Guest Blogger: Amy Leis, CRPC®, AWMA®, Financial Advisor at Janney Montgomery Scott
Working with a financial advisor before, during, and after the divorce process can help you avoid pitfalls and proactively plan for the financial aspects of the divorce.
Getting divorced is usually an emotionally fraught experience. In addition to your attorney, it’s helpful to have an objective third party who has your financial best interests at heart.
Your financial advisor can help you prepare the necessary financial affidavits, which is what the court will use when deciding alimony, child support, and division of property. Based on previous conversations, they have a record of your accounts, emergency savings levels as well as general inflows/outflows of money.
If you’ve been successful in your career, you may be forced to pay alimony or relinquish assets. Do you give up the house and/or your large 401k but keep your whole life policy? What about your vacation home or your income properties? Talk to your financial advisor about your expectations for a new standard of living both now and in the future. Have your life-goals changed and does your portfolio need to be revised? Your financial advisor can run various analysis to examine your future net worth, expected income, and then will work with you to revise your financial plans.
And if you have been the stay-at-home spouse, what does your new financial picture look like? Think about how much money will you receive in alimony and how it impacts the decisions you make about where to live, whether or not you’ll need to go back to work, and how your retirement goals have been affected. Also, depending on how long you were married, you may be able to claim social security benefits based on your spouse’s income levels. Your financial advisor can help provide a holistic view of your wealth plan, perform calculations that include if-then scenarios, and assist you in the decision-making process.
In terms of splitting assets, a $1 million house isn’t the same as a $1 million in blue-chip stocks. You’ll pay taxes and insurance each year on the house. Plus there is the cost of upkeep and maintenance. Additionally, the house is a fairly illiquid asset so keep in mind that if you need cash, it could take a while to sell or get a line of credit on the property. Are you planning to sell the house immediately, or retire and live in the house indefinitely, or eventually sell and downsize? Each of these options have financial consequences.
The $1 million in blue-chip stocks have more opportunity for future growth and dividends. They are also easier to sell if you need cash. However, be careful of taxes on capital gains. The cost basis of each investment can influence how much you’ll owe in taxes when you sell the stock. What you thought was a valuable portfolio can be eaten up by taxes.
And the primary residence versus investments question doesn’t even take into consideration the value of any other real estate or businesses, let alone retirement accounts, whole life insurance policies, or annuities. Each of these should be factored into a financial plan that fits your new, post-divorce lifestyle and goals.
Given the financial ramifications of divorce, working with a financial advisor can provide you with the guidance you need to navigate through an unfamiliar terrain, helping you plan for a safe journey throughout your life.