Q and A with Denisa - Marriage and Divorce :: Certified Financial Planner : Colorado Springs, CO

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Q and A with Denisa - Marriage and Divorce

8. Marriage and Divorce

As a Divorce Financial Analyst, I often see people making costly mistakes in trying to divorce in haste. Mistakes to avoid:

Don't focus on one issue - like keeping the marital home at all costs, look at the whole picture instead.
When crafting your post divorce budget, don't use historical spending numbers. Be forward looking and pay attention to costs such as health insurance and extracurricular activities for children.
Consider the tax ramifications - A dollar of cash or home equity is NOT equal to a dollar of retirement assets.
Make sure to have adequate life insurance to cover your spouse if he or she is paying you a child support and/or maintenance.
Don't underestimate the value of retirement plans and pensions
Carefully look at post divorce tax ramifications and cash flow - Don't be short sighted: what appears to be equitable now may turn into a financial disaster later, when you realize you will have to spend down all your assets to cover your living expenses.

When divorce is inevitable, it's important to do your financial homework to avoid the financial pitfalls so common when emotions affect decision-making.

From: Madelynn
Age: 50 - 54

"Hello, Denisa. During my long-term marriage, it was my husband who handled the finances. We recently divorced. In addition to raising children and working, I'm simply overwhelmed with the financial fallout and additional responsibilities.

I fear that there are basic post divorce financial issues or requirements that will fall through the cracks and then quietly mushroom into BIG problems in the future. What should I be doing now and in the near future? Thank you so much for any suggestions that you may have!"

ANSWER:

I can only imagine how overwhelming it must be to juggle all the new adjustments related to parenting and to deal with emotional and financial issues on top of this.

Prudent financial planning post divorce is instrumental in transition to healthy financial future. Here is a post-divorce financial checklist that can be tailored depending upon your divorce settlement:

For Bank Accounts, close joint accounts and open new individual accounts.

For Investment and Retirement Accounts, reregister Investment Accounts in your name.

Change Beneficiaries on Employer-Sponsored Retirement Plans, IRA's, Life Insurance Policies, Annuities, Etc... (Be sure you do not violate any terms of your separation agreement regarding changing beneficiaries.)

For Real Estate:

Finalize Sale or Transfer of Real Estate
Make sure Deed of Trust is in proper name(s)
Execute Quit Claim Deed(s) if one party is keeping the marital residence
Refinance mortgage(s) on marital residence to remove ex-spouse from note

Other stuff:

Re-title Autos
Implement COBRA or Private Health Insurance
Order Credit Report and review for accuracy. Send letter to credit reporting agencies requesting correction of any discrepancies
Implement Life Insurance and Disability Insurance Policies to Collateralize Support Obligations as Agreed to in Separation Agreement
Implement personal budget
Meet with an accountant to get set up on Estimated Quarterly Tax Payments (if you are receiving maintenance
Meet with Estate Planning Attorney to update all wills and trusts
Meet with tax accountant to prepare taxes for at least first year post-divorce
Meet with Financial Planner/Investment Advisor to Manage Divorce Settlement Proceeds

From: Madelynn
Age: 50 - 54

"What advice might you have for a middle-aged woman who is facing divorce (and potential financial ruin) during this frightening and uncertain economic climate?"

ANSWER:

I know these can be frightening times for you. However, it is very important to avoid making financial decisions based on emotion. Here are some tips to help you get through this:

Order all three credit reports from www.annualcreditreport.com and become familiar with the content
Begin to gather financial statements: income tax returns (3 years), bank statements, investment and retirement account statements, mortgage statements, credit card statements, etc. Know what the statements say.
Begin crafting a reasonable, forward-looking budget to get a sense of what it will cost when you split one household in two. Consider the cost of health insurance coverage.
Because one dollar of home equity is not equivalent to one dollar of retirement asset, it is important to get educated on how the property division will impact your taxes and net worth.

From: Karen
Age: 35 - 39

"Denisa, my boyfriend and I have been in a serious but unmarried relationship, and I am hearing that we have to be aware of specific financial and legal issues that unmarried couples face. I was wondering if in your next broadcast you could speak to this topic and offer some financial planning tips. Thank you. Karen"

ANSWER:

According to the U.S. Census Bureau, unmarried opposite-sex couples make up almost 6.4 million U.S. households (about 10% of all opposite-sex couples)

Married couples have approximately 1,140 federal laws that apply to them but not unmarried ones. For example, unmarried couples may experience the following:

Unlimited marital deduction on property transfer. Unlike married couples who can defer estate taxes until the surviving spouse dies, unmarried partners may be subject to gift tax.
Social Security survivor's benefits. Survivor benefits will not apply to the unmarried surviving partner.

Financial Tips for Unmarried Partners

Ownership of Property. Property agreements should spell out rights and obligations.
Insurance. Have adequate amounts of insurance, such as: health, life, disability, auto/property and long term care insurance.
Tax planning. Learn how to minimize tax liability, such as bunching tax deductions by consulting a tax advisor.
Plan your estate. Legal documents such as a will or trust, living wills, financial powers of attorney and more need to be properly written and up to date. Carefully scrutinize beneficiary designations.
Owning a home. In the event of disability, both names need be on the deed and both partners need powers of attorney. If not, the legal authority to manage the property will not be in place.
Plan for retirement. If your employers offer retirement plans with a matching feature, both partners need to maximize contributions.

