Planning Concerns of Divorcing Couples – Part 1

transfer-310 “Must Know” Areas of Potential Financial Contention

Key Takeaways

  • Know all the moving parts. Divorce touches all areas of wealth management.
  • Consult with your wealth manager who will coordinate all of your advisors, not just your divorce attorney.
  • Divorce is big business and your interests may not always be aligned with the system. Take your time. Don’t get pushed into making hasty, expensive decisions just to get the process “over with.”
  • Uncertainty is a major stressor. Planning with your wealth advisor relieves this stressor.

It’s well known that half of all marriages in the U.S. will ultimately end in divorce, but unfortunately, the process is all too often filled with unpleasant surprises. Don’t let yourself and your spouse get caught off-guard financially if you get to the point that there is no other solution to your marital differences.

Divorce is not only a time of emotional turmoil, but a period of legal and financial upheaval as well. From a financial standpoint, divorce can be particularly devastating to families with children and for older couples who have always assigned career duties to one spouse and homemaking duties to the other.

Before pursuing a divorce, you should try to become familiar with potential costs you’ll encounter, not to mention the basics of: marital property versus separate property, alimony, debt, retirement plans, property settlement, taxation and joint household budgeting. If you have children, you’ll also want to get up to speed on child custody, child support, life insurance and other risk management issues. If you’re older, you’ll want understand clearly what happens to each spouse’s Social Security, as well as to your retirement accounts and pensions.

The more you know about these critical areas below, the better the picture you can provide to your attorney(s) about your true divorce settlement wishes.

Legal fees

When seeking a divorce, you and your spouse should consider whether a simple, amicable parting is possible or if you’ll be engaged in a protracted and expensive legal battle. Remember that divorce attorneys typically charge hourly rates and require you to submit retainers (lump sums) up front. Rates can vary greatly, depending on the complexity of the case, the reputation of the firm, the experience of the divorce attorney and your geographic location.

If you’re a financially dependent spouse (such as a homemaker), it’s possible for a court to award you with enough money to offset the legal fees and costs you need to retain competent counsel. Upon your submission of an appropriate motion to the court, a judge could order your spouse to subsidize your legal fees for the divorce. 

Property

Assets are divided in accordance with state law, so it makes a difference whether you live in a community property state (Alaska (which has an optional system), Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin) or Puerto Rico, or an equitable division state. Within these two categories of states, property may be classified as either separate property or marital property. Therefore, it’s important for you to know how your state classifies property. For example, one state may mandate that separate property consist of gifts, inheritances, and property owned prior to the marriage, and that such items will not be divided between the spouses in the event of a divorce. Another state may proclaim that all property owned by the couple is marital property, subject to division at divorce–it doesn’t matter who inherited what.

Property division is a complex area, encompassing such subtopics as the marital residence, debt, and retirement plans and QDROs.  It also involves a number of other areas as well, including: classification and valuation of property, hidden assets, family businesses, and structuring property settlements.

Part 2 to this blog will be coming later this week.  Please reach out anytime if you, or a close friend or family member, is considering divorce.
* Alaska is optional

About Mark Rioboli

Mark A. Rioboli, CFP®, CFS is Director of Wealth Management for Independence Advisors, bringing over 25 years of experience in the wealth management industry. Have a question for Mark? CLICK HERE TO ASK MARK