Top Three Tips in a Financial Divorce

By Kelly Trevethan CIMA & Stacey Welsh CDFATM
Top-Three-Tips-in-a-Financial-Divorce.
Almost 40% of all marriages in the United States end in divorce. This affects millions of Americans every year. Whether it has happened or is happening to you or someone you know, below are some helpful hints on the divorce process and one of its most stressful issues – money.

Hire the Right Attorney

Hiring the right attorney is critical. There are three common approaches to divorce: mediation, collaborative divorce and litigation.

Mediation is often the least expensive option. An attorney who is a Certified Family Law Specialist acts as a neutral intermediary to help the couple reach a conclusion on outstanding issues. This option may not be right for spouses who have unequal financial or negotiating experience, but hiring a consulting attorney can help with this issue.

In a collaborative divorce, each party brings his or her own Collaborative Divorce lawyer to settle the issues in a creative and cooperative way. These four-way meetings are often less expensive than litigation, because they avoid court costs.

Litigation is the most adversarial, expensive and time-consuming approach to a divorce. Each party hires a lawyer and devises a strategy to get what he or she wants or needs from the divorce. A judge decides the outcome.

The type of approach to take in a divorce depends on the relationship one maintains with his or her spouse. In order to take advantage of the less expensive and more amiable processes of mediation or collaboration, both sides must agree to fully disclose documents and their financial situations. If one spouse believes that there are hidden assets or that his or her spouse cannot be or respectful in these processes, litigation may be the only choice.

To find the most appropriate attorney, begin by researching the state bar association website for Certified Family Law Specialists or Collaborative or Litigation divorce lawyers, or ask for recommendations from CPAs, CDFAs, lawyers or divorced friends, who had a similar financial situation. Once there is a short list of candidates, attorneys’ backgrounds can be researched on www.martindale.com.

The top three to five lawyers should be interviewed as quickly as possible as it prevents the other spouse from engaging those lawyers. For more effective interviews, review the case for them and prepare a financial summary, including assets and debts and the income and expenses.

A Certified Divorce Financial Analyst can help. If the case involves a complex financial situation, make sure the attorney is capable of handling these details. Once an attorney is hired, stay engaged in the process, provide input and focus on the big issues, including financials.

Focus on the “Financial Value” of the Assets

One of the largest financial considerations is the house; however, don’t assume its value. Get an appraisal and conduct a title search. Then have the home inspected for possible damage and have the mortgage reviewed. Preplanning is required if there are plans to refinance the mortgage, since refinancing may be more difficult after divorce.

The next financial matter is assets. In order to effectively negotiate, understanding the financial or after-tax value of each asset is essential. Keep in mind that when splitting up assets, cash is king. All assets are not created equally.

For example, if the person who gets the retirement account is not at least 59½ years of age, he or she will incur a 10% penalty when drawing on those assets. Also, at any age, the person will pay income taxes. When dealing with stocks, find out what the original cost basis of the stock portfolio is. If this is converted into spendable cash, the person will pay capital gains tax on the difference between the original cost basis and the current market price. Finally, if there are any major assets, including a business, law practice, venture or other illiquid investments, investment real estate, etc., hire an expert to value the assets before negotiating a settlement.

Create a Master Wealth Plan

Oftentimes, divorce creates anxiety about the financial future. Creating a master wealth plan can relieve anxiety by answering some burning questions: Does this settlement work for me? Will I have to change my lifestyle? How do I construct a portfolio that ensures that I do not outlive my money?

A specialist can help develop a Master Wealth Plan, which will identify the person’s financial life goals, help the person understand the financial control factors, measure the probability of success and make the necessary adjustments to achieve desired goals.

Divorce can be a stressful situation; however, by hiring the right attorney, focusing on the financial value of the assets and creating a master wealth plan, a person can ensure that divorce anxiety is kept to a minimum and that life after divorce offers financial security.

Stacey Welsh CDFATM is a Wealth Adviser at United Capital Financial Advisers and can be reached at stacey.welsh@unitedcp.com. Kelly and Stacey help divorcing individuals prepare master wealth plans.