By Michael Gold, CFP®, MBA Founder & CEO – Wealth Advisor
When a couple decides to divorce, the intense emotions and sudden changes can make it feel nearly impossible to think clearly about money and finances. For this reason, I always stress the importance of assembling your team of professionals as soon as possible. The disruption and turbulence of a divorce necessitate professional guidance.
I can’t tell you how many times I have come across situations where clients did themselves a disservice by trying to navigate the situation without assistance. Whether a divorce is amicable or adversarial, people tend to agree too quickly to proposed settlements — only to realize too late that they did not understand the full implications of what they signed.
Let’s look at a few of the basics that can help you find your bearings in the confusion of finances and divorce.
Start With Communication
The emotionally heated nature of divorce often causes interspousal communication to shut down, which can lead to devastating financial consequences in the long run (not to mention the legal bill you will run up by funneling all of your communication through attorneys). Working with a family counselor can help to facilitate healthy dialogue during this time of emotional distress.
Setting ground rules for communication and decisions affecting both parties can prevent some of the most common meltdowns that occur during and after divorce. If children are involved, it is important to openly discuss how co-parenting will work.
The more contentious a divorce, the more expensive. Your wealth advisor plays an important role in the dialogue and can help you determine the most mutually beneficial arrangement in dealing with finances and divorce.
Budget For Two Households
For most couples, the picture of post-divorce budgeting requires a substantial paradigm shift, especially when children are involved. You may need to sell the family home, or one of you may continue to live in the home. Some couples continue to live together after divorce (in states that allow it).
In any case, monthly household expenses will almost certainly increase after divorce. You will also need to anticipate childcare expenses as a single parent. Keep in mind that only one parent can claim the childcare tax credit. If both parents receive health benefits from their employers, you may need to compare available plans to determine which insurance policies offer the most advantageous options for child healthcare.
Dividing Income, Assets, And Debt
One rule of thumb: Do not assume a 50/50 split. A divorce attorney will play a central role in helping you understand what to expect in terms of distribution. You will need to factor in not only retirement accounts and jointly owned investments, but also alimony and child support obligations as well as shared childcare expenses.
Bear in mind that a divorce settlement does not bind your creditors. For instance, if your spouse remains in the family home and signs a divorce settlement agreeing to take full responsibility for paying the mortgage, that doesn’t get you off the hook with the bank if your name is listed as a co-borrower. You could potentially end up having to pay some or all of the mortgage or take a negative hit on your credit score. For this reason, it can be advantageous to close joint credit lines when possible.
Revisit Your Estate Plan
While I encourage everyone to review their estate plan once every three years no matter what, divorcing without making the necessary adjustments to your estate plan can have significant consequences.
The most basic step is to review your will, trusts, and any insurance policies where your spouse is a named beneficiary. If you own any businesses, the operating agreement will need to stipulate the disposition of business assets and liabilities post-divorce. If you designated your spouse as a healthcare proxy or power of attorney, these documents will need to be updated as well.
Divorce is never easy, so do not make it harder on your family than it needs to be. If you are considering this change, we at Gold Family Wealth are here to help. Get in touch today to schedule a complimentary and confidential discussion to see how we can work together to chart a plan.
Michael Gold is the founder & CEO – Wealth Advisor of Gold Family Wealth, an independent wealth management boutique and named one of The Top 100 Magazine’s 2020 Top 100 People in Finance. Michael has 20 years of experience in the financial industry and has a bachelor’s degree in business and economics from the State University of New York College at Oneonta, an MBA from NYU Stern School of Business, specializing in Quantitative Finance and Leadership and he is a CERTIFIED FINANCIAL PLANNER™ professional. He serves business owners and entrepreneurs by stress-testing their financial plan to identify red flags and missed opportunities. Michael strategically outsources knowledgeable professionals from various fields, such as tax, insurance, retirement and trust, and estate law to collaborate on potential solutions to help position his clients to pursue their desired goals.
Michael currently lives in Westport, CT. When he is not working, you can find him spending time with his wife, Giselle, their three children, Sebastian, Aria, and Pierce, and their dog, Charly. To learn more about Michael, connect with him on LinkedIn.
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