Divorce and Finance: Don’t Leave the Finances to Chance

Divorce is likely the largest financial transition in one’s life, as all the assets accumulated and outstanding debt as a couple must now be divided. During your divorce, you will be confronted with many decisions, all of which have a long-term impact on your quality of life. These decisions will come at a time when emotions are high, and the process can be overwhelming and confusing. 

That’s where expert advice is valuable. Attorneys are skilled at guiding clients through court filings, estranged spouse’s attorney interaction, child support guidelines and potential alimony payments. However, is your attorney also an expert at factoring the tax implications, transaction costs and the time value of money when splitting marital assets? For the division of property to be properly detailed, structured and executed effectively, the financial side of the divorce process requires as much attention as the legal portion.

Sounds easy, right? Just divide everything down the middle.  Well not so fast, for equal is not equitable, and the final dollar amount can end up being significantly less than intended. 

So, what should you do? In addition to having an attorney to represent your legal interest, consider an expert with the knowledge and skills to focus on the financial aspects of your situation. Financial professionals knowledgeable in general finance can be helpful. An accountant can review your current finances, valuations, and past tax returns to provide a general idea of your situation. A Certified Divorce Financial Analyst® (CDFA®) who specializes in divorce finance, is specially trained in the aforementioned financial areas, in the prudent division of marital assets, and in providing guidance for post-divorce life. 

If you are considering or are in the process of a divorce, a financial expert will ensure questions like the ones outlined below are adequately addressed by your divorce team, during your mediation and, most importantly, in your final decree of divorce settlement:

House division: Can you afford the house? Does it need major repairs? Who will pay the fees if you sell? Whose name is on the mortgage loan? Can the loan be reassigned? 

Cash Accounts: What is the source of these funds? Is the money in the account from income, inheritance or sale of an asset? Do you have individual or joint accounts?

Retirement Accounts:  What is the account value? Should you request a percentage of the account value or a dollar amount? What is the true value of the pension? Was the account held prior to marriage? What are the financial implications of withdrawing cash from the retirement account?

Major Assets:  What are the real vs. sentimental values? Are there liens on the assets? If so, who is responsible for the debt payment? Are you listed on the debt?

Liabilities: What type of debt do you have, individually and as a couple? Who accumulated the debt, and whose debt will it be after the divorce? Are you protected from this debt?

Future Earnings: Has there been a future bonus or deferred compensation promised to your spouse?

Retitling of Assets: Whose name will be on the received assets? Have your wills, trusts and powers of attorney been updated?  When should you rewrite these documents? 

Insurance Needs: Do you have insurance on yourself? How do you ensure premiums are paid and that you are not removed as the beneficiary? What if the payer becomes disabled or dies? Are you protected? Do you have health insurance, or can you stay on your former spouse’s plan?

Tax Filing Status: How do you file this year’s tax return?

Social Security: How will you be impacted? Can you receive former spousal benefits?  If you are entitled, when can you apply to receive them?

There is more to divorce than just the legal considerations. To lessen unforeseen financial consequences, find the answers to these questions, and be certain they are addressed and clearly defined in the final decree of divorce. Don’t leave the financial matters to chance: plan, prepare and seek proper legal and financial advice.

Chris Bales ESQ, CFP®, CDFA® has the legal and financial credentials being an attorney, a Certified Financial Advisor®, and a Certified Divorce Financial Analyst® to address both the legal and financial issues in a divorce.