Planning Concerns of Divorcing Couples – Part 2

alimony10 “Must Know” Areas of Potential Financial Contention

Please see Part 1 here: Planning Concerns for Divorcing Couples – Part 1

Child Custody, Child Support, and Alimony

When parents separate and divorce, one of the most emotionally charged issues involves the children and who will live with them. Determining the extent of child support, and possibly the enforcement of child support payments, is also cause for stress.

Child custody is based on a number of factors. Most judges place primary importance on the best interests of the children. Custody may be classified as physical or legal, and can be awarded to one or both parents.

Most states have child support guidelines for determining the amount of child support to be paid. Child support orders may be modified when there’s a substantial change in circumstances, and most states provide a number of methods for collecting unpaid support.

Alimony is also an important topic, particularly to spouses who have custody of minor children and to older homemakers. Alimony is based on one party’s need and the other party’s ability to pay. Deciding whether a spouse should receive alimony (and, if so, how much) is based on certain criteria, which can vary from state to state.

Taxes

If you’re legally separated or divorced, it’s important to become familiar with the applicable tax rules regarding each spouse’s filing status, dependent children, alimony, and property disposition. Indeed, understanding the tax implications of your initial preferences regarding child custody and property settlement may greatly influence your final tax decisions. 

Budgeting and Finances

During the divorce process, both spouses must determine and disclose their respective monthly incomes and their expense needs. Claims for support (based on need and an evaluation of the other party’s ability to pay) are based on a financial affidavit. It’s not uncommon in a marriage for one spouse to assume primary responsibility for the family budget. For some couples, bills are paid when due, but neither party tries to stick to a budget. When two households are created as a result of a divorce, however, cash becomes tighter. It often becomes necessary for the divorcing couple to develop a budget that each spouse agrees to follow consistently.

Risk Management and Social Security

Risk management should certainly be considered when a divorce seems likely. The selection of beneficiaries for each spouse’s life insurance policy will probably be revised after divorcing, and, in some cases, health insurance coverage may terminate. Often, for example, one spouse participates in a group health insurance plan at work that provides coverage for both spouses. After a divorce, coverage for the nonemployee spouse may end. Divorcing spouses need to know which health insurance options will be available after they separate and how life, disability, and property insurance should factor into the divorce agreement. Don’t rush into decisions like these without careful consideration!

Social Security may be an issue if you’re an older individual seeking a divorce following a long-term marriage. Remember, if you’ve been married to your spouse for at least 10 years, you may (in certain cases) be able to qualify for Social Security benefits based on your spouse’s record, even after you divorce.

Conclusion

Whew!  We only touched on a few topics and you can see already how complex divorce can be. If you are thinking about divorce, consult with a wealth advisor who is well versed in all areas of wealth management and who is also adept at working with and coordinating with other advisors when deeper expertise is required.  In working with clients who have gone through divorce, careful planning is essential for alleviating the stress caused by uncertainty.  While it may be tempting to rush into hasty decisions just to get the process “over with,” you don’t want to gloss over important details that could cause you years of regret down the road.

Please reach out anytime if you, or a close friend or family member, is considering divorce.

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

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