The divorce process sucks! It can be a whirlwind of emotions with many decisions that have to be made. Separating the emotions with the decision making is typically the hardest. Studies show that women often make out financially worse than their male counterparts, and more of the costs often fall on the women then the men. Here are some items should be front and center when making decisions that can be a large impact on your financial stability in the future:
- Cash Flow – The bills add up, especially if you are living separately from one another. Add in all of the professional fees, and you may have trouble getting access to some of the capital that was once available to you. Your financial rights vary from state to state, especially if you have a prenuptial agreement.
- Financial Management – When do bills need to be paid and from where? Financing fees sometimes add up due to mismanagement of bill pay, especially if the spouse that did not make those prior payments is now responsible. That effects loss of services, disruption, as well as your credit score. Separate the emotions and try to work out the financial arrangements.
- Variable Expenses for the Children after the divorce – Who is paying for all of the coaching, training, tutoring, sports, counseling, prom, costs associated to college, etc.? If joint, sometimes opening up an account to pay into is the easiest way to manage. Make sure not to forget about these things because they add up. Have a plan on how they are to be paid for.
- Unpredictable Compensation – In some professions, salaries and bonuses fluctuate. Business profitability varies by year. Stock options in a down market can be worthless or Restricted Stock Unit (RSU’s) bonuses can be affected drastically. Have a neutral party do an audit, prepare for those inconsistencies through planning, and most importantly, know who is responsible for tax consequences pertaining to such transactions.
- Financial Longevity Comparison – How long will the money last? Sometimes fair and equal are 2 different things. Know what the tax impact is on the assets you are disbursing and don’t rush to a decision. For instance, qualified plans (401k and IRA’s) may be more valuable to a non-working spouse than to the working spouse. However, depending on your age and if you are younger than 59.5, you may need liquidity. Make sure you go through a financial analysis that will help you look at everything. Taking a knife to the assets isn’t always the best strategy for either side and use professionals to guide you.
- Insurances – Which assets are yours and when? Make sure you have insurance for such items as car, home, jewelry. You may want to consider looking at your life insurance and disability insurances to protect the household. What about health insurance and who is going to cover the kids? Shop around, or look into COBRA, which can be offered up to 36 months to the divorced spouse. Know the plan and costs of alternatives, because the price difference and quality difference can be drastic.
- New Estate Plan – Work with your estate planning attorney to draft a new plan. You will need new trustees, updated beneficiaries, and retitling of assets when the divorce is final.
The divorce process sucks! You need the right support team, both family and professionals in your court. Your family can keep your head up and help you with the emotional pains. Your professionals can help to make the process less costly by extracting the common mistakes and guiding you into your next phase of life!