A Divorce Settlement You Can Live With
I’ve noticed a pattern. After a woman divorces, and the terms of the settlement are final, only then does she seek out financial advice outside of her lawyer’s purview. Now that she has the money, what is she going to do with it? Then, as she sees how far her divorce settlement will take her as she works with a financial planner to plot the future, the slow realization is that her settlement isn’t going to take her as far as she might need it to begins to set in.
She could have planned differently.
Seeking the proper financial coaching before she began the process would have helped her avoid the unexpected. Here’s the approach that I recommend.
When the decision to divorce becomes a reality, meeting with a financial advisor first is vital. You will take some time to envision your new life and identify a reasonable amount of cash flow that you will need to achieve it. Coming to this realistic conclusion before settlement negotiations begin is a great first step.
What else? Next, you should look at all your assets with the assistance of your financial advisor. Most couples assume that a 50/50 split is fair if they’ve been married a long time. While this might seem reasonable, I always educate my clients that all assets are not created equal. If a big portion of your share is tied up in real estate, you may be creating more problems than you’re solving. No doubt, getting the house is great – especially if you still have kids living with you, but it may not be ideal in terms of assets vs. cash flow. A home provides shelter but not income. You may have quite a bit of equity – money on paper – but you cannot access that money to live on. Not only is your cash tied up in the house, but it also costs money to maintain. Landscaping, plumbing, general maintenance….your beloved home can quickly become a money pit that isn’t serving your needs at all. This, while your partner walks away with cash and assets that are easily liquefied, suddenly your even split looks a lot more…uneven. Also, you will need to consider the net, taxable value of retirement accounts vs. non-qualified accounts.
These are key pieces of advice that I give my clients who are planning to divorce – the financial advice is just as important as the legal advice and process that you will seek. That said, the legal process is critical too. So, I have asked my colleague Beth McCormack, a shareholder at Beerman, LLP to weigh in with her key advice for savvy settlement negotiations. Beth ensures all clients are aware of the various ways to get divorced and that there is no longer a “one size fits all” approach. Options range from litigation to mediation and many processes in between, including Collaborative Law. In order to help her clients determine the right approach, Beth learns about the couple’s emotional history in addition to their financial history. This will help her guide her client on the right path. If there is a history of power imbalance, for example, mediation likely will not make sense. On the other hand, litigation can often be used to further terrorize a spouse financially. Through a thoughtful triage process, Beth will guide her clients on the appropriate process for them, which in turn, guides which way the negotiation will go.
Beth always refers clients to a financial advisor upon first meeting them, notwithstanding which process the client chooses. Beth adds, “the advisor will often help with budgets in the beginning and during the negotiation stage will help run scenarios showing where each party will be ending up in five, ten and twenty years. This often illustrates the disparity in a settlement for the couple and why a different outcome is essential.”
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Beth McCormack, Beerman LLP and their services are not affiliated with LPL Financial and Stonebridge Wealth Advisors LLP