Divorce is by no means simple and often requires the help of a professional. Most people immediately attract lawyers and help them navigate the complicated paths before them.
However, as a certified financial planner and certified divorce financial analyst (CDFA®), who has been advising women on financial life for nearly 30 years, I have seen situations where even good lawyers overlook important financial considerations.
If a couple has complex finances, they can slip through the cracks in the pre- and post-post phases and the fissures, making individuals vulnerable to long-term financial challenges.
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Here are five financial mistakes that couples often make when they get divorced, and why it is essential to give them the attention they deserve to these issues.
Before divorce
No. 1: Working only with divorce lawyers on behalf of the team.
When I work with people after a divorce, the number one thing I’ve been thinking for years is I wish I could start helping sooner.
Many people believe that hiring a divorce lawyer is the first and only step you need to take to protect your interests during a divorce. However, the main focus of lawyers is to navigate the legal aspects of divorce and not develop new long-term financial plans to ensure security.
Until after the divorce, you will notice that there is a legal settlement, but you will not realize that there is no financial plan. In my experience, I have seen too many people join advisors after the asset department process, which is often too late.
It is important to consider consulting with a financial advisor before finalizing a settlement. This is because it can help you significantly optimize your financial results. This is the main reason that getting an advisor as soon as possible is an important part of the puzzle.
Your lawyer will handle legal issues, but CDFA is your financial advocate and will help you (and your legal team) understand the meaning of a potential settlement. They can:
Consolidate the share of the balance sheet by examining the potential financial outcomes of the short-term income needs model, as well as the more tax outcomes associated with the specific decisions associated with the specific decisions.
No. 2: There is no plan for cash flow needs before negotiations.
Many individuals take part in asset sector discussions, both during and after divorce, without fully understanding the cash flow needs to maintain their lifestyle. Without a financial plan from the start, it is difficult to defend yourself during negotiations.
Think about what lifestyle extras are non-negotiable needs. How do child support and alimony contribute to maintaining the quality of life of your family?
This is where collaboration between lawyers and financial advisors becomes important. Having a financial advocate who can calculate and justify your cash flow requirements can be key to your financial security while your attorney is signing the agreement.
Divorce
No. 3: Only consider the face value of the asset.
When splitting assets, it’s easy to focus solely on current value. However, not all assets are created equally in terms of potential growth or utility.
This is especially important to explain when complex assets are involved.
Consider some examples:
The balances for the two retirement accounts may be the same, one is an after-tax account and the other is pre-tax. After tax accounts are not taxed again, so they are quite valuable. Inventory options or restricted stock units (RSUs) can be immediately apparent from current paper value.
Failure to consider the potential growth, tax and cash flow impacts of these assets could impact financial results. Advisors can help you evaluate and negotiate your asset division based on both current value and future potential.
No. 4: Looking down on the tax impact of the asset sector.
The impact of taxes can significantly alter the actual value of the assets after the classification. for example:
The sale of investment property can cause significant capital gains and can be fined to tax your retirement account early Large assets can generate major tax obligations that can be deferred in the strategic diversification process
By not considering these factors, there is a risk of agreeing to a settlement that appears fair on paper, but it will lose significant value due to the lack of tax plans.
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Generally, selling large amounts of assets in a short amount of time can lead to higher tax rates, but there are strategies that can help reduce tax losses.
During a divorce, you need to fully understand the tax implications of each decision and make an informed decision accordingly.
After divorce
No. 5: We will not clean up your account information to maintain privacy.
Once your divorce is confirmed, it is appealing to sigh a relief and move on, but checking your important account information can lead to serious complications later.
The key areas to address are:
Designation of beneficiary. Retirement accounts, life insurance policies, and dying accounts are transferred to the appointed beneficiary regardless of divorce. If your previous spouse or family member remains listed, they will receive these assets. Please update these specifications to reflect your current wishes. Update the user ID and password for the shared account to prevent unauthorized access. Do the same for passwords that are easily guessed by unwelcome users. Additionally, adjust your social media privacy settings and update your online account legacy contacts to match your new settings.
Clearing these details helps to ensure financial and personal privacy while protecting your assets.
Divorce is an emotional, legal, financially and challenging time. Even a good divorce lawyer often doesn’t realize that there is a blind spot in their financial plan until it’s too late.
By addressing these commonly overlooked issues, we can help lay the foundation for a more financially safer future. Take a proactive approach to finances throughout the process, divorced, but don’t derail.
The opinions expressed by the author are her own and are not intended to serve as specific financial, accounting or tax advice. They reflect the author’s judgment as of the date of publication and are subject to change. The information is considered accurate, but is not warranted or guaranteed by Mercer Advisor. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and provides all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved in investment services.
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This article presents and presents the opinions of contributors, not Kiplinger’s editorial staff. Advisor records can be viewed in SEC or FINRA.
