Wealth Management for. Divorced Women

Transcription

1 Wealth Management for Divorced Women For most women going through divorce, the creation of a solid financial future is a key element in moving on and creating a new life. by Todd R. Moss, CFP

2 Divorce is a unique and very personal experience, but as a divorcee, the emotional turmoil you re experiencing and the issues you re confronting are normal steps toward creating a new life for yourself. While you may find it difficult to focus on daily decisions let alone difficult financial questions addressing some of the big issues today will lead to a more secure future that offers more options. Avoidance of these common mistakes is crucial to a divorcee s success: 1. Getting advice from friends, family and co-workers 2. Selecting the highest or most glamorous assets in lieu of selecting assets that best fit your individual circumstances 3. Trying to maintain or keep up with his lifestyle after the divorce 4. Emotionally breaking after months or years of going through the divorce process 5. Not getting a financial consultant and/or tax planner early enough One major roadblock in your path to healing and moving on is financial stress. Timing is everything. Postponing certain key decisions or settling too quickly on the wrong split of assets can have a long-lasting negative impact. On the other hand, you don t need to resolve all financial issues immediately. You can and should postpone certain decisions for a year or so, if your circumstances allow it. The ultimate goal is for you to develop a solid plan that provides the underpinnings of longterm financial independence. The first step is to identify priorities that are important to you in your current circumstances. Look first at your goals, such as alimony to maintain your lifestyle or funds for a secure retirement. Dividing assets is more complicated than it may appear at first. When considering two seemingly comparable investments, for example, the actual value may take some calculation. A 401(k) account with $500,000 and the same amount in a brokerage account using the same investments are not equivalent when you consider the taxes you ll likely pay as you withdraw money from the 401(k). In this simplified example, you d probably want to take the brokerage account. Some women going through divorce believe that their highly skilled attorneys will also advise them on financial planning. Unless the attorney is also a financial planner, the issues you re facing will likely require a specialist. Even divorce proceedings with little animosity can present complex problems for which inadequate solutions can severely affect your future and your children s. Financial traps in divorce The Financial Planning Association has identified some of the major issues that can affect the futures of divorcing couples: Equal is not always equal. As in the 401(k) account example above, the true value of an asset isn t always obvious. A house is another example: it s an asset but it s also a continuing financial obligation, while a retirement account grows tax-deferred as a liquid asset and often at a higher rate than property does. 2

3 A more in-depth analysis would reveal which assets provide the better solutions. Earnings potential of the higher-income earner. When a wife supports her husband while he receives an advanced degree or training or puts her career on hold to raise the children she may be entitled to payments for her own education. The additional cost of taxes. As mentioned above, a $150,000 investment account and an IRA with identical mutual funds aren t equivalent. As the owner of the IRA withdraws money during retirement, he or she will need to pay taxes on it. Depending on an uninsured spouse for major financial support. Even in the case of a relatively tranquil divorce, one spouse s longterm financial dependency on the other may prove precarious. The person receiving the payments needs to own a life insurance policy on the spouse making the payments. Which spouse takes care of the premiums can be negotiated. The coverage should account for family support, college education for the children and retirement income needs. Poor health can cause higher premiums or an inability to find a willing carrier, so the purchase of a policy before the settlement is crucial. The importance of disability insurance. For the same support reasons, the spouse making the payments needs long-term disability coverage at the maximum insurable amount, which by law is still less than 70 percent of annual salary. Statistically, a person is ten times more likely to have a long-term disability during his or her work years than to die during that time. Disability insurance comes with premium payment options that have a dramatic effect on the tax status of the benefits that a person would receive. What s really best for you? When a husband and wife face a crisis in their marriage that leads to separation and divorce, A divorce is like an immediate financial concern is a prime focus. If you are financially dependent on your spouse, several questions quickly arise: how you will meet your monthly expenses, who will pay the mortgage, who will pay the next tuition bill, etc. While an agreement on these initial issues may give you some relief, the longrange implications that come with divorce settlements and appropriate investment strategies have a much greater impact on your future financial security. For example, you may expect to get possession of the home which very well may be the best solution for you. Popular culture reinforces the belief that getting the home is winning. For some women, however, demanding the home does not best serve their long-term financial interests even if it salves some emotional wounds. If you don t have an income independent of your spouse s, you may not have the resources to sustain the home, especially if you give up other financial assets in return for it. Houses and condos are illiquid assets that require substantial payments for real estate taxes, utilities, insurance and upkeep on top of the mortgage. A constant struggle to meet payments would likely lead to a high-stress atmosphere. In this case, selling the home and using the proceeds to build a more financially stable life may be preferable, although it could be emotionally difficult at first. If you have adequate financial resources, on the other hand, you may want to defer some major life decisions, such as moving, launching a new career or business, or taking early retirement. In general, you should delay decisions that are irreversible, or reversible only at great cost, until you can think confidently about the future and examine the merits of various solutions. In either case, people you respect may offer amputation: you survive it, but there s less of you. Margaret Atwood 3

