November 1, 2016
Even in the best of circumstances, divorce is stressful. Rarely do we engage with a couple who agree on getting divorced, bear no ill feelings toward each other, and work together to make sound financial decisions (in which case you can’t help but wonder, why are they getting divorced?) Most of the time there is fighting and a mutual desire to “punish” one another. In such a state of heightened emotion, stress factors prevail and the ability to think rationally and make good decisions for the long-term are compromised. That’s where a divorce financial planner can help.
Financial planners are trained to think about the future. Our job is to look ahead: what will our client’s financial situation look like in 5, 10 or 20 years? What needs to happen now to enable the client to reach his or her particular goals later?
In a divorce, individuals tend to think more short-term. “You take the house, I’ll take the bank account, we’ll split the IRA and we’ll both be on our way.” Let’s just be done with this.
This kind of thinking can lead to poor financial decisions that seem like the right thing to do in the heat of the moment. For instance, Sally has been married to Harold for 15 years. She’s had enough of his controlling nature and has decided she wants out. She tells her lawyer, “If he wants to keep the retirement accounts that’s fine with me. I’ll just keep the house.” Sally wants this to be over, but she’s not thinking about her future. She’s 45 years old and her ability to reach her goal of retiring at age 66, if she’s starting from scratch now, is dim. She should not be giving up all that retirement money.
Mark is age 62 and married to his second wife Kim, who is 45. They have a 7 year-old son Max. Mark generously offers to pay Max’s health insurance until Max is age 26, as a bargaining chip to pay less in alimony to Kim. What
Mark failed to consider is that he’ll be 81 when Max turns 26. Mark will have been long retired and may not be able to afford this payment.
I often see this desire to rush through the process be particularly harmful when there is a business ownership involved. One or both parties doesn’t want to take the time, or pay the expense, to have the business properly valued. This mistake can leave tens of thousands of dollars unaccounted for and usually left to the business owner.
The involvement of a divorce financial planner helps the client step back and think more comprehensively about their decisions. Our analysis includes evaluating the growth of assets over time, factoring the taxation of various assets, projecting income, estimating the ability to retire, and many more long-term issues. When your client is too emotional, and doesn’t want to hear what is in their best interest, we can step in and assist in guiding the process toward a better outcome. Let us help your client emerge from the divorce process feeling healthy and confident in the future.
