As part of our ongoing Financial Planter series, we are now focusing on the “Whoa! Or Woe?” pre-retirement phase in September. This week our Guest Blogger, Megan Poore, a Financial Advisor at Lucien, Stirling and Gray Advisory Group, Inc. in Austin, Texas talks about divorce and financial considerations.
Divorce ranks up there with one of life’s most challenging transitions. A divorce will often result in a significant change in a person’s living arrangements, social network and general lifestyle. With so many changes, it can be difficult to know where to begin when it comes to finances and how to balance short-term needs with long-term planning. Here are a few tips that can benefit someone in any stage of the divorce process.
Get advice before you sign. Once the divorce decree is final, there are only a small number of changes that can be made. The lesson here? Consider getting financial consulting prior to finalizing the divorce because not all money is equal, and it pays to know the rules. By working with my client’s attorneys, I have been able to ensure that my clients understand the assets that they are receiving and that the assets are structured in a way that is most beneficial for helping them to achieve their goals.
Mary Ann Osborne, a divorce financial consultant, adds “To meet with someone who is knowledgeable about finances is imperative. You may get a significant amount of assets in retirement accounts, but may not understand that any withdrawal you make is taxable. If you are younger than 59.5, you may also have to pay a 10% penalty. A financial consultant can guide you through this.”
Make an honest assessment of your finances. It is important that you have an understanding of whether your current financial situation will provide for you on a short-term and long-term basis. Start by making a list of your assets (what you own) and liabilities (what you owe). You will also need to write down ongoing fixed expenses (rent/mortgage, car payment, mobile phone bill, insurance, etc.) and variable expenses (grocery, dining out, gasoline, gifts, clothing, etc.). Understanding your obligations will help you to identify what your short-term financial prospects look like.
The next step is to then look to the future and determine whether or not your current assets will provide for your future needs. It might make sense to consult with a financial advisor or a financially minded friend in order to have an impartial person help you with this process.
Keep in mind that credit card debt often stays with the cardholder, though the details of this can vary from state to state. Bottom line – if you are the cardholder and have debt, keep paying in order to avoid a negative impact on your credit score.
Take a breather. Many of the people I have met with who are recently divorced have made a flurry of changes. Clearly some of those are necessary, but sometimes people may look back and wish they had slowed down and taken more time to process what was happening before making changes that are difficult to unwind. For example, I have worked with folks who had purchased insurance products just after their divorce that they did not understand and in many cases did not need. When we are being told to hurry most is likely when we should take time to pause!
Consider renting a home for a period of time instead of buying. This can allow you time to get a feel for the neighborhood and see what your budget looks like as a newly single person. It also offers flexibility as you reinvent the “new you”. For single parents, renting can also take away one more burden as the landlord is the one fixing the toilets–not you!
If investable assets and cash were part of your divorce settlement, the right advice might be “don’t just do something, sit there” for now. It is all too common that a recent divorcee will hurriedly decide to position assets in a long-term investment or insurance product, only to wish several months later that they had kept the money in cash. Often, it makes sense to be conservative with your decision-making long enough to settle in to your new lifestyle and to give yourself time to think about what your finances can do for you.
Invest in yourself. Okay, so we just talked about making sure you’ve got assets earmarked for the short term, about not making big decisions that you don’t have to, and thinking long-term. One caveat, though. “Investing in yourself is not a discretionary expense! Make sure that you have a way to earn a living”, says Ms. Osborne. I’m not talking facials or golf lessons here. Do invest in career coaching, education, licensing and continuing education. It may also make sense to invest in therapy or vacationing with family to ensure that this new reality is as manageable as possible for each member of the family.
Successfully transitioning through life changes takes courage and a long-term perspective. Often both of these can be bolstered through both a good support system and self-care.
Megan Poore, is a Financial Advisor at Lucien, Stirling and Gray Advisory Group, Inc. in Austin, Texas. Megan helps both women and men take control and navigate changes in income, retirement assets, business ownership and other matters related to major transitions, and their effects on a client’s lifestyle and family responsibilities.