Latest / Wisdom For What's Next / Divorce and Your Financial Future: What to Know Before Dividing Assets
Transcript
- Megan Jewett: Hi, welcome to the next episode of Wisdom for What's Next. I'm Megan Jewitt, co-founder and wealth advisor at Craft and Sage Wealth. And today we're gonna be continuing our discussion focused around women and wealth with another form of unexpected loss. Don't you just love these really heavy conversations? But I promise try to make this conversation useful for you. But today we're gonna be talking about the challenges when navigating divorce. Obviously, this is another type of unexpected loss. You don't get married. To get divorced. So this is something that we don't always see coming or know how to plan for. But having gone through this myself, I wanted to bring light around the conversation. One of the most important things, much like we mentioned in last week's episode, in regards to planning would be understanding your overall financial picture. You know, when we were talking about loss of a loved one, we talked about how important it was to, even if you weren't in that driver's seat of making those decisions, to know your overall financial wealth and health and to make sure that you understand the inner workings and movement within your overall financial picture. You know, as women, we've talked about our role is typically more in the caregiving role, especially if you have children. I have six kids, so I know how crazy those logistics can be, and it's easy to fall into a cadence and a groove where It's great, you know, someone else is handling that financial piece, you're focused on the kids or your home or washing all the uniforms and making sure dinner is ready. and not necessarily giving a bunch of thought to the inner workings of your day-to-day financials. So I I cannot stress enough, especially for the women that I work with and come in contact with, to really have a great understanding of what it means to manage money within your home. And so by doing that, I would encourage you again make sure you know the logins for everything, know how to log into your accounts, understand what a normal cash position and cash flow look like for you do you have more money in your your account than you typically do do you not have as much as you thought you did what's going on and what is causing those things it's very important to understand those inflows and outflows especially on a weekly and monthly basis if something feels off there ask The next thing I would encourage you to do is to make sure you your partner are on the same page for these things. what is typical expenditures within your home? What are you overspending on? What's necessary? What's not necessary? And have a real understanding of what those expenses look like. You're if you have to go through divorce, it's it's sad, it's unfortunate. And again, much like we mentioned in our conversation regarding death and that loss of a loved one, you're grieving the loss of a relationship. And that's not always easy to do while you're also trying to learn things for the very first time. So again, just making sure you understand your overall financial picture. you have access to everything, your name is on all of the appropriate accounts. I've ran into that a couple of times where it's household money. But only one spouse is listed on the account. So when it comes to going through divorce and trying to split up assets, especially in those first few months of navigating this change, you need to make sure you have access to money and funds to be able to live. So make sure that those accounts are titled appropriately and that you have an understanding of not only where they are, but also how they work. So let's discuss one of the most important topics that you will navigate when you're going through divorce, and that's division of assets. One thing that it is really important to understand is that not all assets are created equally. Yes, a dollar is a dollar. However, I will tell you, and something that needs to be thought about, and also something you need to make sure your attorney understands, is that a dollar given to you or awarded to you in a retirement account is very different than a dollar that is in your checking account. Yes, the retirement account is invested, it's growing, it's doing all of these things. However, it does come with technicalities and special tax rules. you know, those funds are typically meant for a more longer term, meaning the IRS rules state you cannot take those funds out of an IRA prior to age 59 and a half without paying a penalty, And so any funds that you take out of there, if you're under age 59 and a half, not only are you gonna have a penalty, but you're also gonna pay ordinary income tax. If you are being awarded Retirement or qualified dollars, whether that be 401k, IRA, any of those types of pre-tax assets, they do come with stipulations and you're gonna wanna understand that because if that's what you're counting on at the end of the day to be able to live and carry on and go forward, you are going to have to pay additional Taxes, penalties, potentially those types of things that are going to lessen the actual amount that you receive. So you want to make sure that when you're working with your attorney, when you're working with your s CFP or your CDFA, certified divorced financial advisor, that they understand that while division of assets on paper may look one way, in reality it feels and looks very different. When you're trying to utilize these funds to move forward. So just make sure you have a better understanding of that as well. Another thing that I tell clients that I work with in these types of conversations is who gets the home? That's typically people's largest asset. and obviously is an adjustment all the way around, right? Who's moving, who's staying? Are you selling the home and splitting the proceeds and everyone's moving? is one spouse keeping it? If so, how do you go about? Navigating paying your soon-to-be ex-spouse their portion of the house that you in that situation, if you're keeping the house, would owe them. And so it's important to understand when walking through those types of things, not only with your attorney, but also in mediation and negotiations, is that it's another scenario where. Not all dollars are equal and even, right? The value of the home may be one thing, but if you are responsible for paying your ex-spouse out a portion of their equity, oftentimes that means you are going to refinance your existing loan and then use that refinanced amount to pay your ex-spouse equity owed. In today's interest rate environment. Usually refinancing at this point in time is not always as favorable as your initial interest rate. So it's important to understand through that refinance not only what your new interest rate is, but also how that's going to affect your cash flow. Because your cash flow is going look very different if your interest rate is higher than what it once was, and that your new mortgage amount because of that refinance is now higher. So it's important to understand when dividing assets how that's going to not only impact your actual. Physical location, but also the cash flows in and out of your financial accounts. That does make a difference. And it is another scenario where not every dollar is equal. Make sure that when you're working with your attorney and you're working with your financial planner, those are all aspects that they understand and that they are helping you work through and being an advocate for you in that space to make sure that at the end of the day, things feel as even as possible when dividing those assets. one thing that I also want to touch on, I don't want to get into it a ton. As you know, I am not an attorney. However, one of the best ways you can protect yourself, especially when considerable assets are involved are prenups and postnups. Having been divorced and then having got remarried is a conversation that I had with my estate planning attorney personally