It is essential that living trusts, wills and other financial documents reflect needs after divorce
By Brian Harrigan and Bob Price
Financial planning is an important component needed to ensure you and your loved ones are well taken care of in the future. Amid a divorce, reviewing the current financial plan to adjust short- and long-term goals can be even more crucial as much of what was in place will change.
Having a good team to help you through these times is essential to your well-being.
In addition to a financial planner to help with adjustment of financial goals, a good family law attorney and a therapist are often key components that will help with legal and emotional support. Proper financial planning tailored to a person’s situation can help them minimize mistakes, achieve the best possible settlement, and aid in charting a new course for their financial future.
It’s best to gather as much information as possible before formally discussing or asking for a divorce as this helps avoid the hiding of any assets or information. Gathering materials dating back three to five years is recommended at a minimum but you may consider going back further depending on the length of your marriage.
You’ll want to gather all data pertinent to your joint finances (personal and business) including tax returns, checking and saving statements, retirements accounts, loan documents, real estate, life insurance policies, birth certificates and social security info, etc. Basically, any and all documents that can have an impact on your financial situation including your past budgets and expenses. Once you’ve gathered the information, you should analyze the data and create a budget using estimated figures. This will help you better understand options for negotiating the division of assets with your attorney and paint a clearer picture on what life after divorce will entail.
When evaluating settlement options, not all assets are required to be divided on a 50-50 basis. For California residents, nearly all assets are split equally because it is a “community property state.”
However, it could make sense to give up a larger share of certain assets to retain larger shares of assets more important to you. This is especially common when considering business interests, a residence, etc. It is important to understand the tax and financial consequences of each asset and how they can impact your financial future.
Incorporating asset protection and managing risk will also be areas of consideration. You’ll want to consider unforeseen events like the loss of child support or alimony should an ex-spouse die prematurely. Reviewing existing life insurance and its appropriateness to your situation is important. Older policies with higher costs associated with shorter life expectancies are common for couples that have been married 20 years or longer.
Older policies often are not as cost effective and lack some of the benefits of newer policies. Some policies even include living benefits or long-term care riders to help address end of life medical costs in a tax preferred fashion. A review ensures you have the most comprehensive coverage and it is cost effective for your financial horizon.
Alongside asset and risk management come changes to estate planning. It is essential that living trusts, wills and other financial documents reflect your wants and needs after divorce. A living trust will keep the matters of settling your estate private. Updating beneficiaries, health care directives, financial power of attorney will ensure your wishes are carried out if you’re incapacitated or die prematurely. When the divorce includes children who are minors, these documents will also address guardianship.
As you work with your financial planner and support team it is crucial that you track income, expenses, and provide an accurate summary of your assets. Being able to show summary along with a track record of money coming in and going out is an integral part achieving the desired financial outcome.
If you’re considering or going through divorce, contact financial and legal professionals who will help you navigate the maze and avoid common pitfalls. Your future financial well-being and that of loved ones may depend on their expertise.
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