The future you imagined 20 or 30 years ago may be very different from the present... frequently for the better! Unfortunately, sometimes lifelong plans change. In fact, approximately half of all first marriages and up to 65 percent of second marriages end in divorce. In addition to the emotional toll, ending a relationship has numerous financial implications.
Most couples do not have a plan in place in the event of a divorce, and when it occurs, they often require assistance to determine the best next steps. Sometimes the process is organized, and sometimes it is disorderly. Regardless, in the vast majority of cases, you will benefit from having a financial expert as an advocate throughout the process, in addition to a qualified attorney and mediator.
In many marriages, household responsibilities are most often divided. One person will take out the trash while the other washes the dishes; one person will pay the bills while the other maintains the family calendar. The list is never-ending. It is only natural that one partner gravitates toward managing the household finances, including day-to-day bill payment, investment oversight, and major financial decisions. However, when divorce enters the picture, a lack of knowledge about the family's finances can leave the other spouse in the dark and with limited comfort and experience.
As a financial advisor, I have encountered numerous clients going through a divorce who are unaware of the specifics of their household spending, the financial health of their marriage, or the status of their bank account. Even if both parties are financially savvy, a life-altering event can still reveal anxiety and concern about money. You can become overwhelmed, which makes it difficult to make logical decisions rather than emotional ones.
Clients frequently believe that an attorney is all that is necessary for a successful divorce. Although counsel is crucial to the process, they are unable to offer financial advice. After children, money is the most common source of contention in a divorce. According to a study conducted by the Association of Divorce Financial Planners, 95% of divorcing individuals do not consult a financial professional.
Working with a financial planner who specializes in divorce financial planning is your best option. Don't be deceived by the notion that your financial situation is simple. Your current decisions will have a significant impact on your financial future, securing your wealth and legacy.
- Will I be financially secure?
- Will I have enough when this is finalized?
- Can I still retire?
- Can I afford the same standard of living for myself and my children?
During a divorce, this specific professional will help level the financial playing field and get you organized, educated, and up to speed on making objective and logical decisions. My goal as a Divorce Financial Analyst is to make you feel like you have a partner looking out for your best interests! To empower my clients for the future, I guide them through the divorce process and the financial decisions that must be made. I put them in the best position possible to meet their needs and long-term objectives.
Depending on where you are in the process and the circumstances of your divorce, having a financial partner during the divorce process can provide numerous benefits. Here are my seven most valuable areas:
There are numerous ways to achieve an amicable and equitable division of assets in a divorce. But no one can make sound decisions if they do not understand all available options. Understanding your options can help you reach a settlement that is as fair as possible for all parties involved.
The first step is to assess how your financial situation may change in the future under various income and expense scenarios. Were you responsible for managing the entire household's finances, including investments, the budget, and taxes? But even if you have a firm grasp on your family's financial situation, are you aware of the potential future changes?
- What do you anticipate your post-divorce income to be? Think about how you might make room for the unexpected.
- What are your expected monthly expenses? How might these costs change in the future, such as in the case of a child's college tuition or a disability? If you're unsure about the first two steps, a financial planner can help you. Click here for further details.
- How will you need to file your taxes during your separation and divorce? As head of household, are you single, married filing separately, or married filing jointly? Consult with an accountant, tax expert, or tax attorney to determine what may be appropriate for you.
- Do you live in a community property state? In some states, all property owned by a married couple is classified as either community or separate. When a couple divorces, community property is often divided evenly between the parties, although each party keeps their separate property. If you and your spouse want to divide your property but are unclear of the process or the rules in your particular state, a financial planner can help.
- When might your income (or that of your soon-to-be-ex) decrease or cease? What happens to alimony payments if one of you retires? Will the person who gets alimony have to report it as taxable income? Due to the TCJA of 2017, alimony is not currently taxable income for divorces between 2018 and 2025. If your divorce decree was adjusted during this timeframe, your tax impact may also have changed. An accountant can help you in this situation.
- What are the tax characteristics and values of every asset, including stock options, real estate, and private investments? For example, if income is distributed, would it be considered a capital gain or ordinary income? There are also special exceptions in place for qualified retirement accounts, which your advisor can help you navigate. Overall, it is essential to consider the future appreciation potential of your assets in addition to their current fair market value. Your accountant and financial advisor can also be of extra help here.
Always start by becoming knowledgeable about the subject. The more you understand, the greater control you will have over your decisions. A Vincere Wealth advisor can meet you where you are and help you attain a level of comfort and confidence with your knowledge.
