Don’t get divorced from financial reality when ending your marriage
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While a lawyer might be the first person you call when you make the decision to divorce your spouse, a financial advisor is a good choice.
A divorce can often have more of an impact than any other life event on someone’s financial future and present. Sound financial planning may be the last thing on your mind when your marriage ends — particularly if it ends in conflict — but it may never be more valuable.
According to Michael Ruger (certified financial planner, certified divorce financial advisor), and partner at Greenbush Financial Group, Albany, New York, chief investment officer, “Divorce is a highly emotional process and you make financial decisions within a few months which will impact you for the remainder of your life.” “People don’t always look forward enough.”
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First, you need to realize that divorce can have a negative impact on your quality of life for all except the extremely wealthy. Maintaining two families is more expensive than maintaining one. Additionally, if one of the spouses has been a parent at home, you will have less income and assets.
Your quality of life will be affected by any settlement you reach, regardless of whether it is mediated or litigated.
If your marriage ended amicably and you do not have children or marital assets, consult a financial planner and a lawyer.
Although online divorces can be very affordable, they are not a great idea if you have simple and mutually agreeable circumstances. Financial consequences can be long-lasting for those who make mistakes in divorce agreements.
Stacy Francis is a CFP, CDFA, and the president and CEO at Francis Financial in New York. “People make mistakes during divorce that leave them vulnerable,” she said. We can’t do everything right, but it helps to have a financial plan which shows what the settlement will look like in three and thirty years.
There are five key points to remember when divorcing
1. Mediation versus litigationOne of the major benefits to a divorce settlement that is mediated using a collaborative approach over litigation is its cost-effectiveness. This is usually less expensive and more likely to be followed than litigated agreements.
It can also save you from the fear and anxiety that often comes along with divorce court litigation. If mediation fails to work, the proceedings will continue in court.
Francis stated that while there can be amicable divisions, it is not often the case. It is possible to have a lot more conflict than what a settlement looks like.
They often stay in divorcing just as they did in a marriage.
2. Plan for the long term:It is essential to understand your living costs in order to negotiate settlements and support payments. This is especially true for those parents with sole custody.
A settlement should address future costs such as tutoring, college, and extracurricular activities. An insurance policy should cover alimony and child support payments.
Francis stated, “When you are negotiating with someone you don’t have to consider your finances for two or three years after divorce you need to take into consideration the expenses of 20 to 30 years in the future.” “The more you can discuss about current and long-term needs — particularly if there are children involved — the better.”
3. Keep an eye on your assetsYou should not assume that all marital assets will be equal. Savings accounts with $100,000 are worth more than joint retirement accounts that eventually will be subject to tax or equity in a house of the same amount. Consider the risk factors and after-tax values of each asset.
The financial cost of holding onto your family home can be very high. It may provide comfort during difficult times, but it can come back to haunt your finances.
Ruger stated that mothers with children in custody often want the house to remain their home. Then, they call us. We have to inform them that it is not possible to afford it.
An advisor can help you evaluate marital assets that are complex, such as restricted stock, private equity, business interests, or cryptocurrency.
4. Pay attention to your taxesDivorce settlements, like everything in life have huge tax consequences. To be able to divide assets equitablely, it is essential that you understand the tax treatment of income streams and different assets.
Francis suggests people also be mindful of pre-paid taxes, which may have been taken out of marital pot and could be refunded back to former spouses.
5. Update your lifeUpdate your will, powers and attorney, beneficiaries, and any other estate-planning documents in order to reflect changes to your situation.
Consider whether or not you are able to return to the workforce after being away for a long time. Also, consider if training is necessary to get you back on track.
Francis said, “It can be hard to tell a stay at home parent they should return to work. But in most cases they will.” The most important thing in a person is their ability to earn.
You can add to your nest and have a more comfortable retirement.
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