What To Ask Before Your Divorce is Final
By Jessie Foster and Cindy Kuppens, members of the Boston Women's Life Planning Network
For many women, facing an impending divorce is one of the most stressful, terrifying situations they may ever experience. Divorce can trigger an emotional rollercoaster similar to the grieving process - denial, anger, bargaining, depression and finally acceptance. If you find yourself in this situation a logical first step is to hire an attorney. Be sure to look for a qualified family law and divorce attorney who specializes in this field. He or she should represent your interests and advocate for you, even if your divorce is "amicable." If you are in a same sex marriage you need to look for a divorce attorney experienced in working with the particular legal issues you will face.
However, in many cases, particularly when there are significant assets held within the marriage or by either spouse, it may be wise to also consult with a financial planner and accountant who are experienced in working with women going through divorce and have them work with your attorney before the divorce agreement is finalized.
Important financial considerations that you need to address before you sign your divorce settlement are:
Know what assets you own - Make sure you know what assets you and your spouse own. Obtain copies of statements for all investment, savings and checking accounts, copies of your tax returns, real estate purchase and sale records, life insurance policies, and appraisals of personal assets you or your spouse may own. Get information on both of your medical insurance coverages. If you or your spouse owns a business, your attorney will work with you to obtain or provide the financial and legal information required. If you think your spouse is hiding assets, either in a business or in a personal account, you may need to work with a forensic accountant who will help you identify those hidden accounts.
Understand your debt obligations - Many couples take out joint loans or credit lines for mortgages, credit cards, car loans, furniture, etc.. Understanding these loans, the terms and conditions and balances due, is an important step in determining your divorce settlement. It may make sense to restructure the loans to be under one or the other's individual name. If you assume a debt, make sure you understand the obligation that you are agreeing to and impact it will have on your monthly cash flow. If ownership of the family home is part of your settlement make sure you know how the mortgage payments, real estate taxes and maintenance costs factor into your annual budget. Debbie Siegel, owner of Westchester Mortgage recommends "Before you assume you can''t afford to keep your home, speak with a mortgage professional who can help you sort through the variety of financing options available and help you identify a refinancing option that may better suit your changing circumstances".
Determine your annual budget and cash flow needs - Pulling together a realistic idea of your current and future income and expenses is required and vital to a reasonable settlement. However, projecting what those costs will be post-divorce can be daunting. It may be a tedious and time consuming task but you will need to present a complete picture of your financial needs in divorce proceedings. You will need to think about how much you will be able to earn on your own, and whether you will need support from your spouse. In addition to determining how much support you will need, ask your lawyer and accountant about the best way to receive it. If you receive alimony, it is taxable income to you. Child support is not taxed. If you are the one being asked to provide support for your spouse or children it is just as important to understand your spouse's financial situation. Make sure he really needs the money, and if he doesn't, be prepared to demonstrate it.
Determine how marital assets will be divided and titled - Here is where coordination between your attorney and your accountant can provide tremendous value. Together they can look at a proposed settlement to asses whether assets are divided fairly both from an overall perspective as well as a tax perspective. You'll want to be sure that you don't take ownership of assets with a large capital gain while your spouse retains assets with a lesser gain, resulting in lower taxation when sold.
Take control of medical and life insurance policies - The need for life insurance on your ex-spouse may not end with the marriage. On the contrary, it may become more important as this may be the only help you will receive to support you and your children, in the event your ex-spouse dies. It is important to have the ownership of life insurance policies changed to you so that you can maintain and control what happens to them.
Medical insurance is typically provided through an employer's plan, and ownership cannot be changed. However most plans allow an employee to continue coverage on an ex-spouse and children as defined by your divorce settlement.
Plan for your retirement - Retirement is often overlooked or underestimated in many divorce settlements, especially for older women. The earning capacity of an older woman who has stayed at home for most of her married life may be significantly decreased. While in most states a spouse's IRAs and retirement accounts can be divided and a portion transferred to the ex-spouse, projections should be done to determine what impact these assets will have on your own retirement. You may find that your standard of living will decrease substantially or that you will need to find work in your retirement years to meet your financial needs.
Another concern for older divorced women approaching retirement is the potential need for long term care. Typically this type of care is provided by family members, but often divorce can shatter a family's support system. Consider whether you should purchase a long term care policy to ensure that you will have funds to care for yourself should you need extended home or nursing home care.
Unquestionably, divorce can be one of the most painful of transitions. Unlike marriage, retirement, or even the death of a spouse, no one expects it to happen to them, and we seldom plan for it. Because it often happens unexpectedly it causes us to take stock of our lives at a time when we are most vulnerable. As in any crisis, keeping your wits about you and making sure you are protecting yourself and your family's financial wellbeing will help you to weather the storm. Taking control of your finances can be an important first step in regaining the feeling of control over your life.
Jessie L. Foster, CERTIFIED FINANCIAL PLANNER™, MBA with the Raskin Planning Group located in Boston, MA, is a registered representative of Lincoln Financial Advisors, a broker/dealer(Member SIPC), and offers advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor. Cindy Kuppens is Senior Vice President at O'Brien Management, a Registered Investment Adviser in Cambridge.
Cindy and Jessie are members of the Women's Life Planning Network of Boston, a group of professional women specializing in financial planning, investment wealth management, legal services, insurance and Elder Care, who are united by their commitment to providing exceptional financial education and solutions to address every stage of a woman's life.
Divorce Financial analysis is not offered through Lincoln Financial Advisors Corp. Lincoln Financial Advisors Corp. and its registered representatives do not give legal or tax advice. Women's Life Planning Network of Boston, O'Brien Management, and Cindy Kuppens are not affiliated with Lincoln Financial Advisors Corp.
By Jessie Foster and Cindy Kuppens