Dividing Assets In A Divorce
Joseph A. Davis, CDFA®
April 14, 2016
In a divorce settlement, you don’t get do-overs. Doing your homework and enlisting the help of trusted professionals can prevent costly mistakes.
Few times of crisis require immediate, clear-headed financial thinking like a divorce. From the time of the split to the signing of the settlement, both parties will face making those decisions in a whole new context – alone and with an adversary. Even in the most amicable split, the decisions about who gets what come with a mountain of emotional baggage.
Knowledge, as Sir Francis Bacon wrote in the 16th century, is power, so arm yourself by gathering every scrap of information on your finances. Request your credit report – you are entitled to one free copy a year from the three major reporting agencies – to check what you and your spouse owe. Open individual bank, credit card and brokerage accounts. Close all joint accounts – a sometimes tricky task if those accounts are sizable. Your attorney can help make sure you get your share of liquid assets.
At some point, one or both of you will leave the family home. This can be the most agonizing split because of the emotional bonds the home represents. Women often jump to keep the house, often to spare children the disruption of a move or because they perceive it to be the most valuable asset the couple owns. Remember that home ownership involves a great deal more financial obligation than just a mortgage payment. The partner who gets the house also gets the taxes, the utilities, the upkeep and the payments to the spouse being bought out – all on one salary instead of two, or on no salary at all if the spouse has stayed at home.
Rely on your own team of professional advisors and get first-hand information. Your team will include your divorce attorney and may also include an accountant, financial professional and possibly an insurance professional. This team will review your financial situation and make recommendations on possible courses of action. If you’re paying by the hour, don’t use these people for emotional support – call a friend instead.
A new budget can help head off the “splurge to purge” temptation many women face in a divorce. You need extra TLC, but find ways that don’t cost money. Instead of that salon pedicure, invite a friend over and do your nails together. Have a board game night with the kids instead of pizza and a movie. Get used to your new reality of running a household on one salary, and avoid the pitfall of using credit now thinking you can pay it off with your settlement money.
If your assets as a couple include investments, a business or items like antiques or collectibles, you’ll need a clear view of their value as well as any hidden costs. On investments, for example, you will pay taxes on capital gains from sales, and those gains can vary depending on the purchase price, or cost basis. You may need the help of an investment professional, appraiser or forensic accountant to ensure that what looks fair on paper will be fair when the settlement is finalized and, down the road, when assets are liquidated.
There’s no single best way to split assets during a divorce. Your best defense is to be informed about your assets and liabilities and to select a team of professionals to help you weigh the pros and cons of different options for splitting those assets and liabilities. Take a long-term view of self-preservation, not a short-term view of punishment or least conflict. Once the divorce has been settled, you won’t get a chance to ask the judge to reconsider if you find you’ve made the wrong choices.
Written by Securities America for distribution by Joseph A. Davis, CDFA®
Throughout the past two and a half months I have continued to ask myself, did we jump off a financial cliff? The answer was no. How did I know? The answer, while somewhat complex, is profoundly simple.
While it’s true that retirement accounts can be used to save for college, there may be negative consequences to doing so. It’s best to talk with a financial professional to determine the appropriate course of action and to make sure you’re on track to meet your goals.
A 401(k) isn’t the only option for retirement, but it’s definitely one of the most attractive. In many cases, it offers free money and is relatively easy to roll over when you change jobs. A financial professional can help you prepare for retirement with a 401(k) that fits your current investment style and stage in life and adapts to changes in career or investment styles.
Qualified plans, such as 401(k), profit sharing, defined benefit pension and money purchase pension plans, have defined benefits or defined contributions. A qualified domestic relations order, or QDRO, is required when dividing qualified plans.
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