Financial Planning for February 2016

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Divorce Financial Agreement Strategies

Divorce StrategiesIn the United States, one out of three baby boomers is single. One in every four divorce cases filed involves a spouse over age 50. What’s more, over the past 20 years the divorce rate for people older than 50 has doubled. This is particularly disconcerting when you consider that people in their 50s are really starting to take planning and saving for retirement seriously. Tossing a divorce into the equation can throw a wrench into a couple’s future financial security.

That doesn’t even take into the consideration all of the emotions surrounding the reason couples divorce. The road becomes even more complicated when we mix in blended families, the legalities still unclear regarding same-sex marriages, and the all-new complications associated with childbearing via artificial reproductive technology.

One of the first considerations when there are so many factors involved is for couples to seek professional advice from a variety of different sources. For example, you might be beyond fixing your marriage through couple’s therapy, but it could be helpful to work with a family therapist to design a custody arrangement. Bear in mind that the majority of divorcing couples do not set out to destroy each other. Those sentiments generally erupt once debates turn ugly, especially where money and child custody are concerned. A therapist can work with you and your children to help determine what each person wants and what might be in their best interest.

Second, sometimes it’s better for a couple to consult with a financial advisor for help dividing assets, rather than a divorce attorney. A financial professional might have more expertise in how to handle the buying, selling and transfer of assets (and potential tax consequences) with a more objective perspective toward securing the financial future of both parties. Separate divorce attorneys are not likely share this perspective at all.

It’s a good idea to keep emotions out of the financial agreement. One divorcing couple managed to avoid this by placing all of their assets in a corporation, which they co-owned equally. Together, they negotiated a simple, one-page custody agreement and paid an attorney a small fee to file it in court. Once they settled into a routine with separate lives, they then began to discuss the division of assets. Two years later, they agreed upon and filed another one-page financial decree to finalize the divorce. Once the hurt had passed and they had moved on, they could rationally make decisions based on their current situation.

The following are a few tips to help you create a mutually beneficial plan to end your marriage:

  •  Be aware that Arizona, California, Idaho, Louisiana, Texas, Nevada, New Mexico and Washington are community or marital property states. This mean that when a couple divorces, assets that were acquired during the marriage are divided equally.
  • Consider whether you should change the beneficiary on your life insurance policies, annuities and retirement accounts, including IRAs and 401(k) plans.
  • You might need a court order called a Qualified Domestic Relations Order (QDRO) that provides specific instructions on how workplace retirement benefits or IRAs should be split.
  • You also might need to change or originate a living will and/or power of attorney to make medical or financial decisions if you are incapacitated. In the case of divorce, you might want to name a parent or sibling rather than your ex.


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