Financial Considerations for Life After Divorce

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Financial Considerations for Life After Divorce

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A divorce can be an emotional journey and no one’s path will be the same. It can place you in a whole new financial situation and you will be faced with unique challenges during and after your separation. The future might feel unknown without the support of your spouse, but there are positive steps that can be taken to help secure a bright outlook for tomorrow. An Oppenheimer Financial Professional can help you navigate this challenging time by reassessing your personal and financial goals. Together, you can develop a secure financial future for you and your loved ones.

Taking the time to invest in yourself and your future will help establish a firm footing in your journey to a happy and secure lifestyle.

To begin the process of preparing for your next steps, here are some planning considerations:

Set Financial Goals
As you go through this process, establish financial and legacy goals that are important to you.

  • What lifestyle do you envision as you take the next steps in your new journey?
  • Are you planning on relocating or moving for a fresh start?
  • Are you considering starting a new career?
  • At what age are you considering retirement? Are there other income sources that you can draw upon?

Build a Team

Our Financial Professionals can work with your Accountant and Attorney to develop a plan that is custom-tailored to your specific goals.

Budget for Expenses
As you continue on this new journey, expenses will arise. Consider the different types:

  • Fixed are the everyday living expenses, such as rent, mortgage and car payments. These expenses reoccur in the same increments each month.
  • Variable are bills that arrive regularly but not always in the same amount, such as utilities and groceries.
  • Periodic can be car and home repairs, gifts to mark special occasions, vacations, etc.

Setting a budget that incorporates these expenses will help you start your path to a financial future that is within your control.

Create an Emergency Fund
In addition to the expenses that can arise and that have been budgeted for, have you established a savings/emergency fund? Anything can happen in life, and it is important to have a reserve to be financially prepared for any unforeseen events.

Health Care Costs
Health care costs can be the number one expense experienced in retirement. There are many ways you can prevent these cost from depleting your retirement savings.

  • If you are currently working, have you taken advantage of benefits from your employer-sponsored programs?
  • If you are close to or in retirement, do you have a complete understanding of Medicare and the Medigap programs that are available?
  • Have you thought about what age you might consider taking Social Security? Did you know that delaying these benefits each year to age 70 will increase your payments?
  • Will your emergency fund or savings that you have accumulated over the years be enough to cover any unforeseen medical costs?

These steps will ensure that your wishes and objectives regarding your health and legacy will be carried through.

Update Your Estate Plan
Estate plans created during your marriage should be revisited and estate planning documents should be reviewed and updated to reflect your current health and legacy objectives.

Establish a new will or trust
Update beneficiary designations on all pertinent documentation, including your bank accounts, brokerage accounts, and life insurance policies. Create powers of attorney with new directives. These steps will ensure that your wishes and objectives regarding your health and legacy will be carried through.

Protect Your Financial Future
Your loved ones depend on you, whether you are a caregiver or parent. Have you considered protecting them by investing in the following?

Life Insurance

Life insurance can fill a multitude of needs, including financial support for loved ones. It can provide you with confidence, knowing your heirs will be taken care of in the event of your death. It can also help fund educational costs, supplemental retirement income and much more.

Long-Term Care Insurance

One of the biggest risks to your retirement can be a long-term care (LTC) event. LTC insurance can protect your assets in the event you cannot care for yourself. It can cover care in a nursing home, assisted living facility, adult day care center, hospice care and even in-home care. It can provide you with the confidence that you or your loved ones can afford the help should the need arise.

Disability Insurance

Your income is the driving force behind all the plans you set into motion, such as purchasing a home, everyday living expenses, planning for your children’s education, vacations and saving for retirement. If you were to fall ill or become injured and unable to work, disability insurance can provide the support to maintain your current lifestyle, covering expenses and avoiding debt.

As your life changes, so will your insurance needs. If you currently have coverage in these areas it is important to review the policies you may own. This will ensure that you have the appropriate protections in place for you and your loved ones.

Quotation from Aenean Pretium: “Divorce can be difficult, but an Oppenheimer Financial Professional will guide you along the way, building a path that will bring confidence through the planning process for a secured financial future.”

 

Gary Domoracki

Gary Domoracki

Managing Director - Investments | Branch Manager

I strive to help educate all of my clients about the power and importance of investing, as I still do with my daughters. Making sure that our girls have the confidence to make educated financial decisions is a must in our household, because, all too often in the wealth management industry, women are overlooked and mistreated. One of my goals, as a financial advisor, is to facilitate change in the finance world to make it a space where women feel powerful, knowledgeable and confident when talking about money.

