About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual Fiduciary Financial Planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.
Divorce can be less common among doctors than other professionals.1 With that being said, the process of divorce can be complicated for anyone - maybe even more so for medical professionals with a complex financial situation.
Divorce can be hard for healthcare workers to manage for a few reasons. Doctors may be less eager to take such a major step simply because the process of a divorce, which is difficult for anyone, can be an especially troubling distraction for an individual with so many responsibilities. A kind of grief follows a divorce, one that may be difficult to shake. And there is, of course, the financial aspect of divorce. If you have children, both you and your former partner will need to make decisions about their care.
In this article, we will examine some things to consider as you dissolve your marriage. We will also provide some suggestions that will be helpful to doctors navigating their post-divorce financial life.
First, Build Your Team
As a first step, find a financial professional who is experienced in helping individuals navigate divorce. Better yet, you may benefit from someone who has worked with medical professionals and understands the complex nature of their financial life. This person should have the skills to assess a divorcing couple’s finances comprehensively and forecast the potential short-term and long-term financial outcomes of a settlement. In addition, that professional can help spouses develop spending and cash management strategies and consider the tax implications of a split.
A professional can help keep your financial situation – your income, your expenses, the needs of your children – at the forefront of your mind both before and during the divorce process.
A Checklist for Doctors Going Through Divorce
Here is a checklist you can use to prepare yourself for a meeting with a financial professional to discuss matters related to your divorce.
This checklist covers 26 of the most important planning issues to identify and consider when going through a divorce. It’s structured as follows:
- Cash Flow Issues
- Asset & Debt Issues
- Insurance Planning Issues
- Tax Planning Issues
- Long-Term Planning Issues
- Other Issues
Retirement Income & Savings
You must review your retirement income sources such as projected Social Security benefits, any future pensions, potential inflows from your retirement assets, and the way you invest. If you own your own practice, you may have your own retirement plan, as well. In doing so, you can make clearer decisions about how you want to divide your retirement accounts and still realize the kind of lifestyle you would like to have in retirement.
People often forget to change beneficiary designations on their life insurance policy and accounts including bank, investment, and retirement accounts after a divorce. If these go unchanged, your former spouse may stand to inherit a large portion of your assets.
Estate tax laws give certain breaks to married couples that are unavailable to individual filers. A trust may give you an avenue to pass along more of your assets to your heirs rather than the IRS and may prove critical if you have children or dependents with special needs.
If you have a will or living trust, your spouse may be the executor/trustee and may also be the sole or primary beneficiary of your estate. This is something to check on. Incidentally, many states abide by an elective share statute, meaning that a spouse (whether estranged or married) is automatically entitled to a percentage of your estate.
Estate planning is a critical aspect of the financial planning process. Reviewing your documents is an important exercise. However, this can be a daunting task for both clients and advisors, who may find the exercise tedious and, perhaps, confusing.
To help guide your document review, we have created this checklist. It covers key considerations regarding the most common estate planning documents, including
- Living Trusts
- Irrevocable Trusts
- Powers of Attorney
- Living Wills
Joint Accounts & Property
Some things to consider: Do you own your practice, partly or in full? This will be of primary concern, as it will need to be either dissolved and assets divided between both parties or will constitute part of the assets you are keeping after the marriage. See that titles and deeds are appropriately transferred (Cars, boats, campers, motorcycles, and other vehicles; Homes, rental property, vacation cabins, other real property types). Don’t forget bank accounts and credit cards. Change joint accounts to individual accounts. Remove your name from your spouse’s accounts.
Student Loans & Debt
Up to 89 percent of medical school graduates have taken on educational debt.2 Not only are the majority of medical professionals in debt, but the amount of debt accrued can be substantial. On average, doctors and physicians face $241,600 in student loan debt.2
As a medical professional, you may have student loans and other debt to consider amidst a divorce. Your spouse may have their own loans to pay off as well. Make sure that your payment services are aware of your new marital status. After all, responsibility for these loans depends on whether or not you took the loans before or during the marriage, or whether you accepted a joint consolidation loan.
Pull your credit report and check all accounts to assure their validity. Contact your creditors to cancel or close accounts, change contact information or remove your spouse’s name.
Do you have life insurance policies? Change the primary beneficiary to a financial trust or another individual. You may want to purchase more coverage if it is needed.
If you are divorcing after April, should you and your spouse file one more joint return? This calls for a chat with your tax professional. Filing jointly could of course save you money compared to filing singly, but it also means you are jointly responsible for everything on that 1040 form. Working with a tax professional may help you answer the many questions you will have, as well as those you have not yet considered.
Long-Term Financial Concerns
An “equal” settlement is not always an equitable one, as one spouse may be left with much greater potential to build and retain wealth than the other. The reason for this is that, in many cases, physicians earn more income than their spouses, assuming the spouse works at all. This is still applicable in cases where the spouse who isn’t a doctor earns more or comparable income. That is the most important long-term issue to address, so carefully weigh that potential well before a divorce is finalized.
There’s a great deal for you to think about. Some of it will be painful, some of it may come as a relief. Whatever emotions this time of your life brings to mind, don’t let frustration become a major part; a good start comes from engaging financial and legal professionals who can help you through the process.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a family, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals in their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. So if you're looking for guidance on Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments, we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.
In the August Newsletter, I explore how you should invest money for your short-term goals after you've established an emergency fund. I also discuss how a Financial Advisor can help you avoid emotional decision-making with U.S. News and World Report and how to know if your Financial Advisor is the right fit for you. There are also blog posts where I outline how to complete a mid-year financial check-up and 5 college planning mistakes to avoid.
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