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Don’t get burned by a bad divorce settlement

I can’t believe what the judge had to tell us;

I got the Jeep and she got the palace.

I’m goin’ through the big D and I don’t mean Dallas.

Mark Chestnutt knows the hard truth — that a significant percentage of marriages will come to an end at some point. Divorce is a hardship in our society, which, along with the difficult emotional strain, can come with a heavy financial burden as well. 

As someone who grew up in a divorced household, I know that it’s incredibly emotional. Unfortunately, anytime emotions are high, people tend to make bad decisions because they feel the need to act quickly or get a “win” rather than spending time thinking through the numbers.

I recently became a Certified Divorce Financial Analyst® professional, which provided me with specific training on helping clients through the divorce settlement process. If you find yourself in this situation, there are a couple of very important things to keep in mind. 

Don’t rely solely on an attorney

As a CDFA® professional, I’m looking to find an equitable settlement option that’s best for both spouses. I find that most attorneys are trained to make the settlement split as smooth and quick as possible. But just like I didn’t go to law school and study the legal system, attorneys aren’t financial planners and often don’t consider the client’s long-term implications of their divorce settlement. 

When you hire a CDFA® professional to walk alongside you through the divorce process, they can help manage emotions — being an advocate for you and making sure there are no potholes in the road. I work with the attorney to ensure documents are filed on time and appropriately. That impartial third party can be incredibly important — many of these divorces can be messy. 

Put simply, a CDFA® professional will work with attorneys on case preparation and settlements to allow them to be freed up to do more of the legal work to make the divorce go as smoothly as possible.

Not all assets are created equal 

An example of how this might play out is in divvying up assets. For example, often people are emotionally tied to their house. The attorney might go to bat for them to get the house, but in reality, that spouse may not be able to afford it. One spouse might get the house and the other gets the money in the bank account. On paper, that might look like a 50-50 split, but after taxes, it might be more like 70-30.

I’ve seen people have bad settlements that drive one spouse into poverty while the other’s net worth increases significantly.

A CDFA® professional will look at the client’s income (both pre- and post-divorce) and help them play out the short-term and long-term implications of the settlement. We can help them understand the difference between personal and marital property, put a value to the property, find hidden assets, value retirement accounts and pensions, figure out reasonable amounts of spousal and child support, identify potential tax problems, and more.

The divorce is finalized… Now what?

Oftentimes, clients I work with assume that the divorce process is finished once the divorce paperwork is filed with the courts. The reality, however, is there is still much work to be done.

As part of my process, I work with clients to help ensure that the settlement split occurs timely whether it be working with the 401(k)-plan administrator with filing the QDRO or facilitating the transfer of assets from investment accounts.

In addition, clients also will need to remove their ex-spouse from joint accounts, establish their own financial identity, update beneficiaries and legal documents, and create a new budget, the list can be never-ending! My job is to be your support through this difficult transition, make sure it goes as smoothly as possible, and keep you educated along the way.

Reach out for help 

I truly hope that none of you has to experience this divorce process yourself. But statistics show that some of you will. And if you do, I can’t stress enough how important it is to work with a CDFA® professional to help you navigate it.

If you’ve found yourself in this situation, please contact me so that I can work with you to make a very difficult process a little bit easier.

Tax and/or legal advice is not offered by Jacob Buckley.  Please consult with your tax professional for additional guidance regarding tax-related matters.

Article by Jacob Buckley, CFDA, MBA, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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