Sources:
“A Plan for Change – An action guide for women who are divorced or widowed.” Brigthhouse Financial, 2020.
“How to Work with Female Spouses Through Divorce.” U.S. News & World Report, 2020.
https://wtop.com/news/2020/05/how-to-work-with-female-spouses-through-divorce/
“Women Don’t Consult with Financial Advisors When They Get Divorced. Here’s Why They Should.” Forbes, 2020.
https://www.forbes.com/sites/margueritacheng/2020/01/20/hidden-gems/#3d89bde6a398
“Financial Tips and Advice for Women in a Divorce.” Mass Mutual, 2020.
https://blog.massmutual.com/post/women-divorce-tips

©2021 Oppenheimer & Co. Inc. Transacts Business on All Principal Exchanges and Member SIPC.

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Guide to Financially Surviving a Divorce

Purse Strings Approved Professional

Blog Series

Guide to Financially Surviving a Divorce

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Divorce is a difficult enough process on an emotional level without having to worry about the financial costs. Nationally, the average divorce takes nearly eleven months and costs around $15,500, including $12,800 in attorney’s fees at an average of $250.00 per hour. Divorces that go to trial cost even more, averaging $19,600, while those that settle privately pay an average of $14,500.

One of the most basic and important requirements for divorce court is a financial affidavit that provides an accurate picture of your income, expenses, assets, and liabilities. Compiling this document can be sometimes frightening and always at least a little bit overwhelming, if you’re doing it alone.
In this article, we will look at how to financially survive a divorce by doing what is legally required of you while still protecting yourself and your assets.

 
Dividing Assets & Liabilities

Most couples going through a divorce decide on splitting their assets and liabilities on their own or with a mediator rather than leaving it up to a judge. In fact, some experts estimate that only five percent of cases go to court. If you and your former spouse end up in front of a judge, don’t worry. It is important to look beyond the present and keep the big picture in mind to avoid making any emotional decisions.

There are two different sets of rules when it comes to splitting assets and liabilities, depending on the state you live in:

  • Community Property – This is the rule here in Washington, as well as Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Puerto Rico. It means that assets and liabilities are classified as either community property or separate property. Community property is equally divided between spouses, while each spouse keeps their own separate property.
  • Equitable Distribution – All other states are equitable distribution states, which means that assets and liabilities accrued during marriage are divided as equitably as the court sees fit. It’s important to note that equitable isn’t the same thing as equal. For example, in some states, a judge might order one spouse to dip into what other states would consider separate property to make the settlement fair to both spouses.

Community property includes everything that was accumulated during the marriage. Separate property includes everything prior to the marriage along with gifts, inheritances, personal injury awards, pension proceeds (vested before the marriage), or similar types of property given to one of the spouses.

The house is often the most difficult decision. If there are young children involved, the house often goes to the parent that will spend the most time with the kids. If no children are involved, the house goes to the spouse that owns the house as separate property. If the house is community property, the situation becomes a bit trickier and a court may decide for the couple during divorce proceedings or as part of a temporary order.

If you’re a business owner, you’ll have a whole other set of concerns to address (assuming you don’t already have some sort of prenuptial agreement in place).
In addition, you’ll need to sort out distribution of any retirement plans, 401(k), and/or pension plans. Often, courts will implement a QDRO (Qualified Domestic Relations Order) that recognizes the joint interest in such plans and splits them accordingly.

The long and short of it is this: when you end up in divorce court, you and your spouse lose a lot of decision-making power. It is in your best interest to settle privately.
This may require you to give up some items that you feel are rightfully yours. Try to look at the big picture and think about whether these things will make much of a difference to you in five years. If not, then let them go.

One other option to consider is a practice called “collaborative divorce.” This one really only works if you and your former spouse are parting on relatively amicable terms and can decide on the terms of your divorce amongst yourselves without taking it to court. It’s less expensive and lower stress for everyone involved. Check out the International Association of Collaborative Professionals for more information.

 

Determining Income & Expenses

Fewer than one-third of Americans prepare a detailed household budget each month that tracks their income and expenses. Maybe you never felt a need for one before. You will likely wish you had a budget during your divorce proceedings, because the financial affidavit requires a detailed look at your income and expenses each year.

Before you go into court, take the time to build out a spreadsheet of your income and expenses. Do not rely on your spouse to present an accurate picture of your financial situation. Even if you do not think he or she will be dishonest, it’s still important to present your side of the story in all regards.

This can be a particularly difficult process if your spouse handled the lion’s share of financial matters. Get login information for all your accounts, request statements from your bank, meet with your financial advisor, and take any other steps to build as accurate of a picture as possible.

Click here to download our retirement planning guide.

Many fixed costs are easy to find, such as your mortgage, real estate taxes, insurance, cable bill, internet bill, car payment, gym membership, and cell phone bill, which makes them a perfect starting point. You can usually find these numbers on account statements that are mailed or emailed or by looking at your bank statement for the past month.

