Financial planning on divorce, Pt. 1

There are no guarantees in life except death and taxes.  But there are some high-probability things in life, such as on divorce. In fact, roughly 50% of marriages in the U.S. end in divorce.  Of course, no one goes into their wedding day expecting to end up a statistic. But when a marriage ends up filing for divorce, it’s best to be prepared financially.

Financial planning is half goals and half being prepared for the unthinkable. At NEST, we help with both preparing for your desired future while mitigating the potential damage of tragedies.

Filing for Divorce is one of those. It can be extremely emotionally taxing. Because of that, money isn’t always the first thing people think about.

That is, until it’s time to negotiate terms. And by then, preventable mistakes could have already been made. That’s why today we’re talking about financial planning through a divorce. 

DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not legal, financial, or investment advice.

Talk to your financial advisor first on Divorce

While it may not be the first thing on people’s minds, talking to your financial advisor should be one of the first things you do. 

By giving her the heads up, she can not only give guidance on the nuances of your finances, but she can also be on the lookout for withdrawals or suspicious activity.

Retaliatory withdrawals

It’s unfortunate but true — the elevated stress and high-emotions that come with filing for divorce can lead people to act in uncharacteristic ways. And if your financial planner doesn’t know what’s transpiring, she won’t know to keep an eye on things.

Scope of assets – on divorce

Additionally, your financial planner can offer insights into the scope of your investments, such as stocks, bonds, real estate, and retirement accounts. Insights that might fall outside of your attorney’s area of expertise. 

Valuations – Filing for Divorce

There’s also an issue of knowing how to value assets. We’ve seen it happen more than once — assets are being divided in mediation in a way that seems fair to both parties. But upon a financial advisor’s inspection, it wasn’t equal at all. 

Even in the division of properties you must consider many factors in order to make a fair appraisal — property value, cost of maintenance, project value of the area where the property is, the amount remaining on the loan, the number of mortgages taken out against the property. 

It isn’t as simple as, “you take the house, I’ll take the vacation home.”

If you bring your financial advisor in early, she can work with both party’s attorneys to ensure that the information lends itself to equitable distribution.

On Divorce – It’s not as easy as 50/50

While filing for divorce can be drawn out and contentious, some people just want to split things evenly and move on. 

However, that’s not always as simple as it would seem, as illustrated in the not-so-simple division of real estate above.

Some things to consider when evaluating your assets are:

• The types of accounts and assets you have, and how they are accurately valued.
• The needs of each spouse, especially if one will be the primary caretaker of children.
• The liquidity of the assets. If you need the money to live during the voice, it’s not going to do you a lot of good if it’s in an account that’s hard to access or tied up in real estate assets.
• The actual value of accounts. Accounts of equal value might not actually be equal when considering interest rates and early withdrawal fees.
• The value of real estate plus the cost to maintain it. One spouse getting the primary residence might not be such a good deal if they can’t afford to keep it. Unfortunately, this is a common issue for women.

If you meet with your financial advisor, she’ll be able to not only give you an accurate appraisal of your total assets, but also insights into the ins and outs of your personal situation and how the numbers will play out. 

Pay close attention to dollar amounts and percentages

This tip is closely related to the previous. The valuation of your assets warrants more than a cursory investigation. It’s so important when dividing assets that you carefully consider the dollar value, the projected growth, and the interest rates (earned or paid). 

To bring a swift resolution or to get money quickly, people often accept lower value assets. This might be helpful in the short term, but they end up sacrificing not only the larger initial sum, but the long-term growth potential that higher value assets could earn. 

Your financial advisor can help you go over the dollar amounts and percentages with a fine-toothed comb. Then, when you make those decisions, you are fully aware of the financial implications.

We’d like to reiterate that this is NOT LEGAL ADVICE. These are merely things to consider if you or someone you know is going through a divorce. Take these considerations to your attorney and financial advisor, and they can offer you counsel that is suited to your personal situation.

If you have any further questions about financial planning through divorce, or if you’d like to schedule a financial planning session with Gloria, reach out at info@nestfinancial.net. 

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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.