Divorce Made Easier

This Article has been featured on Investopedia.com

 “It Only Has to Hurt a Little”

The Gut Wrenching Battle

You just spent 9 of the worst months of your life, but it’s almost over. You had no idea divorce could be so painful. Your spouse, your partner, is now your worst
 enemy. You expected there would be a war, but you had no idea how ugly it would become. The kids are caught right in the middle of this family catastrophe. The attorneys fought over every single issue, but you really didn’t understand much of what was going on.

Accountants and financial experts gave reports and testified in court in excruciating details about your financial life, as did your ex-spouses experts. They understood your financial world better than you do. They all built their arguments on why you should get this or only that. Your future life was being determined by others.

In the past, you knew what to expect. Family income, you knew it was enough to pay the bills and add to your savings each year and take great vacations. You knew that each of you were contributing to retirement plans. You might have even known you would receive some sort of inheritance from both of your families. Between it all, you both thought there would be enough to retire someday. But those days are gone.

So what do you do now?

If you’re the spouse paying support, you’re going to have to figure out what your new lifestyle will look like. What you can afford? What no longer makes sense?

New House Arrangements

• Can you still afford your current home if it was allocated to you?
• Can you afford to refinance the mortgage, to take your ex off the mortgage?
• Is the house upside down?

New Retirement Plans

The lawyers made you do a QDRO, a complex agreement that either gives a part of your pension to your ex, or gives some of their pension to you.

• Is that something you want to do now, or once you or your ex retires?

New Accounts Arrangements

What about all those bank accounts, brokerage accounts, IRAs, education accounts and credit card balances. The decree says who gets what, but now you need to get them all transferred and you need to understand the tax liabilities, if any.

If you’re the spouse getting support you need to know if it will be enough to live on.

• Will you have to get a job? Will it pay enough to meet your needs?
• What if your ex gets sick and is unable to provide what is decreed?
• What if you get sick and bills exceed the support you’re receiving?

It may be that you have not worked for 13 years…..finding a job won’t be easy. You have all the same problems as your ex-spouse above but with less certainty because you’re still reliant on them for the time being.

Make the Battle worth the fight!

This is the story of half of all American marriages. The first lesson to learn from the horrible picture painted above is that it doesn’t need to be ugly. If you perform a Lifestyle analysis to project a future budget during the divorce, you can understand what post-divorce life will look like for you.

A Lifestyle analysis measures exactly how you will live post-divorce. It is based on how you lived during the marriage, and adjusted for all the variables that will change post-divorce. If you perform this analysis you will be in much better position to either accept, decline or modify offers made during divorce proceedings. You will know what works and what doesn’t because you know exactly where you stand financially and what you need to move forward

How do I do a Lifestyle Analysis?

You can work with your attorney or a Certified Divorce Financial Analyst (CDFA).  Attorneys are not trained to perform financial analysis or projections.  That’s what a CDFA does; financial analysis during divorce that allows you to negotiate, mediate or litigate towards a goal that meets your needs, and often the needs of your ex. As in every marriage, there is only so much income and assets to be split and both parties want to maintain what they had. If you cannot negotiate or mediate, the CDFA can testify as a financial expert in court to educate the judge as to what your financial needs are.

 Some of the ugliness of Divorce can be removed simply by educating both parties on the most equitable property  settlement and support agreement. A CDFA creates a financial models that show the effects on each party. As  different offers of allocations of assets and liabilities, along with various support payments and living expenses are  projected, you can see how they will affect you. One offer may make sense and another won’t work. 

 Once the divorce is settled, both of your financial lives have been projected and tested….so you know what to  expect.

 The CDFA then implements the divorce by transferring assets, refinancing debt, implementing the QDRO, setting  up wills, establishing insurances and making sure you live within the plan. If your advisor is also a CFP (Certified  Financial Planner), they can help you manage your assets from that point on.

When the smoke clears you will know your budget, settle into your new living arrangements, have your accounts transferred and invested appropriately, insurances in place, wills set up and future defined, all neatly packaged and ready for your new life.

Michael Black, CFP, CDFA

Michael Phillips Black Wealth Management