The next step is calculating weekly costs, such as groceries, child care, gas, parking, lawn care, dry cleaning, entertainment, and allowances. While it may be tempting to just look at last month’s bill, you should take an average throughout the year to get a more accurate picture. After all, you may have gone on vacation last month and not paid for groceries or child care, which would give you an unrealistically low estimate for these categories.

The final step is to take a look at your uneven and/or random costs that occur throughout a given year, such as utilities, car repair, medical costs, holiday gifts, and vet bills. It’s also important to include spending that doesn’t necessarily occur every year, such as vacations that you might take every other year or major medical procedures. Average out these expenses to come up with a monthly cost, as if you were saving for them on a regular basis.

 
Household Inventories

Most people are aware of the need to calculate their assets, liabilities, income, and expenses, but it’s easy to forget special or sentimental items in the process. During a divorce, each spouse should create a separate checklist of household items that are important to them.

The easiest way to create this checklist is to create categories for different items, such as artwork, furniture, books, and clothing. When adding items to these categories, it’s important to assign a monetary value to each of them. Courts usually assign flea market values, even when items are new, so if you have documentation of value, it’s important to include it.

Finally, be sure to capture video or still images of everything in the order that they appear in the checklist. If your list seems too long to document, at least photograph the items with the greatest value to you. It’s important that the court understands what item is being considered when it assigns ownership rights to one spouse or the other.

 
What to Ask a Lawyer

Divorce attorneys constitute the bulk of most divorce expenses. At a cost of between $150 and $350 per hour, you’ll want to come to meetings prepared to ask important questions and get the answers you need quickly.
You’ll want to discuss a few issues up front with your lawyer:

  • Fee Structure – Will they bill you for each hour spent on the case, including the time spent answering questions? Or is it a fixed fee? Since divorces can take months to finalize, you need to be prepared to cover the costs.
  • Divorce Procedure – What is the divorce procedure in your state? Most attorneys can provide an estimate of the timeline. If you work full-time or have a busy life with children, this knowledge can help prepare you for what lies ahead.
  • Alimony Issues – Different states have different rules when it comes to seeking alimony from the other spouse. For example, some alimony issues depend on the length of the marriage or discrepancy in earnings between spouses. Ask your attorney about these laws to provide an idea of your liability or benefit.
  • Child Custody – This is the most important, and potentially most difficult, matter in any divorce with children. If you can’t privately agree on who will retain custody, it’s important to understand the factors that are important to state judges from the beginning. Your attorney should provide some idea of the odds of custody and any challenges. Keep your children out of the proceedings as much as possible and try not to speak negatively about your former spouse around them. While you are understandably upset, that other person is still their other parent.
  • Asset Splitting – Lawyers should be able to tell you how states handle splitting assets, which can help you prepare ahead of time.

It’s also important to shop around for the right divorce attorney. Choose three potential attorneys and meet with each of them before making your decision. If the cost is out of your range or if there are any red flags, move on to the next attorney and find one that is right for you.

The Bottom Line

Divorce is a stressful and expensive time, but there’s a high cost to making any mistakes during the process. By following these tips, you can help ensure that you financially survive a divorce.

A financial advisor can also help during these times by providing objective advice to help minimize costs and divide assets in ways that make sense.
Contact us today for a free consultation to learn more about how we can help.

Dale Terwedo, CFP, ChFC, CLU, BFA

Dale Terwedo, CFP, ChFC, CLU, BFA

Certified Financial Planner and Founder

When I founded my original practice in 1983 and then TFS Advisors in 2008, I had one goal – to bring confidence and clarity to my clients’ financial lives. As I worked with clients for over 38 years, it became apparent that the pre-retirement transition was often the most challenging both financially and emotionally. With so many moving parts, clients felt overwhelmed and fearful that they’d miss a key detail that could jeopardize the retirement lifestyle they’d been working toward.

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How do you get a mortgage without a regular salary?

Ask An Expert

Ask an Expert – How do you get a mortgage without a regular salary?

Jason Conger Financial Advisor

Answered By

Marla Barch

Mortgage Lender

Marla.barch@myccmortgage.com

Question

How do you get a mortgage without a regular salary?

Answer

Qualifying for a mortgage requires you to have a stable “income” that is likely to continue. However, there are lots of acceptable “income” types beyond a regular W-2 job, such as

  • Self-Employed Income
  • Child Support
  • Alimony
  • Social security
  • Disability Income
  • Rental income from Investment Properties
  • Retirement Disbursements
  • Trusts
  • Royalties
  • Adoption Subsidies
  • Student Stipends
  • and more!

Additional options include having a family member with stable income co-sign or using the “asset depletion” program, which means you have enough savings/investments to pay your mortgage and other bills with monthly withdrawals.

Since the requirements will vary based on everyone’s unique situation, I recommend scheduling a custom consultation to review your goals, budget and qualifications in more detail.

We will provide you useful and timely information you can use to be #financiallyfearless