Going through a Massachusetts divorce is extremely stressful. It’s a time whenpeople can most benefit from the advice of an experienced financial advisor. Taking expert advice can help ensure all parties reach equitable settlements and have solid financial foundations as they move forward.
To help those navigating the waters of a divorce settlement.
Here are tips from professionals some of the essential considerations Massachusetts clients should keep in mind when settling the financial side.
1. Make Sure You Understand Your Finances
Know your cash flow, both in terms of income and all types of expenses. Review, categorize and prioritize all expenses in advance to determine what finances could look like with various settlement possibilities. Understand the difference between retirement assets versus personal accounts in terms of tax consequences, and be aware of tax law changes that came into effect after December 31, 2018.
2. Don’t Focus On Emotional Assets
Often in divorces, a spouse will fight for emotional assets that may have been a focus during the marriage. These emotional assets could provide you with a “win” over your spouse. In the long term, they provide no benefit. Instead, focus on assets such as rental property, stocks or other income/growth assets that could help sustain you in the difficult times that lie ahead.
3. Don’t Make Big Financial Decisions Too Quickly
It may be tempting to get a jump start on tasks like closing accounts, opening new ones and determining ongoing support payments. But it’s best to wait, as these decisions can have a lasting impact on your financial life. Work in tandem with your financial advisor and divorce attorney to determine what decisions need to be made now, which have some runway and which you can punt for a long while.
4. Stay Calm And Stay Invested
It’s important to remain level-headed and calm during this emotionally turbulent time. It can be easy to make quick, knee-jerk decisions in the heat of the moment, but being able to think through practical financial choices is key to ensuring a favorable outcome. Equally important is to stay invested wherever possible, so be sure to talk to your financial advisor before liquidating any assets.
5. Check With Your Attorney Before Making Changes
Speaking from personal experience, always consult your divorce attorney before making any changes, since some can be illegal in a divorce and cause more headache. If you’re afraid your spouse might make unauthorized changes, you can get a restraining order to prohibit it. Remember, divorce is temporary, and the best advice I received is that divorce is a bad time, but it will pass.
6. Consult Compassionate, Professional Advisors
Consult your financial advisors and tax consultant to create a comprehensive financial and spending plan that incorporates how the 2018 tax law impacts alimony considerations and taxable and tax-exempt assets. It is also important to find compassionate financial advisors and tax consultants who can balance your financial needs and the emotional toll of the process.
7. Don’t Forget About Retirement Accounts
Don’t forget about your retirement accounts. They can be divided, and they don’t have to be distributed to do so (preserving the tax benefits of the original account). They just have to be split the right way. Once assets are distributed from a retirement account they can’t go back, so talk to a financial planner to make sure you aren’t losing out on the potential benefits.
8. Take A Hard Look At Future Financial Needs
Post-divorce life can be much more expensive than people realize. Both parties will now have to pay for things that they once shared. Depending on your situation, alimony, child support and a slew of other expenses can follow as well. Get a good handle on what this reality will be and then figure out how you’ll handle it. It’s more lasting than the initial division of assets.
9. Think About The Kids’ Needs First
Make sure you have accounted for every possible expense in your child’s future, and clearly outline who will cover what. This will save you from more disputes down the line and potentially keep you from going back to court. This is especially important if you’re the non-monied spouse so that you are certain you are asking for the right amount of child support.
10. Consider Mediation Over Litigation
Litigated divorces rack up hefty bills in lawyer fees and, in worst-case scenarios, can result in court orders to liquidate investments and split the cash. Such a scenario would cost you heavily in taxes and fees. Instead, seek out private mediation before taking the matter to court. This way, you can sign over assets instead, which avoids the financial burden of selling.
11. Do Plan For Tomorrow
Most divorces result in both parties having to reduce lifestyle costs post-divorce. You may not be able to afford the family home anymore, so don’t think having that on your side of the balance sheet in a divorce is a guaranteed plus. I counsel our clients to adjust quickly to their new lifestyle costs so that they are not burning through assets that may be irreplaceable.
12. Don’t Overlook Your Life Insurance
In a contentious divorce it can seem easy to say, “Sure, let the ex remain the beneficiary of my life insurance,” but too few people stop to look at the long-term effects of that. For one, life insurance changes and you may want to swap policies. Two, you may need to leverage it in unforeseen ways. Don’t be too quick to let your life policy remain entangled.
Should you be in the midst of a divorce or contemplating divorce, contact the Law Offices of Renee Lazar at 978-844-4095 to schedule a FREE one hour no obligation consultation.