Life can be unpredictable. It is full of ups and downs and plenty of transitions along the way that can impact your financial future. While major life events can take you off guard, it is important to ensure your financial security can withstand the unexpected.
Perhaps one of the most common life transitions that can have an immediate impact on your finances is divorce.
Going through a divorce can be a very complex, stressful and emotionally draining experience. However, that does not necessarily predicate that both parties involved will be worse for the wear once their separation is final.
To navigate this process as smoothly as possible, it is important to work alongside trusted professionals with years of experience dealing with the financial aspects of divorce. At Welch Hornsby, our dedicated team of client advisors provides thoughtful and objective guidance to walk with you through life transitions, avoid critical mistakes and ensure the best outcomes possible.
Through our years of experience serving as financial advisors to men and women experiencing life transitions, we have identified these five financial mistakes that commonly occur during a divorce.
Letting Your Emotions Rule
When going through a divorce, it is easy to let emotions rule during such a tumultuous time, but it is important to remember that you are in the midst of negotiating a business deal and emotions must be kept in check. Divorce expenses simply take money away from your shared assets. Do not allow personal feelings to extend the timeline and increase the amount of resources spent when trying to reach a settlement. Most divorces are resolved through mediation, and it is best if all parties are cooperative and seek a fair settlement for all involved.
Lack of Preparation Before Filing
Documents have a tricky way of disappearing during a divorce, so ensure that you have collected as much information about what you and your spouse own via bank and investment account statements. Collect credit card statements, bank and investment account history and any information on outstanding debt.
If you have refinanced a mortgage recently, the personal financial statement that you filled out can be a good place to start as a comprehensive picture of assets. Obtaining a copy of your most recent tax return from your accountant can also provide clues to income sources and ownership of mutual assets.
Overlooking Important Financial Assets
Do not overlook the value of certain assets, such as pensions and retirement accounts. A house is commonly regarded as the largest asset in a marriage. However, the future value of retirement accounts and pension assets are oftentimes larger.
Seek a financial advisor to help you understand the after-tax value of your financial assets and the risk associated with those valuations going forward so that you are not surprised down the road. You only have one opportunity to negotiate the best settlement, so be sure to surround yourself with the right advisors to ensure nothing is overlooked.
Failing to be Proactive
Do not let your own priorities be an afterthought as you begin the divorce process. A Certified Divorce Financial Analyst (CDFA) or Certified Financial Planner (CFP) can be an invaluable part of your transition team.
Amid this life transition, take a moment to determine your individual goals and work with a financial planner to turn those goals into realities and to make wise choices that reflect your current financial situation.
With CDFA and CFP designations, the Welch Hornsby team can provide key insights to a divorce attorney regarding aligning settlement proposals with financial plans. Various scenarios, depending on how assets are divided, can be considered to determine whether alimony payments will be needed to assist in the transition or as long-term income support. Other financial issues, such as whether the existing family house would still be affordable after the split, would be part of the analysis.
Execution of Administrative and Financial Details
This is where a trusted financial planning team can save you a tremendous headache by helping you attend to all of the details before the divorce is finalized. A lot of mistakes can cause financial penalties, and therefore need to be handled correctly – such as the way IRA or 401 (K) money is transferred.
To ensure all of your bases are covered, you should consider the necessity of life insurance plans to secure alimony payments and jointly owned credit cards and bank accounts that may need to be closed before finalizing the divorce.
We know that divorce can be a complex situation, and we at Welch Hornsby are here to help you navigate the process and plan for your new financial future. If you have questions about how Welch Hornsby can provide financial advice and wealth management services for you or a loved one during a divorce, contact us today.
<small>The information and data contained herein has been obtained from sources believed to be reliable, but is in no way guaranteed by Welch Hornsby as to its accuracy. Opinions and projections are as of the date of their first inclusion herein and are subject to change without notice to the reader. As with any analysis of economic and market data, it is important to remember that past performance is no guarantee of future results.</small>
Written by Kellie H. McDowell, CFA, CDFA