Most couples tackle financial planning to spend their futures together. The reality is that 40 percent of spouses won’t be married long enough to enjoy their retirement with each other. Divorce can change plans abruptly, including how to support two households on savings intended for one.
One of the biggest mistakes Donna Kline sees in these scenarios is letting emotions lead the process. Kline is a Certified Divorce Financial Analyst® and Chartered Special-Needs Consultant® with HBKS Wealth Advisors in Warrendale. She helps people resolve the financial matters surrounding divorce. “Sad as it is, it’s a business decision at this point,” she said. “Find someone who can help you sort it out and focus on the end goal without getting overwhelmed by the drama and the pain that can come with divorce.”
Another common error divorcing couples make is failing to seek the advice of a financial advisor. “Reach out to people who you can trust to get good financial advice,” Kline said. “Lawyers aren’t financial advisors. They understand the legal aspects of divorce, but you need someone who understands the financial part.”
A skilled financial advisor can help determine, for instance, which assets are the most important when a married couple splits up. For shared properties like marital residences and vacation homes, consider the expense or income generation in addition to the equity, said Kline. “Depending on the length of the marriage, there may be substantial equity in the home. However, you need to ask about the cost of maintaining the home. No matter the size of the estate, you can’t afford to make a mistake.”
Don’t just look at the property taxes and remaining balance on the mortgage. Kline said to explore all costs associated with the maintenance and upkeep. Weigh that against costs for selling the property—real estate fees, closing costs, and capital gains. “All of these things need to be considered before dividing assets.”
Another area where a financial advisor can provide solid intel and advice is with investment and savings accounts.
Private investments and some mutual funds have specific requirements regarding when and how many shares can be liquidated at a time,” said Kline. “Sometimes, there is a financial penalty for selling the asset before a specific date.” An additional complication with private investments is that some require an investor to meet high-income and asset requirements. During a divorce, it’s possible that one spouse qualifies, but the other does not. “Then, we have the question of whether it’s appropriate to divide that asset among the parties or allow the qualifying spouse to keep the asset in its entirety and offset the value with another, more liquid or less risky asset,” she said.
Pensions are another hurdle depending on whether any cash is available to the divorcing parties immediately or payable as a stream of monthly payments after retirement. “Pension benefits to be paid at a later date can be separated due to divorce, but it may be better for one spouse to accept an offsetting payment now instead of waiting a period of years,” Kline said.
Assets aren’t the only consideration requiring the assistance of a skilled financial advisor during a divorce. Kline said spouses with special-needs children have other issues to discuss and sort out as part of their official divorce agreement.
“A lot of times, people have done little to no financial planning prior to divorce,” she said. “In a special-needs family, one parent is often the full-time caregiver because they can’t work and meet the daily needs of the child.”
When a divorce happens, decisions must be made about how to divide the care for the child now and in the future. “The caregiver is getting divorced, and they’re going to have two roles—caregiver and provider—they weren’t prepared for, so it can be overwhelming,” said Kline. “You need to lean on professionals at this time because it helps you become comfortable with the financial decisions of the divorce. With a parent who was the caregiver and may need to stay in that role after the divorce, that’s a factor in dividing assets and planning for care for their special-needs child.”
In those situations, the custodial parent can request the allocation of additional assets to account for the reduced earning potential due to their caregiving responsibilities. Standard child support calculations do not adequately address the additional expenses associated with raising a special-needs child. Divorce agreements must consider specialized medical care, services, and equipment, any paid respite care for the custodial parent, and potential long-term care needs into adulthood.
As part of asset division, the divorcing couple must also consider setting up a special-needs trust to provide for the child’s future care without jeopardizing eligibility for government benefits if one is not already in place. The goal is to create a plan that meets the child’s unique needs while dividing responsibilities between divorced parents.
“Not all assets are created equally,” said Kline. “No matter the family dynamic, you must be clear on what the costs, taxes, and risks are associated with each asset to make an educated decision—one that could dramatically affect your financial future.”
Disclaimer: Investment advisory services are offered through HBK Sorce Advisory LLC, doing business as HBKS Wealth Advisors. NOT FDIC INSURED – NOT BANK GUARANTEED – MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL – NOT INSURED BY ANY STATE OR FEDERAL AGENCY
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