By Marcia Mantell
It's important to remember that divorce is a process. There are key steps you'll need to take to help you get to the other side relatively intact. Part of your success depends on understanding there are pitfalls that are easy to fall into when you are in the midst of a divorce. Here are five common pitfalls women often stumble into during the divorce process and some steps you can take to avoid them.
"There is no question about what you must do first if you are preparing for a divorce," says Neal Dietz, managing director at Dietz and Lynch Capital. "It is simply imperative to hire the best divorce attorney you can. This is not the time to hire your friend the attorney, or to skimp on paying for a top-notch divorce attorney."
Dietz went on to explain that there are many nuances in the divorce process and you need to have someone who is very knowledgeable and aggressive on your side. Interview several attorneys until you are very comfortable with your choice, both in that person's style and communications, and in his or her experience. After all, what you are really paying for their expertise and advice to navigate you through uncharted waters. The communications with your attorney will be a two-way street, but in the end, you'll need to do what they tell you. It can be hard for you to be objective and take control of your feelings. Be sure your divorce attorney has your back.
"If you're not listening to your lawyer and doing what he or she is asking you to do in the throes of the emotions of divorce, you're wasting the lawyer's time and your money," Dietz notes.
In addition to your divorce lawyer, you'll need the advice of financial professionals. Unless you are a CPA or a tax guru, you'll need one to bring their expertise about the numbers to the forefront of your divorce planning.
"It's especially critical during this transition year to have your accountant run the numbers specific to your exact situation," explains Kathy Lund, a certified financial planner and a certified public accountant with Mosaic Financial Advisors. "We're at a point in time when you can't simply eyeball the numbers and estimate what will happen when comparing 2018 to 2017."
CPAs, and even tax attorneys, are grappling with a myriad of new tax rules as a result of the Tax Cuts and Jobs Act. Changes include an increase in standard deductions, eliminating many familiar itemized deductions, and significant changes to the alternative minimum tax in addition to the changes to alimony rules. With so many changes coming down so fast, the analysis and impact assessment for those going through a divorce is more complicated than ever and is laced with uncertainty.
Lund adds, "It's tricky to try to estimate 2018's and 2019's tax situation based on past tax returns even before throwing alimony into the mix. Especially if you are in the midst of a divorce or modifying an alimony arrangement in 2018, your accountant needs to run the numbers to calculate the after-tax effect of the new alimony tax rules. From a negotiating standpoint, it's important to assess the impact under the new tax rules before you come up against the year-end deadline."
A CPA is not the only financial expert you should have in your corner. You need a financial planner and adviser, an insurance agent, and an estate planning attorney. All members of this team are selected by you. Getting them in place from the beginning of this new chapter of your life is vital.
Your team will provide the expertise you need in the complex financial systems of today and can help you avoid hidden dangers. If you had financial professionals you and your soon-to-be ex were working with, it might be best to find a new team. You may find it more helpful to choose professionals who don't know the history of the two of you and who will have your back no matter what.
"The professionals on your team will tell you what you need to know, not what you want to hear. That is incredibly important as you split up your financial life today and position yourself for a successful tomorrow," advises Dietz. "As a financial adviser, I can help protect my clients' assets, keep them focused on specific goals and their future. I can protect them from danger zones."
One team member you may find helpful to add is a counselor or social worker. While they are not exactly financial advisers, having a confidant in your court may be a critical resource for you. Many going through a divorce find it helpful to have a safe outlet to express anger, frustration, or fear. Once you tame these issues with your counselor, you may find yourself in a better state of mind for making financial decisions and tackling the to-do list from your financial advisers.
Remember Your Retirement Accounts Aren't Yours
It's obvious that a divorce will mean splitting up assets, perhaps selling the house, and if children are involved, helping them manage the new uncertainty in their young lives. What is not so obvious, however, is that all the money you've been socking away in your 401(k) or 403(b) or IRAs is not necessarily yours.
Retirement accounts are set up or "registered" as individual accounts. An IRA only carries one name per account. There are no such things as "joint IRAs". With employer plans, it's even more obvious that it is your account. You, the employee, make contributions from your paycheck into the plan. Furthermore, your employer may make matching or profit sharing contributions to your plan. You are saving fast and furiously for your retirement.
And, then comes a divorce. You find out that the account is going to be split 50/50. Your ex is generally entitled to half. It's important to put this situation in context and realize that when you are part of a married couple these retirement accounts were never just yours. They were always meant to be retirement money for the two of you.
To be sure, the legal plan document that governs your retirement account is clear about that. Most plans specifically note that when it comes time to take money from that account, you must get your spouse's signature in advance. Nevertheless, it still stings mightily to see the balance of your retirement account drop from say $800,000 to $400,000 as a result of the divorce. And, many individuals post-divorce report that it is difficult to rebuild their retirement savings. Especially if they are in their 50s or 60s and closing in on those retirement years.
One note in the cases where both spouses worked and saved for years: the retirement accounts may or may not be split. It will depend on the entire financial picture and how to equitably divvy up assets for retirement. Again, this is just one of many important reasons you'll want your financial team on board. They will help you get the best financial arrangements for your future.
About the author: Marcia Mantell is the founder and president of Mantell Retirement Consulting, Inc., a retirement business development, marketing & communications, and training company supporting the financial services industry and its clients. She is author of "What's the Deal with®... Retirement Planning for Women" and blogs at BoomerRetirementBriefs.com.