Divorce is About Making Good Financial Decisions

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Divorce is About Making Good Financial Decisions

By Sam Hubbard
Principal, Coastal Divorce Advisors

While you’re in the midst of a divorce, you’re going to have to weigh a lot of financial choices while dealing with the weight of strong emotions. You can minimize emotional stress by anticipating what decisions you have to make and understanding what’s involved in making them.

Below are common hurdles that people who are divorcing need to be aware of and the factors they need to consider to make confident, constructive decisions.

Can you afford to keep your home?
While you may have a personal attachment to your house, especially since your kids call it “home,” it is ultimately a huge expense to maintain year after year. All too often, the spouse who wants to keep the house only analyzes whether he or she can cover the mortgage and the property taxes, but fails to consider the “oh no’s”: “Oh no, the built-in refrigerator broke,” “Oh no, the HVAC system needs to be replaced, “Oh no, we have termites.”

Unforeseen expenses can cost thousands of dollars and could cause you to lose your house, or worse, push you toward bankruptcy. While a house is an asset, it is ultimately an expense. Make sure to take all homeownership costs – anticipated and unexpected – into account and try to remove emotion when deciding whether you can afford to keep the house.

Should you divide your property down the middle?
When you begin a divorce, it’s only natural to think “all our assets should be split right down the middle.” But since no two assets are created equal, this type of thinking may put you at the short end of the stick.

In a divorce, it’s common for spouses to divide property by what they see as equivalent value. For example, if one spouse gets the house, the other spouse may get the investment accounts, both valued around the same amount.

But tread carefully. Some assets, like certain pensions, may be completely illiquid and cannot be sold or transferred to a spouse. Others assets may have significant tax implications from a low-cost basis or may have large transaction fees (like the sale of a house). Make sure you initiate a complete analysis of the assets before making any decisions.

Do you want to tackle debt before your divorce?
If your spouse ran up balances on your credit cards during your marriage, in the bank’s eyes, it’s a shared responsibility, no matter who did the spending — even if the court decides your ex-spouse is responsible for it all.

Banks can still come after you for payments your ex-spouse didn’t make, jeopardizing your finances and damaging your credit score for years. Making the choice to pay off as much debt as possible before you finalize the divorce is often a good one.

Should you protect yourself from unanticipated events?
If you will be receiving alimony and child support, what happens if your ex-spouse passes away or becomes seriously disabled? Would you be able to support yourself and your kids if you no longer receive these payments? Consider purchasing life and disability insurance specifically tailored for divorce so support payments continue if something unforeseen happens to your ex-spouse.

Should you evaluate your settlement agreement from a current perspective?
When looking at a settlement proposal, what may seem like a great deal now could quickly turn into financial ruin down the road. You need to make sure you don’t evaluate your proposed settlement by your current costs or budget but by how your finances will look in 5 or 10 years.

Projecting your cost of living will help you determine the long-term consequences of a settlement option and whether you’ll be financially well-positioned years after the divorce. Make sure you have accurate projections on-hand and do not rush into signing a proposal just to be done with it.

Can you be disciplined to make financial decisions in unison, not one by one?
When going through a divorce, looking at any single financial aspect in a vacuum and not seeing how it relates to others could cost you. The division of assets and liabilities, tax consequences, inflation, alimony, and child support are all pieces of the settlement puzzle that need to work together to help ensure the most favorable settlement agreement. For example, if you have income from your job and agree to take a large alimony payment, you may be pushed into a higher tax bracket than if you were to increase the amount you receive in non-taxable child support.

Take a careful, comprehensive approach to your finances to have a better chance of coming out ahead.

Sam Hubbard Coastal Divorce Advisors Savannah

Sam Hubbard

Sam Hubbard, MBA, CFA, CDFA is the principal of Coastal Divorce Advisors, LLC, (CDA), a firm specializing in helping clients understand their financial situation and options throughout the divorce process. CDA is an affiliate of Coastal Capital Management, LLC. For additional information, e-mail Sam@CoastalDivorceAdvisors.com, call 912-234-3657 or visit www.CoastalDivorceAdvisors.com. This article is for informational purposes only and does not constitute legal advice. The opinions expressed are solely those of the author, who is not an attorney. If you require legal advice, please seek appropriate legal representation.

