change, but failing to take action can be a costly mistake. Let us educate and guide you in your transition so you can move on to the next exciting chapter of your life

How Do I maintain my independence while creating a well-diversified investment plan?

Many of our firm’s clients are partners in successful consulting firms. While they often like to manage their own investments, their firm’s internal investment guidelines for their employees makes it very important to remain compliant. Ferris Capital’s independence platform is designed to help simplify the burden of compliance for you, while enabling you to benefit from our industry leading investment capabilities. We help our clients create a portfolio that is customized to their needs while ensuring that permitted and safe fund families are used in concert with the pre-clearance system to ensure that your independence is always maintained.

Partners of Big 4 firms are held to a higher independence standard and require the expertise of a team who is knowledgeable of their platform to ensure compliance with processes and regulations. Our fiduciary advisors provide guidance in the following areas:

• Investment Management
• Retirement Planning
• Philanthropic and Charitable Giving
• Risk Management
• Cash Flow Analysis
• Tax, Trust & Estate Planning
• 529 College Savings
• Budgeting
• General Financial Advice
• Unique Investment Opportunities

Get in touch with our experts

 Dave Ferris

Dave Ferris

 Andrew Vernazza

Andrew Vernazza

 Matt Elsenbeck

Matt Elsenbeck

  Brian Charville

Brian Charville

 Leah Revkin

Leah Revkin

 David Barlow

David Barlow