TWO SIDES OF THE COIN
Two Sides of the Coin is a series of articles written by Ian Steinberg, a matrimonial and family law attorney, in conjunction with an array of other professionals from different industries. The series provides insights into issues from the perspective of each party to a divorce. Each article provides readers with practice tips that are helpful when navigating through the divorce process.
Once your divorce is finalized and you are transitioning into a “new normal,” your role in your financial life may change. If you were the “monied spouse” and never paid the bills, you may now need to take on that responsibility. On the other hand, if you were the “non-monied spouse,” and never made the weightier financial decisions concerning investments, insurance, and tax strategies, you will need a higher level of focus on managing your personal finances.
Taking on all of those responsibilities for your own finances, perhaps on a tighter budget, can be a daunting task. Here are some tips for making that process as smooth as possible.
Build a Team of Trusted Advisors
Regardless of whether or not you were the higher income earner during your marriage, or the one who is receiving child/spousal support after the divorce, working with a team of advisors can be very beneficial. Your post-divorce financial situation almost certainly looks different than when you were a married couple, and a well-functioning team can identify and coordinate relevant information to help you make the best financial decisions. A good advisory team typically consists of an accountant, investment advisor, daily money manager/personal finance manager, insurance broker, trusts and estates attorney, and of course a matrimonial attorney.
While interviewing advisors, consider how the professional would fit into your team. Try to gauge things like their responsiveness to your calls/emails, their commitment to your understanding of complicated concepts, and their enthusiasm about collaborating with other members of your team. Also, learn how each of your advisors is compensated and establish whether they are acting in a fiduciary or non-fiduciary capacity. A constructive advisor would have a suitable temperament to help calm anxieties and provide perspective and a sense of partnership.
Inform Your Team of Your Goals
There is a reason that you have a team: to obtain advice from people with various perspectives and backgrounds. Be mindful not to rely too heavily on one advisor. To derive the maximum benefit from your team, you will need to clearly articulate your goals.
For example, if you were the non-monied spouse and you kept the former marital residence as part of your divorce settlement, articulate that one of your goals is managing the cost of that choice. By the same token, if you do not intend to start working (or continue working), express that one of your goals is generating lifetime income from your distribution of marital assets received as part of the divorce. If you are the spouse that was the traditional breadwinner, convey a goal of maintaining your lifestyle while still affording your support obligations. Minimizing your tax liabilities may also be an important consideration.
Let Your Team Guide You
Your various advisors will help with your current financial management and lay the groundwork for longer-term financial well-being in your post-divorce life. Some of the major components you will need to work on are:
Financial Analysis
Regardless of your degree of financial comfort, it is vital to balance your anticipated inflows (i.e., employment compensation, pension, social security, investment income, etc.) with your outflows (shelter, insurance, food, clothing, car, etc.) Here are some tips:
- Develop systems for paying bills and ensuring adequate funding to reduce the stress of meeting your financial obligations.
- Prepare a spending plan that reflects your priorities. For instance, how would you balance saving for emergency property repair bills against discretionary spending on entertainment, clothing, and special things for the children?
- Look at spending patterns to reveal unnecessary costs and possibly even fraud.
Investing
Even if understanding financial markets seems overwhelming, it is wise to educate yourself about basic concepts so you can work effectively with your financial manager/planner. Here are some tips:
- Familiarize yourself with investment products and how they align with your stage in life and your risk appetite.
- Encourage periodic meetings with your investment advisor, accountant, and daily money manager. Inform them about any developments that could impact your capacity for investment gains, such as changes in tax-deductible items, sales of assets, property rentals, etc.
Retirement Planning
No matter how much (or how little) you have in the bank, concerns about outliving your money are common. Here are some tips:
- Do not underestimate the cost of longevity, which often requires expensive in-home or institutional care. An important part of this is understanding how much (or how little) Medicare will cover expenses that aren’t explicitly medical in nature.
- Work with a financial planner to project your retirement income from Social Security, pension, investments, real estate, etc., and evaluate what, if any adjustments, will be needed in your living expenses now and in retirement.
- Familiarize yourself with the impact of large required minimum distributions and be aware of the tax consequences of leaving large retirement accounts to beneficiaries in higher tax brackets than yourself.
Estate Planning
Life changes, such as divorce, warrant a review of your legal documents. Here are some tips:
- Together with your trusts and estates attorney, define your estate plan objectives. Determine a suitable structure to provide for your minor and/or special needs children and to establish how your money will pass to subsequent generations, charities, etc.
- Review and update the beneficiaries of your accounts that are distributed outside the probate process (i.e., retirement and transfer/payable on death accounts). If not done, an ex-spouse may inherit these assets, if previously named as beneficiary.
- Identify and document who will handle your financial and medical affairs in the event you are living but incapacitated, along with procedures for doing so.
As you transition into your post-divorce life, you will be thrust into new roles that might feel uncomfortable. Keeping in mind the tips listed above and relying on the wealth of knowledge and experience possessed by your team of advisors can help make this turning point an opportunity for taking control of your financial life and future.
Ian Steinberg is a matrimonial and family law attorney with Berkman Bottger Newman & Schein. He can be reached by email at isteinberg@berkbot.com or by phone at (212) 867-9123. Arlene Glotzer is a personal finance manager with Eddy & Schein Group. She can be reached by email at arlene@eddyandschein.com or by phone at 212-987-1427.