I’ve said before that life events usually equal financial events. Few life changes are more financially significant than a divorce. Divorce is an emotional process. Unfortunately, emotions usually lead to poor financial decisions. Assembling a team of experts to help prepare for financial changes before the divorce is final should allow you to weather this life change.
In addition to your attorney, you should consider adding a Certified Divorce Financial Analyst™ (CDFA™), an insurance agent and a C.P.A. to your team. Experts can help keep your focus on the big issues, such as, asset division, child custody and spousal support.
You should make copies of all financial records in preparation of beginning the divorce process. It is easier and less expensive to organize financial information before the discovery process begins. Records that should be copied include: last three years personal and business tax returns; investment account statements; employee benefit booklets; pay stubs; insurance and annuity information; credit card statements, and receipts for larger items. Credit applications are also a great source of information for assets, liabilities and income. Contact any creditors with which you have applied for credit in the past three years to obtain a copy of the credit application. A C.P.A. might be able to find assets a spouse may be hiding with these records.
During your preparation, you should also take inventory of all debts and categorize them as individual or joint. For smaller joint debts, e.g., credit cards, you should move them into one spouse’s name immediately. For larger joint debts, such as a mortgage, pay close attention to how it is handled in the property settlement and divorce decree. If one spouse is to receive the marital home, he or she will need to refinance the mortgage into his or her own name. Creditors do not look at who is awarded the house in a divorce; they only consider the parties listed on the mortgage.
The receiving party of spousal and/or child support is exposed to the risk of loss of payments as a result of the disability or death of the paying ex-spouse. To protect against this, obtain disability and life insurance policies on the ex-spouse before the divorce is finalized. You should own the life insurance and pay the premiums. The premium expense should be negotiated in the divorce.
A CDFA™ can run inflation-adjusted cash flow projections to help address all the financial issues, including who should keep the home, or if it should be sold. This can help determine the ability of one or both parties to meet living expenses, retirement and education goals. Pensions and 401(k) plans should also be evaluated, because unless these plans are divided correctly, you may incur unnecessary penalties. A Qualified Domestic Relations Order (QDRO) can be used to transfer money from a 401(k) to the non-employee spouse’s IRA.
We recommend that you seek the advice of legal and financial professionals during the divorce. Their experience and ability to be unemotional about many important decisions should be beneficial to you over the long term.
At Henssler Financial we believe you should Live Ready. This includes knowing when to consult an expert who can separate the emotions from the financial decisions. If you need help looking at your financial situation during a divorce, you may contact our experts at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
