In addition to your attorney, you should consider adding a Certified Divorce Financial Analyst™ (CDFA™), an insurance agent and a CPA to your team. Experts can help keep your focus on the big issues, such as asset division, child custody and spousal support.
You should make copies of all financial records in preparation of beginning the divorce process. It is easier and less expensive to organize financial information before the discovery process begins. Records that should be copied include: last three years personal and business tax returns; investment account statements; employee benefit booklets; pay stubs; insurance and annuity information; credit card statements and receipts for larger items. Credit applications are also a great source of information for assets, liabilities and income. Contact any creditors with which you have applied for credit in the past three years to obtain a copy of the credit application. A CPA might be able to find assets a spouse may be hiding with these records.
During your preparation, you should also take inventory of all debts and categorize them as individual or joint. For smaller joint debts such as credit cards, you should move them into one spouse’s name immediately. For larger joint debts such as a mortgage, pay close attention to how it is handled in the property settlement and divorce decree. If one spouse is to receive the marital home, then he or she will need to refinance the mortgage into his or her own name. Creditors do not look at who is awarded the house in a divorce; they only consider the parties listed on the mortgage.
The receiving party of spousal and/or child support is exposed to the risk of loss of payments as a result of the disability or death of the paying ex-spouse. To protect against this, obtain disability and life insurance policies on the ex-spouse before the divorce is finalized. You should own the life insurance and pay the premiums. The premium expense should be negotiated in the divorce.
A CDFA™ can run inflation-adjusted cash flow projections to help address all the financial issues, including who should keep the home or if it should be sold. This can help determine the ability of one or both parties to meet living expenses, retirement and education goals. Pensions and 401(k) plans should also be evaluated, because unless you divide these plans the right way, you may incur unnecessary penalties. A Qualified Domestic Relations Order (QDRO) can be used to transfer money from a 401(k) to the non-employee spouse’s IRA.
Seeking the advice of legal and financial professionals during divorce highly advised. Their experience and ability to be unemotional about many important decisions should be beneficial to you over the long term.
William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The Cherokee Tribune will periodically publish columns from KSU business faculty.