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.
After 27 years of marriage, high-powered business and philanthropic couple Bill and Melinda Gates have announced on May 3 that they are divorcing. Bill Gates, the co-founder of Microsoft, is estimated to be worth around $130.5 billion.1 Together, the couple is known for their philanthropic efforts primarily executed through the Bill & Melinda Gates Foundation.
While they are among some of the most influential people in the world, experiencing a divorce is a life-altering event that can happen to anyone - no matter your net worth. If this is something that you may be working through as well, there are a few important things you can do to protect yourself financially during the process. View the checklist below for issues you should consider when going through a divorce.
This checklist covers 26 of the most important planning issues to identify and consider when a client is 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
7 Tips For Protecting Your Assets Throughout a Divorce
Divorce is emotional, and financial protection may not always be top of mind. But being cautious and prepared early on can help prevent financial stress later down the line. If you’re amidst a divorce or considering the process, keep these seven tips in mind.
Tip #1: Familiarize Yourself With Your Finances
Every couple handles their joint finances differently. Some choose to split responsibilities evenly, some may involve each other in all financial aspects and, in some cases, only one person may be dedicated to handling all financial responsibilities.
But when it comes to divorce, you’ll want to familiarize yourself with your family’s finances, especially if you weren’t as involved with them before. Because nearly every financial aspect of your life is scrutinized and addressed during a divorce, having a good understanding of where things stand now can make a huge difference later on.
Educate yourself on all aspects of your finances, including
- All assets and how they’re titled (houses, cars, and boats, for example
- Debt (mortgages, car loans, personal loans, credit card debt, student loan debt)
- Income (your family’s total combined income)
Tip #2: Close Joint Accounts (Carefully)
If you and your spouse share a joint credit card, you’ll want to close the account as soon as possible. Neglecting to close the account could make you liable for paying any charges your spouse accrues on the card. With a divorce underway, you want to avoid accruing any additional joint debt, including credit card debt.
If you have a joint bank account, this may be trickier to handle. You’ll likely want to close the joint account down as well, but you’ll want to speak to your attorney before doing anything on the account. They can help you avoid potential legal issues caused by the removal of funds from a joint account.
Tip #3: Update Beneficiary Designations
It’s likely your spouse is listed as the beneficiary for various accounts, policies, and assets. If you’d like to change your beneficiary designations, you’ll need to do so for every individual instance in which they are listed. Simply updating one item or rewriting your will does not guarantee all assets are updated.
Possible beneficiary designations to update include:
- Retirement accounts (IRAs and 401(k)s)
- Life insurance policies
- Bank accounts (checking, savings, CDs)
Tip #4: Build Your Team of Professionals
Working with professionals can be a crucial step in protecting your assets and financial wellbeing during a divorce. Most people start by hiring an attorney, but others may be of importance as well.
Possible professionals to speak to include:
- Financial planner: A financial professional can help bring to light all financial assets between you and your spouse while working to help preserve your financial wellness during and after the divorce.
- CPA: An account is another financial professional who can help gather and sort through the financial assets accumulated throughout your marriage.
- Appraiser: You may need to work with an appraiser to assess an accurate and fair value for the all-important property - antique furniture, art, collectibles, etc.
- Child Custody Mediator: Negotiating child custody is no easy feat, and having an unbiased third party to lead the discussion is sometimes necessary.
Tip #5: Gather & Protect Important Paperwork
When going through the process of divorce, you’ll be faced with what feels like a million small details to consider. Do yourself a favor and set aside time to gather up all-important paperwork. Not only will you likely need some of it throughout the divorce proceedings, but you’ll want to keep your documents protected as well.
Possible paperwork includes:
- Birth certificate & Social Security card
- Diplomas & certificates
- Previous tax returns
- Current tax paperwork (W-2s, bank statements, etc.)
- Car titles
If some of the paperwork is applicable to both you and your spouse, make sure to make a copy for you and a copy for them.
Tip #6: Inventory Your Home
Doing an inventory of your home with your spouse (if possible) early in the process can be an effective way to prevent headaches and stress later on. Through photos or video, document all items of value in your home and the condition they’re in. Document the date of the video or photos and any pertinent details about furniture or other important items. This can help put both parties on the same page in regards to what assets you both own and what condition they’re in.
Should an item of value go missing during the process, you have proof of what it was when it was last in the house or on your property and the type of condition it was in.
Tip #7: Reevaluate Your Budget
The reality is, divorce isn’t cheap. The average cost of divorce in the United States is $15,000.2 Once the divorce is finalized, you may need to readjust your expectations for saving and spending - especially if you’re transitioning from living on two incomes to one. A financial planner can help you through the process of determining what your current financial needs are as well as how divorce may affect your retirement plans.
Divorce is painful, often messy, and almost always emotionally exhausting. While there’s no getting around it, there are things you can do to help make it easier on yourself. If this is something you are working through, reach out to a financial professional who can help keep your best interest at the forefront of the process moving forward.
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. 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.
If you're looking for guidance on your investments, you'll want to read this month's Newsletter. In my April Newsletter, I discuss Gamestop, market speculation, long-term investment returns, and 9 investing mistakes you should avoid.
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