CWG Insight Series: Divorce - What You Need to Know First

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Almost 50% of all marriages in the US end in divorce.  Sadly, 41% of first marriages, 60% of second and 73% of third marriages all end in divorce.  At Crown Wealth, we do not want to be naïve and pretend this is not going to happen to our clients, so we take the proactive approach of knowing the statistics and being prepared to aide our clients should this unfortunately happen to you.  

Things to know and expectations to have...

We understand this is going to be a stressful time.  We have outlined starting points to think about:

  • Make sure to get necessary information and keep it in a safe place.
  • Run your credit report and familiarize the accounts that are in your name as well as jointly.  Remove yourself off joint credit cards - this typically means closing an account and opening a new account in your name and a new account in your spouse’s name.
  • Look into opening your own personal checking and savings accounts.
  • Do you have children?
    • Custody arrangements and knowing who will claim the children for tax purposes are items that will need to be discussed
    • College savings plans - will you both contribute now?
    • Who will pay health insurance costs?
  • Will you be keeping your home?
    • Will you need to contact a realtor to sell your home?
    • If you keep the house, will you be able to cover the mortgage payments on your own, and how does that impact your long-term goals?
    • Should you refinance the mortgage?
  •  Do you work outside the home?  
    • Does your spouse have Disability insurance that would cover the family’s expenses in the event they could not work? You may lose this coverage backdrop.
  • Does your spouse have a life insurance policy that is going to pay for the child support and spousal support in the event of a premature death?
  • Mortgage and Deed are two very different things, you need to make sure that they are treated as such.
  • Are you going to re-enter the work force? Before you do so, consult with your attorney to see what the impact may be to your settlement.
  • Are there assets that were inherited?
  • Does your spouse have a pension? What are the options for it?
  • Have you created a personal expense worksheet?
  • Do you want to go to trial? Is a settlement in your favor? (trial has many costs associated with it, not only financial, but emotionally. Are you going to trial to just “hurt” the other person?
  • If you believe there is an opportunity for an amicable divorce, you may want to consider consulting with a collaborative family law attorney first.
  • How is spousal support going to be taxed?
    • Did you know the income is no longer taxed to the recipient? Due to the Tax Cuts and Jobs Act (TCJA) of 2017, this went into effect January 1, 2019 and it is no longer a tax deduction for the payor.
    • During a paycheck review, if the income earner makes more than $142,800 annually the Social Security and Unemployment tax is only going to be reported for the first $142,800 of income in 2021.
  • Did you know if you were married for more than 10 years, you are now entitled to half of your spouse’s Social Security benefits?

One of the biggest mistakes in a divorce is considering that all funds are treated equally.  This is where a financial professional can step in and make a huge impact.  You need someone to understand all assets are not on an even playing field.  Are you taking over a QDRO?  Did you know that before moving those funds into an IRA, you are allowed one non-penalized distribution if you are under 59 ½?  Unfortunately, some investment advisors without the experience of divorce cases are not familiar with this information. Not knowing this can cost you thousands in penalties.

The purpose of this checklist/brainstorming is not to overwhelm you, but to educate you and understand the necessary first steps of divorce to help reduce the possibility of attorney fees and emotions.  Most divorces will have complications and having a personal CFO for guidance can alleviate these burdens and stress.  When it comes down to it, everything needs to be discussed and thought through.  

Working with a team that has experience in the divorce process is vital to creating a fair and equitable divorce.  This could consist of a family law attorney, CPA, Financial Advisor, insurance agent, lender and sometimes even a therapist.

If you are going through a divorce now or in the future, we want to be a resource for you.  Today I want to arm people with the most powerful piece in a divorce, information.  At Crown Wealth we are your single point of contact for all things financial.  We take a very hands-on approach and will guide you through this difficult journey.  Please reach out to us for assistance should you or a loved one find yourself in this situation, whether it be now or in the future.

Zac O’Brien, CFP®  Managing Director - North