Six Common Financial Mistakes to Avoid Before a Divorce

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Six Common Financial Mistakes to Avoid Before a Divorce

By Sam Hubbard of Coastal Divorce Advisors

You’ll face many pivotal decisions throughout your divorce. Unfortunately, missteps often turn into larger mistakes that could jeopardize your financial security and well-being for years to come. So whether you think your spouse may be considering divorce, or you may be contemplating it yourself, it’s important to be proactive about your finances well in advance of divorce becoming reality.

This article, which focuses on mistakes made before a divorce, is the first in a series of three highlighting frequent financial mistakes made before, during and after a divorce and how to avoid them.

Mistake 1: Not being financially prepared. Some spouses see a divorce a mile away, but others are completely blindsided. Since the divorce process can be very expensive, it’s important to be financially ready so you have sufficient funds to get through the divorce, including the ability to hire a qualified divorce team. If you don’t have a checking account in your name only, set one up as soon as possible and add funds to it regularly. Also consider opening a credit card in your name since it may be harder to get one after your divorce. Additionally, try to establish or boost your credit score by making occasional purchases and paying your bills on time. Following your divorce, you’ll need a strong credit rating if you want to rent a house or a condo, refinance your mortgage, or finance a new car.

Mistake 2: Not having all your financial documents in order. Lawyers and financial experts need to review all your financial documents to negotiate the best terms of your settlement. The list of necessary documents is lengthy, but make sure to have these important ones handy before the divorce begins: three years of tax returns; at least one year of checking and savings account statements, brokerage statements and credit card statements; vehicle titles; and insurance policy declarations.

Mistake 3: Not monitoring and protecting your credit rating. As soon as divorce is unavoidable, immediately request a copy of your credit report (most are free). It will show all debts you share with your spouse and those belonging only to you. Ask your attorney whether it makes sense to close your joint accounts and credit cards you use infrequently with zero balance. Also review your report closely to see if there are accounts you are not aware of. If you are concerned your spouse may borrow money in your name, you may want to sign up for a credit monitoring service (many cost less than $20 per month).

Mistake 4: Failing to proactively monitor the mail. Make sure to be vigilant about the bank statements, credit card bills and investment account statements coming to your house. The more educated you are about the financials and what assets are held where, the more you’ll help your team gain better results on your behalf and lower your divorce-related costs.

Mistake 5: Taking on new debt to pay off other debt. If you’re having marital problems, do not refinance the mortgage on your house or get a Home Equity Line of Credit (HELOC) with the thought of paying off the miscellaneous debt, like credit cards, family loans and business debt. Your spouse may suggest taking this route, but ultimately you are removing the equity you have accumulated in the house to pay off debt your spouse may very well be liable for. Generally speaking, avoid taking on any new debt with your spouse.

Mistake 6: Failure to hire a qualified divorce team. While it’s critical to hire a lawyer who specializes in divorce, it is also important to build a team of professionals to help you secure the most favorable results for you both financially and emotionally. By tapping specialists in different fields, you’ll ultimately get the best and most cost-effective advice. A lawyer is the best resource for legal advice and understanding Georgia divorce laws. A divorce financial planner will provide advice on the many financial aspects of your case. And a therapist will help you and your children through the transition and tough times. Additionally, if you have a privately held business, you may need to hire an accountant with a CVA or BCA designation to value it.

By anticipating and preparing before you enter a divorce, you can avoid the high cost of mistakes.

Sam Hubbard Coastal Divorce Advisors Savannah

Sam Hubbard

Sam Hubbard, MBA, CFA, CDFA is the principal of Coastal Divorce Advisors, LLC, (CDA), a firm specializing in helping clients understand their financial situation and options throughout the divorce process. CDA is an affiliate of Coastal Capital Management, LLC. For additional information, e-mail Sam@CoastalDivorceAdvisors.com, call 912-234-3657 or visit www.CoastalDivorceAdvisors.com. This article is for informational purposes only and does not constitute legal advice. The opinions expressed are solely those of the author, who is not an attorney. If you require legal advice, please seek appropriate legal representation.

