Divorce is a trying time in anyone’s life, even if it is the most amicable divorce in the world. It is a major adjustment for all involved and it is stressful. When stress is high, details can be forgotten or left out altogether.
To ensure that nothing is left to chance when clients are facing a divorce, prudent financial advisors should be sure to implement the following in order to make sure their wealth management clients navigate a path forward to their post-divorce life.
Gather all financial documents
All clients facing a divorce need to make certain that they have an accurate, comprehensive picture of their entire financial outlook. Make sure that clients are mindful in gathering tax returns, income statements from all streams, any bank or investment statements for both individual and joint accounts, all insurance policies and estate plans.
Don’t be too proud to pay or accept alimony
While no one necessarily wants to make payments to an ex, alimony offers financial assistance to spouses who were financially supported during the marriage. This could be especially crucial if one partner left the workforce to put the focus on the family for an extended period.
Depending on state laws, spousal support can be distributed in a lump sum, regular payments, or via some other agreed-to arrangement. For example a former spouse cutting a check to pay a client’s mortgage.
It is important to note that alimony is tax deductible as long as a separate tax return is filed using a 1040 long form.
Divorce is emotional and many feel wounded during the process, which can mean pride can rear it’s often ugly head. Therefore, it is also important to stress to clients that they shouldn’t be too proud to collect spousal support as well. It’s becoming more and more common to see women making more than their spouse or even to see men assuming the role of stay-at-home parent. If this is the case, the ex-husband could be eligible for spousal support. In fact, a recent study saw a 56% increase in mothers paying child support and a 47% increase in women paying alimony as well.
Divorce is a perfect time to review estate planning documents, retirement planning, insurance policies, stock options, investment accounts, and IRAs. When speaking to clients about their post-divorce finances, it is a good idea to go through all documents as soon as legally possible to change beneficiaries, trustees or any other necessary information on these crucial documents. A client’s attorney will know the earliest these changes can be legally completed.
Don’t make big financial decisions right away
Divorce is life-altering and emotions run high. Most clients will need time to grieve the loss of a planned future. That is only natural. Prudent advisors will stress to clients that they should treat this big event in their lives with a certain amount of gravity and that is okay to hold off on making major financial decisions for at least six to twelve months following the finalization of their divorce. They should probably work on adjusting to the other massive changes happening in their life before embarking on new changes, like switching jobs or moving to a new city.
Clients who approach their divorce with calm resolution typically emerge from the process in the best shape. This is not always possible, as many are caught off-guard. However, for even the calmest of clients, gathering all relevant financial documents, reviewing those documents and making any necessary changes are among the first steps they should take. Avoiding major decisions and making sure to accept, or pay, any amount deemed necessary by the courts are also important steps to take during, and after, such a life-altering event.