Divorce can be a trying experience and assistance from a certified financial planner can help individuals throughout various stages of divorce by assisting individuals and their attorney with information gathering, evaluating settlement proposals and developing alternative proposals. I was interviewed by Hazel Sanchez with CBS News on the topic but the segment, while informative, was too short to fully address how financial planners can help, so I put together this article to provide a high-level summary of how a financial planner may be of assistance to help answer the question “Can I afford to get divorced?”.
A financial planner can assist with the preparation of the Case Information Statement (CIS). The CIS is a summary of the joint marital and individual finances – assets, liabilities, income and expenses. It is what attorneys and the courts use as the basis to determine alimony and an equitable division of assets. So, it is important to capture all the information accurately. This information is also used by the financial planner to develop a financial plan.
A financial planner can help develop a settlement proposal. Settlement typically consists of financial trade-offs that must be considered carefully such as alimony payments vs division of martial assets. It is also important to ensure that there are enough liquid assets and income to cover living expenses. It might not be the best outcome to get the home in the settlement and later find out that there is not enough income or liquid assets to sustain the mortgage, taxes and upkeep of the house.
Tax implications impact the settlement agreements and should be weighed carefully. Tax basis on property must be evaluated as asset may have taxable gains associated with them. Weighing how these assets allocated in distribution or property and planning around whether these assets will be kept or sold will avoid unintended tax consequences. With the passage of the Tax Cuts and Jobs Cuts, starting January 1, 2019, alimony is no longer taxable to the receiving spouse and deductible for the paying spouse. The implications on this change can be significant and must be taken into consideration.
Alimony and child support payments should be secured by life and disability insurance. A financial planner can help obtain the right amount of insurance.
After the settlement is finalized, a financial planner can help re-organize one’s finances to provide coordination and logistics in several of areas including:
- Qualified Domestic Relations Orders (QDROs), which divide IRAs, 401(k)s and other accounts.
- Designating new beneficiaries on insurances, investment accounts, and other accounts out of your ex-spouse’s name.
- Health coverage must be also considered because once the divorce is final, ex-spouses will no longer be eligible for healthcare under their former spouse’s plan. They can move coverage to their own employer or obtain extended coverage under the Consolidated Omnibus Coverage Act (COBRA) for 18 months.
- Most importantly, a financial planner can help with budgeting and be a sounding board for significant financial decisions moving forward.
At AEPG®, we provide our clients with the guidance and support to make wise financial decisions. If you or someone you know is considering divorce, or going through a divorce, a few hours with a financial planner can help them reach decisions that are right for them.
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