Consider the family home as an example. After the divorce, who (if anyone) will reside in and ultimately own the home? Is keeping it an option, and if so, is it the best option? In the past, I've observed individuals who were so emotionally attached to their home that they were willing to relinquish other assets with an uncertain future value, such as shares of a private company, thereby limiting their future net worth. How might a soon-to-be ex-spouse be bought out of their share of the home? How will this share be paid for: with cash, a private loan, or a larger portion of their retirement assets? What is the optimal timing for this buyout: a lump sum now, or payments over time? How will the home's value be determined, perhaps using current market values or a five-year average
Discuss your questions and options with your advisor; knowing what is possible, reasonable, and optimal will allow you to plan accordingly.
Many of these ‘surprises’ can be avoided if you gather and look over your financial documents and share them with your mediator, lawyer, or other trusted advisors. That way, you and your team will have a complete picture of your finances before you go to the negotiating table.
- A complete list of all of your assets, along with account statements for each. Real estate, stocks, bonds, private investments, stock options, pre-IPO stock, operating leases, promissory notes, cryptocurrencies, gold, etc. are all examples. Determine if a particular asset is liquid or illiquid (aka not easily sold).
- Bank statements and a list of debts, also called liabilities. Include mortgages, secured lines of credit, personal loans, and credit cards in the list.
- Previous tax filings, I know that this can be a pain. But having them in hand can accelerate the settlement process significantly.
- Documents showing how your accounts are titled. Do you each own them on your own, or do you own them together? Or maybe you got them as a gift? Find out who owns all of your assets and debts. Most of the time, you can find it on your account statements. If not, you can ask the bank for help.
- Your insurance policies, taken both together and separately.
Do you have a firm grasp on where your money is being spent today? Your living situation will likely change in the near future. Consider the following as you review your expenses:
- Have you accounted for changes in the costs of health insurance, child care, and savings?
- What was your previous living standard?
- How can you easily estimate your ongoing expenses?
- Are there any frequently overlooked, undervalued, or neglected categories?
It is important to evaluate what you have and whether there are innovative options or settlement solutions. For instance, are all of your assets divisible, and are you taking each asset's tax implications into account?
You'll likely have a million questions, which could tire out your loved ones. Having a go-to person to discuss ideas and concerns with is one of the aspects that my clients value the most. This designated person can provide invaluable guidance and support.
A divorce financial advisor can help you make objective decisions today and understand how different outcomes will affect your future financial security. Consider what the future may hold and make plans accordingly. This involves conducting an analysis to build a road map for your new life. How might your objectives, plans, and resources change in light of your new circumstances?
Remaining in the marital home is a common concern. Through expert guidance and advice, unforeseen financial obstacles can be avoided.
First, you should consider these:
- Do you have the necessary means?
- Do you have a firm grasp on the maintenance and costs?
- Are you able to afford it? Is it a wise financial decision?
- Are you "sacrificing" other assets to keep the home?
Divorce is a roller coaster of emotions. It's difficult for anyone who goes through with it, and it's insane how many people believe they must figure it out on their own. You should not have to. You should instead be confident in your financial decisions and, ultimately, your legal rights during a divorce. Furthermore, being uninvolved in your household finances does not mean you have no say in the divorces' financial matters.
Divorce is not something that must be endured alone. A financial advisor specializing in divorce can help you navigate this difficult time and give you peace of mind and confidence in your financial future. Ultimately, it is impossible to predict how our lives will unfold... To plan for the future you really want, you must put yourself and your financial well-being first when unintended events happen.
Discuss your questions and options with your financial advisor; understanding what is achievable, attainable, and optimal for you will allow you to make appropriate plans.
As a Divorce Financial Analyst and Wealth Advisor here at Vincere Wealth, Jen helps clients in navigating their financial challenges and decisions that a divorce can present. Having someone guide you today in making sound financial decisions can have a substantial impact on your future financial well-being. Jen takes great pride in guiding clients through the complexities of student loans, retirement planning, and marriage and divorce planning.
Going through a divorce can take a toll—it's often a mentally and emotionally draining process. And then there's the financial side. Managing a divorce on your own can be daunting. However, divorce financial planning and working with a financial advisor to prepare your assets for a divorce can help ease the transition.
Going through a divorce can take a toll—it's often a mentally and emotionally draining process. And then there's the financial side. Managing a divorce on your own can be daunting. However, divorce financial planning and working with a financial advisor to prepare your assets for a divorce can help ease the transition.
Going through a divorce can take a toll—it's often a mentally and emotionally draining process. And then there's the financial side. Managing a divorce on your own can be daunting. However, divorce financial planning and working with a financial advisor to prepare your assets for a divorce can help ease the transition.
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