Tax & Estate Planning
Although divorce is an event that no one wants to plan for, it can happen to anyone. You’ve probably seen the statistics: by some measures, nearly half of all marriages in the U.S. now end in divorce. What’s more, the number of couples age 50 and over calling it quits has more than tripled since 1990, and forecasts suggest that number will surge even higher over the coming decade.
Those in the midst of divorce often feel overwhelmed by the onslaught of changes and decisions confronting them — all at a time when they may not have the emotional capacity to think clearly about the future. Those lacking an investment background often feel particularly uncertain about their financial footing. For some, this may be the first time they are in charge of a large amount of assets, making it all the more intimidating to find themselves wholly responsible for securing their financial futures. They may feel especially defenseless in this area because admitting their lack of knowledge can put them in a vulnerable position before they’ve had a chance to develop a strong, trust-based relationship with their financial advisor.
Ever mindful of how overwhelming it can be to take control of one’s finances before, during and after a divorce, our Private Wealth Advisor partner with such clients and break the process down to a series of manageable steps. At each stage, our goal is to empower clients to make decisions that help support a secure financial future.
We have significant experience in working with clients in the midst of divorce and generally recommend that they consider the following steps:
Assemble the best team.
One of the first actions is making sure the right professional advisement team is in place. Different clients have varying needs, but this team usually consists of a trust and estate lawyer, a certified public accountant, an insurance agent and an experienced investment professional.
In terms of investment advice, we recommend seeking help from a wealth management firm with a proven track record, robust planning resources and extensive experience in dealing with significant life events such as divorce well before formal proceedings have begun. As we tell clients, it is essential to have your financial plan professionally analyzed so you know the amount of assets needed to maintain your lifestyle. This also helps to prioritize what one’s attorney should try to negotiate in the settlement. Hiring a wealth management firm before divorce papers are filed may make this process easier.
Take inventory of all assets.
Before you can plan for what’s ahead, you must know where you stand. To accomplish this, it is crucial to work with an attorney to take inventory of all assets, differentiating between separate and marital property. Some assets are more desirable than others because of liquidity or potential tax advantages. Legal advisors often work with our Private Wealth Advisors to compile a detailed explanation of the options. Then we’re able to run an analysis of which assets may be best suited to each individual’s unique situation and financial objectives.
Understand your cash flow needs.
One of the most important things you will do with a wealth manager is get an understanding of your spending requirements. Taking a closer look at fixed and discretionary spending will give you an idea of how much you need to maintain your desired lifestyle. An accurate number is a crucial component of any desired divorce settlement. Typically, we recommend that spending not exceed 3% to 4% of a client’s portfolio on an annual basis. However, such recommendations may vary, depending on a variety of individual factors.
Your financial goals and objectives are a critical factor in determining your desired spending level. For example, many of our clients wish to be able to support certain charities or help their grandchildren pay for college. These goals can be factored into an individualized analysis.
After this analysis has been done, we can get started on crafting a budget. This entails an understanding of where income will be coming from and whether it is social security, spousal support, pensions, earned compensation or from any other special sources. The timing of the divorce also factors in because a person’s age and the length of the marriage sometimes determine what an ex-spouse is entitled to receive as part of the settlement.
Develop an overall wealth strategy.
In formulating a financial plan, an experienced wealth manager will begin by looking at a range of potential outcomes, given each client’s unique situation. We accomplish this through our Wealth Strategy Analysis, an in-depth assessment that addresses a number of key questions and tests potential investment scenario outcomes to help clients determine the likelihood of reaching their goals. The analysis gives a view of how assets may grow over time across a variety of economic cycles. It also provides a roadmap for making sure one is on track to achieve cash flow requirements and other financial objectives. Again, this type of analysis is best completed before the divorce is settled because it can help identify what should be requested in the settlement.
We use the analysis to fine-tune an appropriate asset allocation designed to meet one’s goals and objectives, given each individual’s time horizon and risk tolerance.
Update important documents.
In addition to the investment plan, key records may need updating due to a divorce. For example, certain passwords and personal identification numbers may need to be reset. If you are moving out of your home, you should remove your name from all utility bills and other service contracts associated with the residence or with other assets that are no longer in your possession. You should consider refinancing mortgages and placing them under one person’s name with the lender. You should also establish credit in your own name and check with your attorney about how to deal with shared accounts. Ideally, before a divorce is filed, it’s critical to work with a trust and estate attorney to assess what changes should be made to your will, power of attorney and beneficiary designations, and to ensure that these are implemented in accordance with your wishes.
Having the right financial plan can help you envision future opportunities.
The emotional vulnerability resulting from divorce is difficult enough without the added insecurity of financial fears. Many of our clients find the process of developing a customized plan with an Private Wealth Advisors to be an empowering experience. It often helps them envision opportunities they didn’t know were possible and gives them the security of knowing that they have a solid framework in place to meet their long-term needs. This process of examining and prioritizing life and financial goals may also help them regain a sense of control and provide a road map as they embark on the next chapter of their lives.