By Bill Harris, RMA
Divorce is a difficult and emotional time for everyone involved and you want to do what you can to minimize stress and protect your interests. One of the first things most people going through a divorce do is retain an attorney to secure experienced, objective advice on how best to proceed throughout the divorce process.
The same holds true when it comes to financial advice and planning. Attorneys are not, typically, Certified Financial Planners™ or financial advisors who understand the short-and-long term implications of financial decisions made during divorce proceedings.
Advantages of Consulting a Financial Advisor
Emotions: There are many moving parts involved in a divorce and most of them are emotional. All decisions could have serious consequences if mishandled. A financial advisor is an objective partner who can counsel you without emotional attachment. It’s important to make financial decisions based on logic and an understanding of how financial decisions will impact you, not just at the time of your divorce but over the long term.
Tax Implications: A financial advisor can review your tax returns and discover assets and opportunities you may miss otherwise, as well as help you make sound decisions that will provide you the greatest tax advantages going forward. Some common tax issues that arise during divorce include:
· Who will claim head of household status?
· Who gets the tax exemption for dependents?
· Which attorney fees are tax-deductible?
Marital vs. Separate Assets: Separate assets, such as inheritances and investments prior to marriage, may not be subject to division. A financial advisor reviews your entire financial portfolio to be sure you retain the assets that are rightfully yours.
Dividing Debt: Everyone thinks about how assets will be divided during a divorce, but debt is just as important. It’s vital that all debt is identified and a plan is made to determine how debt will be managed and who will be responsible for what debt going forward.
Retirement Assets: An important thing to consider during and after a divorce is how you will live after you retire. The retirement planning you did as a couple may have been sufficient to provide for both of you after retirement, but oftentimes retirement needs of an individual are greater. It’s important to consider how retirement assets will be divided and how you will continue to contribute to your retirement in the future.
Looking Towards the Future: It’s important to consider your financial life after your divorce as well, especially if you’re not accustomed to making financial decisions on a regular basis. It can be overwhelming to consider being totally responsible for your financial wellness alone. A financial advisor can help answer any questions you may have, such as:
· What amount of taxes do I need to pay?
· When/how should I apply for Social Security as a divorced person?
· Can I afford to keep living the way I have or do I need to downsize?
When to Engage a Financial Advisor During a Divorce
For many people, getting divorced is the single biggest financial transaction of their lifetime. All the savings, assets, liabilities, policies, benefits, and investments you built up as a couple must be identified and accounted for before they can be divided as equitably as possible. It’s smart to obtain expert financial advice early in the process to ensure you are protected right from the outset.
About the author: Bill Harris, RMA®, CFP®
Bill Harris is a Retirement Management Advisor® (RMA®), a CERTIFIED FINANCIAL PLANNER™ practitioner (CFP®), a Master Elite Ed Slott Advisor, and author of ‘Inheriting Your Spouse’s IRA’. He is president of WH Cornerstone Investments, a financial advisory firm located in Kingston, MA. Learn more at https://whcornerstone.com/.
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