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Untying the Knot
Financial Considerations for Divorcing Couples
D
IVORCE is not easy. Just ask anyone who has been through it. As the divorce rate among adults ages 50 and older have increased over the years, many couples are seeking guidance from professionals like myself specifically trained in all aspects of divorce financial planning. Unfortunately, too many seek help after the divorce, not realizing the financial implications of their settlement. As a devoted advocate for the collaborative divorce model, I work very closely with clients helping them understand the financial implications of a proposed divorce settlement. I’ve learned a few things over the years. Let’s take a closer look at some common mistakes and how to potentially avoid the many pitfalls of a divorce settlement. Not Insuring the Settlement Premature death or disability of your ex-spouse can result in loss of maintenance, child support, a property settlement or college tuition. Life and disability insurance could guarantee your payments as well as your family’s security. Typically, a term insurance policy can be issued to cover support payments and obligations. Term insurance is inexpensive compared to whole life insurance and initiating coverage should be started during the divorce process. Thinking All Assets are Created Equal A $500,000 investment in a stock portfolio is the not the same as $500,000 in an IRA due to the IRA’s taxes on distributions and early withdrawal penalties if taken prior to age 59 ½. Be aware of hidden tax liabilities on highly appreciated assets. Also consider the investments in your portfolio – do you own REITS, hedge funds or alternative investments? Do you understand what you own? Are they subject to surrender charges or penalties? I have met far too many individuals post- divorce who thought they could quickly liquidate an investment to find out the opposite was true. Keeping the Marital Home One of the biggest problems I see is one spouse being emotionally attached to the marital home (a non-liquid asset) and trading the equity in the home for another
marital asset such as an IRA or pension. Although this trade off might make sense on a yellow legal pad, understanding the long-term implications and how it fits into your overall financial plan isn’t easy when emotions are running high. Being house rich and cash poor can have serious consequences depending on your age and income level. Misunderstanding the QDRO A Qualified Domestic Relation Order (QDRO) is a court order recognizing an alternate payee’s interest in a participant’s retirement benefit such as a pension or 401(k). The QDRO instructs the plan administrator how to pay the non-employee spouse’s share of the plan benefits. Ideally, a QDRO should be presented to the plan administrator before the divorce is finalized and included as part of a divorce decree or court-approved property settlement. A QDRO is not needed for an IRA or SEP IRA. Missing COBRA Continuation Coverage Deadlines Under COBRA, a covered employee’s spouse may elect continuation of health benefitss under the plan for a maximum of 36 months. The ex-spouse (qualified beneficiary) must notify the plan administrator of the qualifying event (divorce) within 60 days after divorce or legal separation. The plan administrator must give notice, generally within 14 days, to the qualified beneficiary of the right to elect COBRA continuation coverage. The qualified beneficiary has 45 days after electing coverage to pay the initial premium. If you have never taken an active role in how the finances were managed, now may be the time. Working with an experienced professional, trained and certified in divorce financial planning can help you pursue your long-term goals. I can help…
Debra Fournier CERTIFIED FINANCIAL PLANNER™ Certified Divorce Financial Analyst™
About THE AUTHOR DEBRA FOURNIER, CERTIFIED FINANCIAL PLANNER™ and Certified Divorce Financial Analyst™, has been providing comprehensive wealth management and investment advisory services to families and independent women for over twenty years. Recognized as an experienced and knowledgeable professional in the areas of divorce financial planning and transitional planning, her guidance is often sought when there are complicated financial issues, significant assets or an imbalance in financial knowledge between divorcing couples. Debra is active in her community, serving on the executive board of the Academy of Finance at Manasquan High School and the mentoring program at the Leon Hess Business School, Monmouth University. She has been quoted in Kiplinger’s Personal Finance Magazine and AOL Daily Finance, appeared numerous times on Good Day New York and has been featured in the Asbury Park Press section Getting Ahead. For a private, no-obligation phone consultation, please call 732-800-8400 or email Debra directly at debra.fournier@lpl.com
This information is not intended to be a substitute for individualized tax or legal advice. Please consult your tax or legal advisor regarding your specific situation. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual Securities offered through LPL Financial. Member FIRNA/SIPC
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