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In a divorce settlement, you don’t get do-overs. Doing your homework and enlisting the help of trusted professionals, including a Certified Divorce Financial Analyst ™ can prevent costly mistakes.
Few times of crisis require immediate, clear-headed financial thinking like a divorce, so arm yourself by gathering every scrap of information on your finances. Request your credit report – you are entitled to one free copy a year from the three major reporting agencies – to check what you and your spouse owe. Open individual bank, credit card and brokerage accounts. Close all joint accounts. Your CDFA™ can help make sure you get your share of liquid assets.
At some point, one or both of you will leave the family home. This can be the most agonizing split because of the emotional bonds the home represents. Women sometimes jump to keep the house, often mistakenly thinking to spare children the disruption of a move or because they perceive it to be the most valuable asset the couple owns. Remember that home ownership involves a great deal more financial obligation than just a mortgage payment and it quickly becomes a financial noose around one’s neck. The partner who gets the house also gets the taxes, the utilities, the upkeep and the payments to the spouse being bought out – all on one salary instead of two, or on no salary at all if the spouse has stayed at home.
Rely on your own team of professional advisors and get first-hand information. Your team will include your divorce attorney and CDFA and may also include an accountant and possibly an insurance professional, which your CDFA may be. This team will review your financial situation and make recommendations on possible courses of action. If you’re paying by the hour, don’t use these people for emotional support – call a friend instead.
A new budget can help head off the “splurge to purge” temptation many women face in a divorce. You need extra TLC, but find ways that don’t cost money. Instead of that salon pedicure, invite a friend over and do your nails together. Have a board game night with the kids instead of pizza and a movie. Get used to your new reality of running a household on one salary, and avoid the pitfall of using credit now thinking you can pay it off with your settlement money.
If your assets as a couple include investments, a business or items like antiques or collectibles, you’ll need a clear view of their value as well as any hidden costs. On investments, for example, you will pay taxes on capital gains from sales, and those gains can vary depending on the purchase price, or cost basis. Your CDFA often is also an investment professional and is responsible for heading up all of the financial aspects of your divorce. You may need the help of an appraiser or forensic accountant and your CDFA will guide you with that to ensure that what looks fair on paper will be fair both short and long term.
There’s no single best way to split assets during a divorce. Your best defenses are to be informed about your assets and liabilities and to select a CDFA to help you weigh the pros and cons of different options for splitting those assets and liabilities. Take a long-term view of self-preservation, not a short-term view of punishment or least conflict. Once the divorce has been settled, you won’t get a chance to ask the judge to reconsider if you find you’ve made the wrong choices.
Karen helps attorneys; mediators, individuals and couples, navigate through the financial morass of divorce and widowhood. Her expertise lies in understanding the special tax and financial issues that can plague divorce and she helps clients get their financial fair share and equitable settlements. She provides financial analysis, projections and solutions so clients can avoid long-term regret over decisions made early on in divorce and widowhood. Karen offers a range of financial, investment and insurance services that address clients’ complete financial picture and long-term needs before, during and after marriage. She is currently writing a book entitled, “To Have and To Hold Onto Your Financial Fair Share: Financial Decision Making When Marriage Ends in Divorce or Death.”