Navigating Divorce: Key Steps for Protecting Your Financial Future
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Scroll down for a transcript and chapters start times. This discussion is with Vector’s Sharon Calhoun and Scott Rose.
Note, that this podcast episode is the second conversation on the topic of divorce and financial planning. For those wanting additional context, including a recording of the first conversation, please visit our divorce resource page: vectorwealth.com/divorce.
Summary
In our latest podcast episode, Scott Rose and Sharon Calhoun dive into financial considerations during and after a divorce. Sharon is managing director at Vector and holds a Certified Divorce Financial Analyst (CDFA®) designation. She emphasizes the importance of addressing both the emotional and financial aspects of divorce.
For those going through a divorce, a critical first step is gathering all relevant financial documents, from bank statements to tax returns, to ensure full transparency. Sharon discusses the complexity of electronic records and stresses the importance of both parties knowing how to access these documents. Protecting your credit is another key focus, with advice on freezing accounts and monitoring credit reports.
In the episode, Sharon also explains the difference between marital and separate property and how co-mingling assets can affect ownership. She emphasizes the importance of updating estate plans, beneficiary designations, and account titles post-divorce to avoid unintended consequences. Finally, Sharon advises listeners to create new financial plans based on their goals, whether short-term budgeting or long-term retirement planning.
Whether you’re navigating a divorce or simply seeking solid financial best practices, this episode provides valuable insights on how to protect and plan for your financial future.
Episode Chapters
Chapter 1: Introduction and Emotional Considerations
Start Time: 00:00
Description: Scott and Sharon introduce the topic of divorce, emphasizing the importance of addressing both the emotional and financial aspects of the process. Sharon encourages listeners to seek emotional support from family, friends, and professionals.
Chapter 2: The Importance of Financial Documentation
Start Time: 02:09
Description: Sharon explains the first step in handling the financial side of a divorce: gathering all necessary financial documents. She highlights the challenges of accessing electronic records and the need for both parties to know where these documents are stored.
Chapter 3: Marital vs. Separate Property
Start Time: 05:27
Description: The discussion turns to understanding the difference between marital and separate property, and how co-mingling assets can affect ownership. Sharon offers advice on protecting inherited assets from becoming marital property.
Chapter 4: Valuing and Managing Assets
Start Time: 08:03
Description: Sharon discusses the importance of getting accurate valuations for certain assets, such as businesses, and provides practical tips for managing and keeping track of asset values over time.
Chapter 5: Protecting Credit During Divorce
Start Time: 10:52
Description: Sharon covers the crucial topic of protecting your credit during divorce, including freezing joint accounts, monitoring credit reports, and the benefits of a credit freeze.
Chapter 6: Creating a New Financial Plan
Start Time: 14:50
Description: With the process of divorce underway, Sharon emphasizes the need to create a new financial plan. This includes setting short- and long-term goals, building an emergency fund, and reassessing your budget.
Chapter 7: Updating Legal and Financial Documents
Start Time: 18:09
Description: Sharon explains the importance of updating all legal and financial documents post-divorce, including estate planning documents and beneficiary designations, to ensure that assets go to the intended recipients.
Chapter 8: Managing Retirement Accounts and Investments
Start Time: 21:25
Description: Sharon discusses the need to reevaluate the allocations in retirement accounts and investments received during a divorce settlement, ensuring that they match the individual’s risk tolerance and financial goals.
Chapter 9: Setting New Financial Goals Post-Divorce
Start Time: 24:40
Description: Once the dust settles after a divorce, Sharon advises listeners to focus on setting new financial goals. This includes planning for retirement, considering a new home, and adjusting to a single-income lifestyle.
Chapter 10: Rebuilding and Moving Forward
Start Time: 27:01
Description: Sharon concludes with an empowering message about financial independence post-divorce. She encourages listeners to take control of their financial future, seek education, and rebuild on their own terms.
Transcript
(adapted for readability)
It's been a couple of weeks since we last talked about the interesting subject of divorce. Where should we pick up with that today? What's the next topic you'd like to hit on? So today, I thought we could spend just a little bit of time talking about what to do during a divorce and what are some things we should be doing post-divorce. Before I get into my laundry list of things to do, I just want to take a moment and hit on the concept of divorce. The impact of a divorce, as I see it, is twofold: there is the emotional side of divorce and the financial side of divorce. Our discussion today will focus on the financial side, but I want to stress the importance of the emotional side. Whether you're the person wanting the divorce or the person not wanting the divorce, whatever role you're playing, that emotional piece is critical. You must take care of yourself first. In regards to that emotional side, make sure that you're seeking support from family, friends, support groups, or maybe even therapy. That emotional side is absolutely critical, so I just want to stress that importance before we move on to the financial piece.
