Life Cycle Planning ? Divorce

This recessionary economy is tough enough on families, 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.

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 * 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.

1. Don’t focus on one issue – like keeping the marital home at all costs, look at the whole picture instead.

1. 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

1. Consider the tax ramifications – A dollar of cash or home equity is NOT equal to a dollar of retirement assets.

1. Make sure to have adequate life insurance to cover your spouse if he or she is paying you a child support and/or maintenance.

1. Don’t underestimate the value of retirement plans and pensions

1. 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.

http://www.kidsturncentral.com/topics/issues/divorce.htm http://kidshealth.org/PageManager.jsp?dn=nemours&article_set=20970&lic=60&cat_id=20127

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-curricular’s”, 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.

Books:

1. Was It the Chocolate Pudding?: A Story For Little Kids About Divorce – by Sandra Levins and Bryan Langdo

2. Mom’s House, Dad’s House, Making Two Homes for Your Child – by Isolina Ricci, Ph.D.

3. Helping Your Kids Cope with Divorce – by M. Gary Neuman, L.M.H.C.

4. Dinosaurs Divorce – by Marc Brown (Ages 4-8)

Question:

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:

Madelynn:

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.)

File and Execute Qualified Domestic Relations Order (QDRO).

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

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?

Dear Madelynn,

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:

* 1. Order all three credit reports from www.annualcreditreport.com and become familiar with the content * 2. 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. * 3. 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. * 4. 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.

Warmly,

Denisa Tova