No matter the cause, divorce is a stressful situation for any family. Property is divided, children must suffer through difficult transitions and partners go their separate ways. Difficulties can rise significantly, but no matter how challenging it might be, divorce is financially survivable if these guidelines are followed
1) Open individual accounts for themselves and separate every day finances
It is never too soon to have clients set up their own bank accounts and credit cards. Suggest that they use a different bank than where they have joint accounts and open accounts, both checking and savings, in their name only.
The early stages of a divorce is the perfect time for client’s to separate every day finances from their estranged spouse. Don’t allow your clients to get overwhelmed and forget to do this, it could lead to their finances becoming unnecessarily enmeshed later in the process. A prudent financial advisor will also have clients gather any pertinent financial documents such as payroll, mortgage, investment or credit card statements as well previously filed tax returns.
These documents will be beneficial to a client during the legal part of the process, but will also help an investment advisor determine what assets the client owned before the marriage occurred and when it dissolved as well what liabilities they are responsible for.
2) Do not decide on financial issues independently of each other
When every asset or income stream is viewed and decided upon individually of each other, the interaction between taxes, capital gains, losses, and inflation often falls under the radar or is missed entirely by the divorcing couple. Fair settlements will encompass all aspects of the couple’s financial picture. Once a comprehensive overview has been established, clients will be able to gain valuable insights on how every financial decision they make will affect other aspects of their investments and help them determine how, and when, to divide these assets.
3) Don’t assume equal dollar-to-dollar division is a fair division of assets
All too often, divorcing spouses make the mistake of accepting an asset as fair division because it is worth the same amount as another. One asset could have a higher basis—this results in a lower taxation, or generation income assets could be worth more than market value. Make sure clients pay attention to tax basis, present value, and transaction costs during any negotiation.
4) Ensure that clients are aware of any liabilities on debt that they may have
In the majority of cases, terms like “debt” or “unsecured debt” refer to any consumer credit card debt that the couple may hold together. More often than not, if the debt was incurred during the marriage, it’s a shared liability no matter what the circumstances.
In divorce settlement proceedings, clients will then divide responsibility on these debts. However, it is important for clients to proceed with caution since most credit institutions don’t care what the settlement decree states. They can, and will, come after both parties for payment. The best option for clients is to pay off all debt before the divorce is made final.
Divorce is traumatic experience for most who go through it. Effort to build a life is then used to tear that life apart. A prudent financial advisor will work with clients to make sure that clients have their own accounts, try to understand the correlation between financial issues, negotiate fair value for assets and pay special attention to liabilities as the divorce works its way through the final stages. It is a stressful, potentially life-altering, experience, but it if dealt with shrewdly, it doesn’t have to be life-shattering.