Divorce is a crossroads that nearly half of all married couples in the U.S. have walked. No matter how amicable the situation, it can be both emotionally and financially overwhelming. Here are a few pointers to help you find your footing and begin to move forward.
- Inventory your effects. Begin by compiling a list of assets (including homes, jewelry, cars and art) and financials (bank accounts, safety deposit contents, employer-funded incentive programs and IRAs). Examine the past five years of tax returns, too, to help you tally income and assets that might otherwise be missed.
- Divide your assets. With the comprehensive list of assets in hand, determine which are “separate property,” acquired before the marriage—such as family inheritances or gifts—and what is “marital property,” accumulated within the marriage. There are nine community property states where spouses split everything amassed during their union equally, regardless of who purchased or earned it. The other 41 states strive to divide marital property “fairly,” often through the courts or arbitration. State rules vary, so always consult your lawyer.
- Manage taxes. Asset transfer between spouses during divorce is considered a nontaxable event. However, avoiding unnecessary tax liabilitiesLiabilities are calculated by adding up your existing debts (mortgage, car loans, student loans, credit cards, etc.). requires careful planning with respect to pension and defined contribution plans, property settlements, carrying capital losses forward, using spousal support as earned income for purposes of contributing to IRAs and more. Work with your financial planner or Certified Divorce Financial Analyst (CDFA®) to determine the options available in your unique situation.
- Maximize Social Security benefits. If you’ve been married for at least 10 years, you may be eligible to receive Social Security benefits as a divorced spouse. There are exceptions and stipulations, so stay informed and plan accordingly. For instance, if your 10-year anniversary is coming up, it often pays to wait the extra few months to finalize the divorce to lock in spousal Social Security benefits for the lower earner.
- Update your estate plan. Your financial footprint comprises more than just investments—it’s also important to update your tax filing status, will, beneficiaries, life insurance policies, health care proxy and power of attorney. (You may not want your ex-spouse to inherit your assets or make medical decisions on your behalf if something were to happen to you. And remember that your beneficiary selections on your account documents supersede whoever you name in your will.) Aside from asset division, divorce is a time to revisit your individual financial plan to reset your priorities, independent of your partner.
For more information, you can read our blog post on financial steps to take during divorce or listen to our podcast episode on this topic. Navigating the financial terrain of divorce is challenging, so we strongly suggest consulting a lawyer and CDFA®. In the meantime, if you have any questions about your personal situation, please contact your portfolio team. As The Planner You Can Talk To, we’re always happy to help.
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