It's a really good point. There's more to it than just one aspect. So let's pivot and spend some time talking about the financial side. When we think about what we should be doing right away, the first key point is to gather all the financial documents. There is a laundry list of them: bank statements, retirement accounts, tax returns (usually for the last three years), mortgage statements, insurance statements, and any other financial documents. Is there a prenuptial? Start with that fact-finding piece, which is often called disclosure. We have to disclose what we have. It sounds pretty easy – just gather all these documents – but the complexity comes in today because most of these documents are delivered electronically. In a couple, one person often knows where they are, and the other person has no idea. This can be especially challenging during a divorce if both parties don’t see eye to eye, and one is unwilling to share passwords. If you don’t know where to start, figure out how to access your financial documents. Know the logins and passwords.
Let’s assume you can access the documents. It takes longer if you don’t have the password, but if you do, it’s instantaneous. Even outside of divorce, it’s important for both parties to have mutual access to this information. Both should know how to access financial documents. Life is often lived with the mentality that "he or she will do it, so I don’t have to," but that doesn't hold up in situations like death or divorce. When the other party is clueless about where to find the documents, that’s where the problems begin. It’s important to know how to get these documents and access them. You can have your own password, so you don't need to share one with your spouse. Once you've gathered all the documents, then we should start thinking about assets and liabilities. I also want to talk about the difference between marital property and separate property, because many people don’t know the difference.
It can get confusing. You have your stuff, your spouse has their stuff, and then you bring your stuff together, and now it's all co-mingled. Typically, when assets are co-mingled, they become marital property. Where this becomes an issue is with inherited assets. If you take inherited assets and put them into a joint account, they often lose their status as separate property. I always advise clients that if you inherit assets, we can have a frank conversation as your advisor and let you know that co-mingling these assets could turn them into marital property. You also want to think about the valuation of assets. Some assets, like businesses, require valuations. If you haven’t had a valuation done in five years, that could be an issue, especially if the business has grown significantly. So, keeping valuations up to date is important, even outside of divorce.
Another thing to think about is protecting your credit. Many couples have joint accounts. During a divorce, you might want to agree to freeze the account so neither party can withdraw from it. You can each open your own accounts and start depositing your own checks, but you want to protect your credit. For example, if you're joint on a credit card and one person stops paying, that can negatively affect your credit score without you even knowing. So, monitor your credit report. You can receive a free credit report once a year from the three major credit reporting agencies: Experian, Equifax, and TransUnion. You should pull a report every four months from a different agency to monitor your open credit.
Also, consider a credit freeze. I have my credit frozen, and I recommend others do too. During a divorce, if one person has more credit in their name, the other might not have a long credit history, which can affect their credit score. Building credit may require taking out a card and paying it off regularly to create a good history. Don't take on unnecessary debt, but do what you can to protect your credit. Another important step during divorce is starting your own financial plan. This includes thinking about short-term and long-term goals. What your financial plan looked like before divorce probably won’t resemble what it needs to look like now. You need to think about an emergency fund and budget because your financial situation has changed. The home, which is often one of the largest marital assets, is usually sold within the first couple of years after a divorce.
During this process, seek help from a financial advisor. It can be challenging to figure out how much to set aside for short-term, long-term, and emergency savings. You'll need to think about where you’ll live and what your new expenses will be. Working with someone who can walk you through this is important. When clients come to me, they often don’t know what to do or where to start. That’s why I stress the importance of seeking support from someone who can guide you through these steps, as divorce has long-lasting financial impacts.
After divorce, the most important thing is to update your documents. You must update everything—estate planning documents, healthcare directives, powers of attorney, wills, trusts, and beneficiary designations. We've had cases where assets that should have gone to someone after a death went to a former spouse because beneficiary designations weren't updated. This can happen easily in a second marriage if people assume their new spouse is the beneficiary. But until you verify with your employer or financial institution, you can't be sure.
It’s critical to update all financial documents, especially retirement accounts, to make sure the titling and allocations reflect your needs. If you received an IRA as part of a divorce settlement, make sure the account aligns with your risk tolerance and goals. Check all accounts to ensure that they match your financial plan post-divorce. Set new financial goals, whether it's buying a new home or planning for retirement. Splitting assets in a divorce may leave you with half of what you had, so you need to reassess if that’s enough for your retirement plan.
Lastly, take the time to learn about budgeting, investing, and what you own. Financial independence post-divorce is a chance to rebuild on your terms. You don't need to know every detail, but being aware of what you have is empowering. Vector is here to help with that. We do the heavy lifting to support you before, during, and after a divorce. It’s okay to seek support from others—family, friends, or professionals—because divorce is a significant life event. But it’s also an opportunity to redefine your financial future, and this time, it’s on your terms.
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If this discussion doesn’t apply to you, but might apply to someone in your network, feel free to forward this information. We're happy to speak with them, and we don’t charge for initial conversations. We’re here and happy to help at any point in time.
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