just to make sure, you know, Yes, you trust this person and you're getting into this new relationship. And again, like we talked earlier, nobody gets married with the intention of getting divorced, right? We wouldn't do that if that was the case. However, it is really hard to get back out there and do this again. And so you want to make sure you're having those conversations, right? Like how do I protect myself now so these money items do not become a potential nuisance or even relationship hazard going forward. So those are all things that when walking through important topics with those attorneys that you're utilizing in that space, whether that be an estate planning attorney, your divorce attorney, you want to make sure that you're having those discussions as well. Let's kind of shift gears here. I want to talk about something that is, setting the stage for future episodes as well, but want to talk about choosing the appropriate divorce attorney. they're they're expensive. But they do serve a purpose. Even if you are going through a divorce that feels amicable, just know that that level of positivity can absolutely shift. And it usually shifts when the discussion starts centering around money, division of assets, division of kids and parenting time, those types of things. So just make sure That you spend time looking for the appropriate attorney to represent you, even if it feels like you might not need one. What I have found is their assistance and making sure all the paperwork is filled out correctly, that you have representation and somebody to answer those questions when you need is extremely important. So, what what should you be looking for when you're looking for the right divorce attorney for you? And again, this is never a fun process, but it is something that is absolutely necessary. when choosing an attorney, you need to make sure you are working with somebody and selecting somebody that has experience in your exact type of case. Maybe, you know, there's a family business that's going to be split. Maybe there's a level of disagreement or volatility around parenting discussions and child custody cases. Maybe there's You know, one spouse earns significantly more than the other spouse and protecting assets and protecting yourself. You want to choose an attorney that has direct experience with what you may be facing. One of the most important things I could encourage you to have a conversation about with a potential attorney would be how much do you cost and how do you charge? You want to have a Deep understanding of this because as I mentioned earlier, nothing's cheap anymore, and you wanna make sure that you understand exactly what you're paying for and exactly what you can expect, not only from a cost, but also from their service. Are they gonna be available for you to answer these questions as your case progresses? Are they gonna be around when it's all said and done and something comes up? You know, that happens. Even if a divorce is final, life situations change. What if one spouse gets remarried? What if they need to move? What if things become contentious? You want somebody that is gonna be willing and has the capability and capacity to pick up your case. even after it's all said and done, if it's necessary. You also want to understand their communication style. Are they gonna be proactive or reactive with you? Are you gonna be responsible for checking in? I encourage you not to work with somebody that you are responsible for checking in with. If your case progresses, if there's a change or a status update, you want them reaching out to you, not the other way around. Nothing's more maddening than sitting on that sideline waiting for news. You want them to be very proactive in their communication style. Another thing that I found is that you want to understand who you're going to be speaking with when these communication instances happen. Are you speaking with your actual attorney? Are you speaking with a member of their team? It's important to understand who's going to be communicating with you and when. If this is a big topic or it has to do with a court case or a deadline or understanding illegality. you're gonna want your attorney. So make sure that that is who you will be speaking with going forward. another thing that I think we all do in our everyday lives is read the reviews. People are very willing not only to talk about positive experiences but to also talk about negative experiences. I don't know about you, but I've read many a review from things to a restaurant all the way down to the dog groomer. it's important to do your homework, research these people, check them out on the Bar Association page. Make sure you're looking them up, see if there's any formal complaints or or any issues that have happened in their past that maybe you you know wouldn't be a good fit for you or you absolutely need to be aware of before engaging with this type of attorney. So those are all things to consider conversations that need to be had when advocating for yourself and choosing the right attorney to help navigate this new process and this new normal for you. I also would encourage you to make sure that if you and your spouse were working with a financial advisor, understand what it looks like to work with them or not work with them going forward. Is that advisor willing to take on both households and can they do that? From an impartial standpoint, you want to make sure that you have the appropriate representation for you and somebody that's gonna be working on your financial picture with your goals and objectives in mind and can do so regardless of the work they've done with you and your spouse in the past. If that's not the case, that's okay to change. And much like we discussed in one of our previous episodes, is you know, ask those questions to advocate for yourself. Find somebody in that space that's going to Listen to exactly what you need and address those questions, those concerns, those hopes, right? It doesn't have to be all doom and gloom. You're getting ready to start a new future, and that's scary, but also exciting. So make sure that you are in tune with the professionals that you're working with. And if you're working with an advisor and you need to change course, that's totally okay. But make sure you're asking those questions to be able to advocate for yourself as well. The same goes true for any other professionals that you're using in this space. Maybe that's an estate planning attorney and you need to redo your estate planning because it's no longer his, hers, and ours, it's just his or hers. And you want to make sure that, you know, your insurance policies that you have on yourself are going to the appropriate people upon your passing. they're gonna help you as well as a good CFP is gonna help you go through your beneficiary designations when this is all said and done and make sure things are titled appropriately. So upon your passing, those assets go exactly where you intended them to go and not Tied to your past. The same holds true for a CPA or your tax preparer. You want to make sure that they are comfortable preparing a return for you as head of household or as an individual and that they understand your unique tax planning needs as well. It does shift when that family dynamic is no longer there. So you want to make sure that the person you're using in that space as well is on board. Thank you so much for your time today. Hopefully you found this episode to be helpful. If so, make sure you follow the podcast to stay up to date with any notifications or new episodes that may be coming out, as well as share this with somebody you care about. Make sure you're passing this information along. If you found it helpful, chances are somebody else does too. If you're looking for additional resources on any of the topics that we've discussed, make sure you visit our website craftandsage.com. You also can submit any questions you have or topics that you want me to cover on any future episodes of this podcast. Thank you.