Gray Divorce: How to Handle a Divorce Later in Life

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Gray Divorce: How to Handle a Divorce Later in Life

By Sam Hubbard, principal, Coastal Divorce Advisors, LLC

You’re sitting at the dinner table and there’s silence. Not only are your kids off to college but you and your spouse have nothing to talk about. After 25 years of marriage, you realize that without the kids, you really have nothing in common anymore. More and more, you’ve been thinking you don’t want to spend the rest of your life in an unfulfilling relationship. Divorce has been crossing your mind more frequently.

You are not alone. Many couples in long-term marriages feel the same way. In fact, a new term, “gray divorce,” has been coined to define this demographic. Gray divorce describes couples over the age of 50 who have been married for at least 20 years and choose to divorce their spouse.

While the divorce rate across the country has held steady near 50 percent, the rate of gray divorce has more than doubled in the past 20 years, according to Bowling Green State University research.

Surprisingly, it’s not discord or even cheating that’s driving the choice to divorce. It’s the fact that spouses are simply growing apart. And more often than not, it’s women, not men, making the decision to part ways. According to an AARP study, women are the drivers behind 66% of gray divorces.

The uptick in gray divorce has been attributed to the increase in three factors:
women’s financial independence;
life expectancy; and
social acceptability of divorce.

As women become more financially autonomous and know they’re going to live decades longer, they realize they now have the means, motivation and mindset to go out on their own.

Gray Divorce Comes with a Silver Lining
Divorce is always challenging, especially gray divorce, since the decisions are more complex and the stakes higher. Divorcing couples must keep in mind that there are fewer years to recover from financial mistakes and economic setbacks from the divorce. Also, there’s less time to save for retirement.

But there’s a silver lining – financial independence – as long as you prepare. Here are five essential financial tips to consider when untying the knot later in life.
Understand Social Security benefits. Social Security is complex, so make sure you are aware of all the nuances to gain the most benefit. In a nutshell, since you’ve been married for more than 10 years, and if you’re 62 and single, you can collect up to half of your ex-spouse’s Social Security benefit. Your benefit will not impact the amount of his or her benefit.

Don’t depend on alimony. If you receive alimony, make sure you don’t rely on it exclusively. Keep in mind that alimony can be changed well after the divorce has been finalized. It also can be jeopardized if something happens to your ex-spouse. Make sure to consider life and disability insurance that protect alimony and child support payments if your ex-spouse is unable pay. And be open to considering career opportunities to help you gain additional financial independence.

Protect yourself with reasonable insurance. As you age, insurance becomes even more important. If you need a caregiver, for example, your ex-spouse will no longer be there to take on that role. In addition to health, life and long-term care insurance, make sure to think about auto insurance and homeowner’s or renter’s insurance.

Secure enough retirement savings. Women tend to live longer than men and therefore often have higher retirement costs. A big, and emotional, question is whether keeping your house is worth potentially risking your retirement savings. If your spouse keeps his pension plan and other assets and you retain the house, will you have enough money to support yourself down the road? You must determine whether you have the time to save what you need to and if you’re willing to sell your house later to help fund your lifestyle.

Choose new retirement account beneficiaries. Make sure to update your beneficiaries on all retirement accounts and insurance policies. Additionally, update your power of attorney, health care proxies and living wills. If you don’t, your ex-spouse could end up with those funds or decision-making powers.

While decisions and finances are often complicated surrounding a gray divorce, with the right support, including guidance from a divorce financial planner, you can be on the right track to financial independence.

Sam Hubbard Coastal Divorce Advisors Savannah

Sam Hubbard, MBA, CFA, CDFA is the principal of Coastal Divorce Advisors, LLC, (CDA), a firm specializing in helping clients understand their financial situation and options throughout the divorce process. CDA is an affiliate of Coastal Capital Management, LLC. For additional information, e-mail Sam@CoastalDivorceAdvisors.com, call 912-234-3657 or visit www.CoastalDivorceAdvisors.com. This article is for informational purposes only and does not constitute legal advice. The opinions expressed are solely those of the author, who is not an attorney. If you require legal advice, please seek appropriate legal representation.