Laura and Paul Write: Paul and I have recently gotten married. We are both very comfortable talking about money and we want to build a healthy financial foundation. What financial tips do you have for newlyweds?

ANSWER:

Congratulations! I want to commend you both for taking a pro-active role in building a healthy financial future. As a Financial Planner and a Divorce Financial Analyst, I know first hand that money is one of the top things to cause friction in the relationship and how it can impact the stability of marriage. So here are some tips to help you get your marriage off to a solid start:

Begin the conversation about money today!
Have a discussion about the money messages you received during childhood to understand and appreciate the money attitudes you each bring into the relationship
Be open and honest, and put everything on the table with respect to any existing financial obligations
Decide how financial decisions will be made and how disagreements over money will be handled
Determine how roles will be divided
Set financial goals
Execute financial plan because not having one is like �sailing without a compass'

KRDO Divorce Segment - Part I of II

This recessionary economy is tough enough on families and when you add something like a DIVORCE into the mix it creates an extra layer of stress.

The two main concerns people in divorce have are Money and Parenting.

Tonight�s segment is dedicated to the financial piece. Next week we will talk about the parenting issues.

Some of the major decisions for divorcing couples in this tough economy are:

who should be stuck with the marital home-now worth less than the mortgage balance
how to fairly value a family-owned business that is not worth what it was a few years ago
how to preserve the value of widely fluctuating investment accounts until the divorce becomes final
...and how to split up existing credit card debt

There are many moving pieces in divorce, looking for equitable solutions should be the goal.

Interestingly, what I have discovered in my work as a divorce financial analyst and mediator, is that this economy is changing the landscape of divorce.

Many divorcing couples demand creative financial solutions as opposed to court driven settlements. They are more willing to brainstorm TOGETHER with the help of a "financial mediator", to come up with "out of the box" financial options, such as staying in a "financial partnership" post divorce and delaying the sale of the marital home or a family owned business.

The irony in all of this is, while people are dissolving their marriage, this economy is forcing them to actually work together as opposed to working against each other, in order to come up with an equitable settlement.

I am not the only financial expert specializing in divorce. Visit: www.institutedfa.com for a complete list.

Thanks for joining me for part 2 of our divorce series. Last time we talked about creative financial solutions and the importance of having a forward-looking budget. With your budget, under children�s expenses, don�t forget about those "extra-curriculars", like music lessons, sports, summer camps, and other items like braces, which are often forgotten in the planning.

Today, let�s talk about what you can do to lessen the emotional impact of divorce on your children. I am sure you agree that every parent wants to protect their children from the trauma of divorce. So, here are some things that mental health counselors recommend you can do for your children to help them cope better in these tough times:

Since you are modeling for your children how to resolve conflict, consider staying out of court and choose a non-adversarial option for your divorce, like mediation or a collaborative divorce.

Assure your children that what happened between their mom and dad has NOTHING to do with them and that you both love them; Explain to them that they don�t have to choose one parent over the other and tell them it�s OK to express their true feelings

This is very important - avoid blaming your ex-spouse in front of your children and NEVER EVER use your kids as �messengers� to communicate with your ex-spouse.

And as always, you can visit our website krdo.com for great resources on this topic.

Resources:

Books:

Was It the Chocolate Pudding?: A Story For Little Kids About Divorce - by Sandra Levins and Bryan Langdo
Mom�s House, Dad�s House, Making Two Homes for Your Child - by Isolina Ricci, Ph.D.
Helping Your Kids Cope with Divorce - by M. Gary Neuman, L.M.H.C.
Dinosaurs Divorce - by Marc Brown (Ages 4-8)

Websites:

Money Does Not Have to be the Root of Failed Marriage

Let me tell you about my work with Brad and Katie because I think that many of you can relate to this problem.

Brad and Katie�s financial disagreements started to take a toll on their marriage. They each had a good career and a good pay, yet they felt like the other was not contributing enough toward their financial goals. There was a sense of distrust and despair.

Here is how I worked with them.

First, in order to bring some transparency into their marriage, I asked them to list all of their expenses and investment accounts and debts. I projected this information onto a large screen for both of them to see. This was the first time that Brad and Katie learned how much the other had in their 401K.

Then, we divided their expenses into three categories:

The Household Bills (mortgage, groceries, medical expenses�$6,000/mo)
Brad�s expenses (gym membership, clothes and golfing - $300/mo)
Katie�s expenses (personal care, clothes, and wellness - $350/mo)

We found a solution where they would first put money into their joint bank account to pay the household bills and each would be responsible for their personal expenses. This way, they each contribute toward their joint goals while they are able to maintain a sense of financial independence.

These simple steps mark only the beginning of their journey but this was a first critical step toward a financial transparency, which is a foundation of any marital partnership.