finances
Avoid These
5 Financial Mistakes During a Divorce
G
Oliver “Ollie” Norman – Wealth Advisor, Covenant
Going through a divorce ranks as the second highest stress inducing life event a person will ever experience, just slightly below the death of a close family member. A divorce not only causes major emotional trauma, but individuals also face complex financial challenges associated with the change in their life's circumstances. Let’s look at some of the common financial mistakes people often make when going through a divorce and suggestions to alleviate even more stress during this life changing event. 1. FAILURE TO ESTABLISH A BUDGET Key questions include: • What realistic purchases do I need to make? • Do I have enough income to maintain my home and the lifestyle to which I'm accustomed? • Is there anything I need to give up? 2. NEGLECTING TO IDENTIFY SHORT AND LONG TERM FINANCIAL GOALS Establish a roadmap outlining your goals by asking these questions: • What is my desired retirement date? • What savings are needed for my children’s college education? • Do I have an emergency fund established? 3. FAILURE TO CONSIDER ATTORNEY'S FEES Average legal fees associated with divorce proceedings range from approximately $15,000 to upwards of $100,000 for more complicated marital estates. In addition, there may also be fees incurred for redrafting legal documents such as wills, trusts, powers of attorney and guardianships. • Be mindful of costs • Plan and write down your questions in advance and have an agenda of what’s important to you. For example, is it worth spending hours of legal fees negotiating over a movie poster? 4. NOT FULLY UNDERSTANDING THE REALITY OF NEW FINANCIAL CIRCUMSTANCES • Before the settlement, make sure you understand the implications & limitations of your new financial picture. • Establish exactly what income you will be receiving after the settlement and how it will be taxed.
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B oerne B usiness M onthly | March 2020
• Know the tax implications and/or potential penalties for making withdrawals from certain investment and retirement accounts. • Understand how the divorce will affect your health insurance benefits. • Will you need to get further education to enter the workforce? • Will you qualify for spousal benefits through social security? • Understand your responsibility for shared debts. 5. NOT GETTING ORGANIZED • Know what you own and what you owe; divorce attorneys will require this information. • After the divorce, review and update your beneficiary designations on retirement plans and life insurance policies, wills and trusts. Seeking a qualified financial advisor that adheres to a fiduciary standard is a good first step to help walk you through this challenging time in your life. BBM
Oliver “Ollie” Norman is a wealth advisor at Covenant. Ollie retains the professional designations of a Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC®), Chartered Life Underwriter (CLU®), and Certified Divorce Financial Analyst (CDFA).
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