Green(er) Acres?

November 16, 2020 By Angela Baker, JD, CFP®, CDFA®, RICP®, CLTC, CASL®

You never really know a man until you have divorced him.” – Zsa Zsa Gabor

Oh, Zsa Zsa certainly knew a thing or two about divorce. But many a man might be able to claim the same sentiment. It appears that we may not be getting along as well, now that we can’t escape each other. So, it should come as no real surprise that recent news reports suggest the pandemic has acted as a catalyst for divorce. Though no one relishes divorce, there are ways to prepare for an amicable split. It is not an easy task, as emotions often run high, but a healthy parting is achievable! Preparation and understanding is key. If you or someone you know is contemplating divorce, here are a few considerations with respect to the financial aspect of the process to help one avoid financial mistakes while navigating through this difficult event.

First, gather all the financial documentation together and keep it in a safe place. This should include information on all sources of income and expense, as well as assets and liabilities (both business and personal). Include insurance and annuity policies and pension and social security benefit information. Once the divorce process begins, it may become more difficult and expensive to obtain this information.

Second, begin to review and analyze this information in order to get a clear understanding of your current financial picture. Estimate the income you may need post-divorce using projected expenses, and understanding potential sources of income. Be sure to take into account items such as whether you will be receiving or providing child and/or spousal support, continuation of disability, life and health insurance, or projected income from Social Security. Regardless, you should prepare and provide your attorney with a detailed budget of your post-divorce projected expenses.

Third, determine the assets and the nature of the assets that comprise the marital estate. You will need to know what assets are marital, versus separate property. While marital property is subject to division, separate property is not. But, growth in the value of separate property IS considered marital property. Everything that is not separate property is marital property. You will also need to know whether you are living in a community property or equitable distribution state because this impacts how the marital estate is divided. 

Fourth, focus on the facts, not the emotions, and be realistic when considering the division of assets. For example, who will get the marital home is often the biggest question to resolve. There are generally three options – sell the home, have one spouse keep the home while giving the other spouse assets of equal value, or have both spouses continue to own the home. The spouse that receives the home will be responsible for the upkeep, maintenance and remaining mortgage payments. They may also incur taxable gain upon a later sale. The recipient of a brokerage account of equal value will have the potential for income without the associated expenses. All assets are not created equal! 

Fifth, work with your attorney and financial advisor to properly divide certain types of retirement accounts, IRAs and pension plans. If you will be receiving a future-deferred income stream from an ERISA-governed plan (like a 401(k) or 403(b)), you will need to have prepared a qualified domestic relations order (QDRO).

Last, following the divorce, be certain to review and make all necessary changes to beneficiary designations such as retirement and investment accounts and insurance policies. Also, be certain to have new estate documents prepared. As financial planners, we are always here to help answer your questions and assist with any related analysis.

Read the November 2020 Financial Planning Focus:

Important Disclosures

  • West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.

  • This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice.

Categories Financial Planning Focus