Being in the midst of a divorce can be a very trying time emotionally, financially, and physically.
When you are the dependent spouse, the one who has relied on someone else for the current and future financial well-being of the family, it is even more draining and uncertain. At first, many spouses want nothing to change and will continue to use the same financial advisers, accountants, estate lawyers, and any other professional advisers.
But if the divorce is supposed to be a clean financial break from your spouse, does it really make sense to continue using the same advisers as your ex? More often than not the answer is no, especially if your ex is the one who has the relationship with those advisers.
It can take time for spouses to reach this conclusion, said Donna Pironti, a forensic accountant specializing in divorce in Philadelphia who also serves as an expert witness in divorce proceedings.
As the divorce goes on, many spouses start to become a little more independent in spirit and a lot stronger emotionally and physically. “Clients begin to realize that they want to separate everything and that includes the financial aspects of their lives,” Pironti said.
One possible source for recommendations: The dependent spouse’s divorce attorney. They are usually in a good position to make recommendations for a new financial team for the dependent spouse, Pironti said.
“Recommendations for the team should be based on professional reputation — can the person help the dependent spouse? — and on personality — will the dependent spouse get along with this person and be able to establish a life-long relationship?” Pironti suggested.
Recommending at least two professionals in each area is key to help the dependent spouse have control to make their own decision and be able to find the person they would feel most comfortable with, she added.
Let’s discuss who would make up this team and how can they help both during the divorce and during the new happily ever after.
The financial adviser’s role prior to the divorce settling is to help define what life will look like when the dust settles. They should be focused on helping to answer important questions such as, “Can I afford to stay in the house or should I sell and downsize?” Or, “Do I need to go back to work or increase my hours?”
Based on the asset mix and alimony, balancing the income needs of today with the longer term retirement needs is critical. Once the divorce settles, the adviser should help open both banking and investment accounts, and work to ensure that all financial accounts due the spouse from the marital agreement have been received or transferred. Last but not least, change beneficiaries on life insurance and retirement accounts, removing your ex.
“A CPA can provide very specific advice to a divorcing individual both as a tax professional and sometimes as a forensic accountant,” Pironti said.
From a tax perspective, they can be invaluable in ensuring that the settlement agreement is favorable (or at least not penalizing) to the dependent spouse before it is finalized. This would include how assets are divided, which assets are received and the tax make-up of those assets.
For example, $100 dollars of cash and $100 in stock are not the same as the stock has tax consequences, child tax credit considerations (who should receive those?), tax assets (refunds, carryover payments, capital loss carryovers, charity carryovers), and filing status both for the remainder of the divorce and post-divorce.
An accountant can also help maximize tax deductions going forward and help determine what taxes will be due. The forensic accountant can assist the divorcing party and the attorney with creating the marital asset schedule and income calculations for the parties. These are invaluable for determining what assets there are to be divided and what income is available for alimony and child support.
The dependent spouse should provide the attorneys and the forensic accountant of their finances and run a credit report from all three companies (Experian
) to be sure they know all that is in their name and where their credit score stands as they move to be more independent.
For particularly complicated marital estates, a forensic accountant can help sift through the documents map out what the estate looks like. In many cases, the forensic accountant is more cost effective as they “speak the language” of finances. They should understand the documents and even determine assets and income that were not known. However, beware: not every case has hidden assets and income and, if there are hidden assets, they cannot always be discovered.
This is an area I have seen clients de-prioritize, but its importance is huge. Every divorcee should have a new will, powers of attorney, and living wills. Everyone. The estate attorney can also assist, along with the rest of the financial team, in wealth planning for the future with such instruments as trusts and gifting if those needs arise.
Putting it all together
Even though all provide very specific tasks, the members of any financial planning team need to be able to work together and ensure that they are all planning in the same direction for the client. While it is often the divorce attorney who coordinates the professionals during the divorce, the financial adviser should take on that role after the divorce is finalized and life begins to move on.
David Rankin CFP is a financial adviser with the Mangan, Ernst & Rankin Wealth Management Group of Janney Montgomery Scott in the Philadelphia area. You can email him at firstname.lastname@example.org. The opinions expressed in this column are solely those of the writer, not those of Janney Montgomery Scott.
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