Divorce and its True Cost

Divorce and its True Cost

Whether you’re getting divorced, recovering from one, or watching it unfold for a friend or family member, consider several steps for minimizing the financial consequences.

 The first financial shock to face is the cost of the divorce itself. You’re already splitting assets; when you add a messy divorce with high legal fees, it becomes a considerable financial and emotional drain. It’s vital to have someone on your side that has a handle on a financial exit strategy that meets your needs.

Start with a complete inventory of your assets. Assets should include retirement plans, savings and checking accounts, properties and pensions, business interests, and inheritances. List any financial obligations or debts that you and your spouse may have incurred. You should document each item by gathering tax returns, paycheck stubs, wills, trust instruments, bank and credit card statements, insurance policies, property deeds, and brokerage account documents. Financial housekeeping is essential during a divorce.

 Splitting the assets of your marriage will fall to the lawyers and the legal process. There are, however, tactical steps you can take to prepare. “I tend to recommend splitting what you have across all assets as opposed to a scenario where you take the house and I take the cash,” says Arlene Dubin, a matrimonial attorney.

If neither of you has an emotional attachment to the family home, selling it could be preferable. The proceeds can be split, used to pay down debt, or cover the cost of the divorce itself. A sale of other shared, non-liquid assets may also be advisable.

 Splitting IRAs and 401(k)s can prove problematic. If either of you has a retirement account, it’s vital that you sign a court-ordered qualified domestic relations order (QDRO), which spells out exactly what percentage of the account each of you will receive. This document allows you to roll over your agreed-upon share into another IRA without incurring early-withdrawal taxes, as long as you do so within 60 days of receipt of the QDRO.

You need to update the beneficiaries in your will and of any retirement plans. Review all your estate planning documents to make sure they reflect your current wishes. Follow up on any debt you may have incurred during the marriage. Although the responsibility to pay may fall to your ex-spouse, your name may still be tied to the account. This can have repercussions on your credit should he or she default on payment.

Social Security can also come into play. If you were married to your spouse for over ten years, you can claim spousal benefits even if your former partner remarries. But if you remarry, you can’t claim the benefits unless your new marriage ends in death or divorce.

A Financial Advisor can help review your financial outlook and create a strategy based on your new circumstances. Your goal in the end is to have a new financial strategy — one based on a new life chapter.

The Menashe Morley Group: David Menashe is a Senior Vice President and Wealth Management Advisor, and Bruce Morley is a First Vice President and Wealth Management Advisor and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. Investment products are not FDIC insured, are not bank guaranteed, may lose value. The Menashe Morley Group can be reached at 858-381-8113.

Bank of America Corporation (“Bank of America”) is a financial holding company that, through its subsidiaries and affiliated companies, provides banking and nonbanking financial services.

Photo by Andy Templeton