Guest Blog by Aviva Pinto, CDFA®, CDS
You are divorcing. You have a million things to think and worry about. Your divorce professional (whether it be a matrimonial attorney, mediator, or collaborative lawyer) is asking for all kinds of information and documentation. You are worried about your kids and custody. You are worried about whether you will stay in your home. You are emotionally raw and trying to hold it all together. The last thing you want to think about is your financial plan.
But that is one of the most important aspects of divorce. Aside from custody, divorce is often about the money. Going through a divorce without dealing with finances just to get it over with or because you are not well-equipped to deal with them, is not a good excuse. You do not need to be embarrassed about not having the knowledge or desire to do it. There are resources to help you.
The reason you want to meet with a wealth advisor before settling your divorce is so that you can be better prepared. As a wealth manager and Certified Divorce Financial Analyst® professional, I’ve seen many clients come to me after the divorce who have never even read their divorce decree. They are sometimes surprised by what they have agreed to. Some do not understand that some of what they agreed to will make things much harder for them going forward. Many mistakes can be avoided by negotiating better and knowing what you are agreeing to ahead of time.
It is fine to concentrate on the kids’ visitation plans, vacation schedules, and joint custody, but you also need to focus on child support and spousal support (alimony). For example, agreeing to keeping the house without understanding that there is a large outstanding mortgage, plus maintenance and taxes that go up annually, could lead to financial ruin or having to sell the one thing you were determined to keep. Agreeing to state college tuition will have major repercussions if your child decides not to go to a state college and instead wants to go to a private or out-of-state school. Agreeing to take the investment account instead of cash, without understanding that if you sell securities to raise cash you could be liable to a lot of capital gains taxes, leaves you in a tough position when taxes are due on April 15th.
A wealth manager should be called in as soon as you know you are going to get a divorce. They can work with you to fill out your statement of net worth, which will be needed by your divorce professional to file with the courts. It details what you own in your own name, what is owned jointly, and what debt you have, including your mortgage, personal loans, car payments, and credit cards. It details what insurance you own, and what artwork, jewelry, vacation homes, vehicles, boats, and other prized possessions (antique furniture, your grandfather clock, etc) you have. It looks at what income you make, what income your spouse makes, what taxes you pay. It looks at your lifestyle and what you spend on groceries, self-care, childcare, and pet care. It even includes what you spend on vacations, household help, and recreation. Everything your household spends needs to be detailed. This document can provide a clear picture of where you are today and what your life will look like after divorce. If you are not involved in the preparation of the document or you just hand over documents to your divorce team without understanding the details, you will be at a disadvantage after the divorce is settled.
A wealth manager will help you put together a budget to show you how your life will be after your divorce. They will work with you to create a financial plan which will be the road map of where you are today, factoring in child support and matrimonial support. It will add your salary if you are working or point out if you will need to go back to work to maintain your current lifestyle. Many clients fail to see that the money that was supporting one household must now support two separate households. If it was only one salary doing that, tradeoffs will have to be made. Expenses will have to be cut, downsizing may be a reality, or you may not be able to help the kids with college or a house down payment.
The plan will include how to invest your assets so that it can last your lifetime. It will take into account what cash you need day to day, month to month, and year to year. It will consider what future expenses are likely to be (such as healthcare and long- term care). It will include inflation and the fact that men and women are now living much longer lives. The plan will have to last well into your 90s. Your financial plan will look at all the options and leave you understanding your situation so that you can move forward with confidence.
Once the divorce decree is signed, you cannot claim you didn’t understand it! It is truly heartbreaking when I read through a divorce stipulation with a client after the divorce has been finalized and they find out that what they thought they were getting is not in fact what they got. Arm yourself against this by taking control and work with a wealth manager before or during the divorce process. Do not wait until it is too late.
If you don’t have one, reach out to any of the wonderful wealth managers at Wealthspire. They can help you take control of your finances before your divorce.