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Divorce Survival GuideThursday, March 28th, 2019 | Leslie Kelly
By Leslie Kelly, CFP®, AIF®
Since there are only two ways out of a marriage, death, and divorce, people would be wise to prepare for either contingency. In fact, there is a lot of common ground in preparation.
We recently outlined general recommendations for maintaining important papers for-going financial planning, as well as for death or incapacitation of either spouse through injury or illness. The balance of this guide will help you navigate the sometimes muddy waters of the divorce process.
Whether a relationship is going well or not, you can take a few smart steps to protect yourself and your financial security.
- General recordkeeping: Have a central location where all of your family’s important documents are maintained. This would be one of the things you grab and take with you if the house is on fire and might be in a fireproof safe or simply a binder on a shelf. It should contain the most recent copies of checking account, savings account, brokerage, employee benefits, annuity, retirement plan and employee benefit statements, as well as life insurance, long-term care policies, and homeowner's and auto insurance policies and statements. With these materials should be a list showing where the safe deposit boxes are and where the keys are located. Keeping this up to date is a time-consuming task, but something people understand.
- Imminentdivorce: If divorce is on the horizon, you also will need copies of the deeds to home(s), titles to cars and information on the mortgage(s) and any car loans,as well as a list of credit cards, business interests, recreational vehicles,other real estate, personal property, wills, trusts and Social Security numbers. You will also need a list of the contact information for your tax preparer, financial advisor(s), an estate-planning attorney, life insurance agent and property insurance agent. Being able to put your hands on these documents will save time and money as you proceed with the process of selecting an attorney and/or a mediator.
- The mediator: Consider seeking the services of a mediator. This person attempts to bring the two parties together to set aside emotion and give them the ability to harness their intelligence to craft a reasonable settlement for each partner. While the mediator usually does not draft documents, he or she can be extraordinarily helpful in defusing the stress and emotions that stand in the way of sound financial planning.
- The attorney: You can ask friends and colleagues about finding an attorney. Another good source is a marriage counselor, therapist (if you have one) and/or the mediator. They will know who can work with both of you to craft an agreement. Some divorce attorneys have reputations for being tough and aggressive, which can lead to increased billable hours and higher expenses. A better option is to look for collaborative attorneys who can create an atmosphere of cooperation so that you and your soon-to-be ex-spouse can work in concert on a financially sound and fair settlement. “Scorched earth” divorces usually do not benefit either spouse and certainly don’t help the children of the marriage. The only winners in that kind of divorce are the attorneys who make money on your angry exchanges with your soon-to-be-ex. Be aware that the attorneys may face a potential conflict of interest – an adversarial situation usually results in more billable hours. Try to keep emotion out of the lawyer’s office.
- The interview process: When you are in the attorney selection process, ask for an introductory meeting. Interview the attorney to see if you are a “fit” with the philosophy of the firm and to review anticipated costs. You do not have to use the first one you meet. Your attorney will have an enormous impact on the rest of your life, so choose someone in whom you have confidence. The attorney should be experienced with your kind of financial situation, respect you and your opinions and work with you to reach decisions. You must feel comfortable with your choice and, needless to say, never forget that you are paying the attorney. If you have concerns or questions, make sure they are addressed to your satisfaction.
- Necessary documents: The attorney will need all of the information you’ve collected and filed based on our recordkeeping recommendations, as well as an estimate of your household and personal expenses. Be realistic on this estimate and review it to make sure you have included everything. Private schooling for children, college education expenses, personal care and cash, clothing, and food, all have to be listed and accounted for. YouLeslie Kelleyght review this list with your financial advisor to make sure nothing has been missed. Health insurance is a critical consideration – you want to make sure you and your children, if any, are covered and the expense is included in your summary. If you have a prenuptial or other documents relating to your marriage, the attorney should review them as well. He or she will provide you with a comprehensive list of what documents and information are necessary.
