Once the emotional decision is made to end a relationship, depending upon your circumstances, a divorce can be quite a lengthy legal process. In working with our clients, we focus on what that means to them financially. The process is tough emotionally, financially and it is not always easy to untangle two people’s money. Regardless of how affluent the couple is, there is often a great deal of worry about their financial future.
While you are in the midst of the emotional storm of a divorce it is hard to focus on all the financial aspects that need to be addressed. In addition, life continues on and dealing with many facets of divorce can feel like another full-time job. Working with a financial advisor can help reduce some of the anxiety as they help paint a financial picture of what you currently have and what your post-divorce life could look like.
Advice
Each divorce is unique, and you should listen to the advice from the experts familiar with your case. Friends and family can be good intentioned, but unless they are experts in the area they are providing advice on and knowing your personal situation I suggest listening to the advisors you’re paying.
Too often in divorces the divorcing spouses hire their own lawyers but not their own financial advisor. I believe this is a mistake that many wealthy people make, and one that can make them a lot less wealthy.
Relying on your attorney or accountant to provide you with financial advice who aren’t trained in this area can also be a mistake. You need someone with the expertise to quantify and calculate your financial needs and determine your probability of success in funding those needs over the long-term. We are talking about everything from child care expenses, living expenses, college funding, to retirement planning. Your financial advisor can run the numbers, so you and your attorney understand your needs and negotiate.
When equitable distribution doesn’t seem to be too equitable
Assets are not typically divided evenly during a divorce. There are many factors to consider including custody of children, earning potential, current assets, age, etc. Frequently the home is given to the spouse who retains custody for continuity of the kids. This can result in one spouse getting liquid assets and the other a home. While the dollar amounts might be the same the distribution is far from even. A financial advisor can help quantify the net results of such a distribution taking into consideration the costs that come with the home such as; utilities, maintenance, taxes, apperception potential as well as the net proceeds from the sale of assets. Once analyzed the distribution might not seem as attractive as it did when presented.
Knowledge is power
The process of gathering and learning about you and your spouse’s true financial picture can take a lot of work. But getting all the facts organized can help reduce your anxiety and allows you and your advisors to start putting a plan together for both negotiations and planning for your post-divorce life. See Checklist: Getting Organized from the Institute of Divorce Financial Analysts, https://institutedfa.com/shared/pdfs/ Getting_Organized.pdf.
Steps to take
Once you know a divorce is inevitable you should start tracking the household expenses and retain copies of the income. Retain copies of any household budgets from previous years, bank/ investment statements, and tax returns showing household income.
Starting a new chapter in your life means you should update your passwords for email, social medial and other sites your spouse knows your password for.
Financial documents– get and retain statements for at least the last 2 years for the following accounts:
Create a new budget for your situation based on your post-divorce income amount and establish an emergency fund. Your financial advisor can help with this. See our website for our Budget Data Gathering Form, http://bit.ly/BudgetDataForm.
Insurance coverage– determine your needs for life, health, home and auto insurance
and shop around. Your financial advisor can help with this.
Monitor your credit score– remember that before a divorce is complete debts of your
spouse can reflect on your score.
Update beneficiaries– once advised by your attorney you should review and update your beneficiaries. This includes insurance policies, wills, trusts, medical POA, legal documents, retirement plans, corporate benefit plans, annuities, etc.
Divorces can be long and drawn out affairs that can leave emotional scars for everyone including children. If you can agree on custody, child support, alimony, and property division without having to set foot in a court it makes sense to consider settling. The financial and emotional savings alone can be enough to offset some of the concessions you might have to make.