- Financial advisor: Consult with an experienced financial advisor who acts in the capacity of a fiduciary and will prepare a financial plan for you, not merely guide you into investments. During this transitional period, you need to establish a plan and strategies not make drastic changes to your portfolio. The advisor should have at least one of the following designations and at least 10 years experience in counseling those going through a divorce: CFP®, AIF®or CFA. You should expect to pay a fee for the planning process. You should not expect to be urged to buy investment products, life insurance or annuities. If you believe that the advice is less than objective, select a different advisor. You should interview potential advisors as well. A list of questions for a potential advisor follows the glossary.
- The estate-planning attorney: Wills, trusts, health care proxies and related documents should be reviewed with an estate-planning attorney. In a divorce, an attorney who represented both of you should not be advising you about your estate. Of primary importance are the successor trustee on your revocable living trust, the beneficiaries of your trust, will, and life insurance, and the person you have listed as your health care proxy. You would not normally want your soon-to-be-ex making critical decisions about your health care during or after your divorce. Discuss custody issues with your attorney since the children’s other parent is usually the sole custodian in the event you die or become permanently disabled.
- The CPA or tax preparer: The CPA or tax preparer you used during your marriage probably will not be the one to use during and after your divorce. Having ex-spouses as clients represent a conflict of interest for this person and certainly a potential confidentiality issue. The same is true of your financial advisor. Find professionals who meet your needs and with whom you are comfortable. Interview several and be aware of the credentials they should have. A good financial advisor can help with the financial aspects of the QDRO, developing a financial plan for your future and creating an appropriate portfolio for your personal and retirement investments. A glossary follows at the end of this article.
- The primary residence vs. other assets: During the divorce, be careful to be objective about what assets you want. Keeping the marital home in exchange for pension, IRA or investment assets could be a very big mistake. The house does not produce income; it generates expenses. Those expenses could be unmanageable once the divorce is final. Selling the house and splitting the proceeds so each party can move on with sufficient assets and investments to provide financial security may be far more important than satisfying the emotional need to keep a non-income-producing asset.
- Life insurance: Life insurance protects alimony and child support should the ex-spouse die. It is an important part of assuring payment even if s/he should die and helps ensure financial security. Some attorneys permit the ex-spouse to own the insurance and pay the premiums. This also gives him/her the right to change the beneficiary without your permission. A better solution is for you to own the life insurance, control the beneficiaries and pay the premium. The premium becomes part of your overall financial settlement. Don’t waste time, energy and money going back to court year after year to make sure the life insurance owned by an ex-spouse is still in force and names the correct beneficiaries. You should have a list of all life insurance policies including company, owner, beneficiaries, face amount and cash value, if any. Contact your insurance agent for copies of your policies if you cannot find them and get confirmation of all information.
- Annuities: Annuities are an investment and savings vehicle that can be used as part of retirement planning. Review the beneficiary designations every few years and change the contingent owners and/or beneficiary designations of any annuities you own during the divorce process. Should you die or become ill during the divorce, you want to make sure the contingent owner you designate has the ability to manage the accounts and distribute the proceeds properly.
- The therapist: Finally, the next step may very well be the choice of a therapist. Therapists should help keep you calmer and focused through the financial negotiations. They generally charge by the hour and are significantly less expensive than the attorney, who usually charges an hourly fee broken down into either fraction of an hour or minutes for every service provided, including emails, letters, phone calls, personal meetings and appearances in court. An attorney is not a trained therapist. Don’t vent to your attorney. Save money and time while getting real help by finding a good therapist.
Divorce can be a financially and emotionally draining experience, but don’t forget to take time for yourself. Find creative ways to defuse stress and all the other complex emotions that are part of this very difficult process. QiGong, meditation, and exercise may keep you functioning at your optimal level.
And remember: this too shall pass.
Leslie Kelly is the founder, president, and CCO of American Financial Advisors, Inc. (AFA). She has more than30 years of wealth management experience guiding the financial and life-planning goals of AFA’s clients. To speak with Leslie or another knowledgeable Investment Advisor Representative, contact American Financial Advisors online or by calling 407-207-9006.
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