4 Sally s Story At 47 years of age, Sally had been married for more than 20 years and was going through a divorce that was taking two years to settle. She had lived a luxury lifestyle provided by her husband s seven-figure income, and the property now being divided was valued at $10,000,000. The couple had two daughters one in high school and another in college. Sally s divorce attorney was concerned with her ability to handle her financial affairs once she received her settlement. The attorney referred Sally to Greystone Financial Group, Inc., for advice and guidance. Sally had worked in the family business that her husband received from his father. She stopped working there as soon as she got married in her early twenties, though, and since then had had nothing to do with the business s finances. Unfortunately, during the two years of attempted settlement, she had inadequate income and incurred major debt. Straining to maintain a positive life for her daughters, she took them on expensive trips and made extravagant purchases. The main job for her Greystone advisors was creating a plan that Sally could follow to regain control of her finances. Since she had not worked in so many years, Sally wasn t motivated to relaunch a career. Her divorce settlement would need to last throughout her lifetime. She had to come to terms with the fact that her life would be comfortable but no longer extravagant. Sally s financial advisors analyzed her assets. During the settlement, necessary expenditures, tax liabilities, debt and all other aspects of her financial situation were reviewed. The advisors sat down with Sally and explained the details without using jargon-- and they showed her how she could have enough income for the rest of her life by making some adjustments. Next, they implemented her new financial plan and guided her through a more balanced spending plan, which would result in the security she required. They identified the common mistakes she had already made and helped her overcome them. advice or business opportunities, but you can postpone such important decisions until you have regained perspective and sought guidance from an objective, trusted advisor who can help you evaluate potential new paths. Key financial challenges when you re facing divorce Dividing property Deciding who gets the home, vacation home or time-share Dividing stock and other investments when some are in regular investment accounts and others are in 401(k)s Dividing items that have large sentimental value but not necessarily large dollar value Dividing property when there is one large asset, such as a house, and all other assets are minor Dividing pension benefits and the lifetime benefits that go with them Dividing debts Paying off loans and credit card balances Keeping your spouse s credit report separate from yours Minimizing your taxes Deciding who will get the exemptions for the children Determining who will deduct child-support payments Understanding the tax consequences if you get your spouse s retirement savings Deciding who gets the unused tax credits and losses Resolving financial questions Typically, divorced women need to address financial issues in four categories: Financial issues that need immediate attention, such as support Financial decisions that are part of the divorce settlement, such as alimony or the transfer of assets Ongoing management of investments, insurance, retirement savings and expenses Creation of a financial plan After you locate all the relevant financial documents, you can start formulating your plan. The 4

5 seriousness of each financial question and the best method to answer it depends on your particular circumstances. If you don t have much experience in handling financial matters, you can get assistance from experts. Investments What are your short-term versus long-term income needs? After the settlement, do your investment accounts for stocks, bonds and mutual funds need to be revised to provide you with income for living expenses? Will some investments pass into a trust for tax reasons? Will you receive income from the trust or have access to the principal? Insurance Does your divorce affect your medical coverage in any way? Do you need to make adjustments or find new coverage? Do you need to start making premium payments that had been automatically deducted from a paycheck? For your tax situation and income needs, what is the best way to receive life insurance benefits? Do you need any new life insurance coverage on you or your spouse to protect your children, grandchildren or others who may depend on you? If your spouse should pass away, would you suddenly own a business that depends on you financially? If you spent an extended period of time convalescing from an illness in a nursing home or at home, could your savings cover the expense? Getting the right kind of help A more advanced kind of financial planner known as a wealth manager can guide you through the financial and legal issues and can coordinate the work of your divorce attorney and accountant to attain the best outcome for your situation. A wealth manager also eliminates your The difference between need to manage a team of professionals and supervise their work in areas with which you may not be familiar, such as the structure of trusts, useful tax-saving strategies or the asset allocation of an investment portfolio. Wealth management may sound like a term that s interchangeable with financial planning, but it actually refers to a comprehensive process that examines your goals and develops customized solutions. A wealth manager works as an overall manager, taking a holistic view of your situation and overseeing the correct implementation of any solutions. A number of divorced women find their financial security jeopardized by incomplete or uncoordinated planning among attorneys, accountants and life insurance experts. The wealth manager prevents this kind of situation. In addition, the wealth manager provides several important services: _ Planning: (financial planning, retirement planning, education planning, business planning and retirement planning) _ Investment management _ Charitable giving _ Wealth transfer _ Asset protection _ Credit sources _ Tax planning _ Estate planning Such services will be the basis for an appropriate plan tailored to your situation. However, beware of generic solutions that can cause harm by solving one piece of a complex situation while ignoring others. A wealth manager will design and explain a comprehensive financial plan that addresses all your goals and needs. And beyond a divorce and a legal separation is that a legal separation gives a husband time to hide his money. Johnny Carson 5

6 the plan itself, a wealth manager with experience in advising divorcees through this difficult transition to a new stage in life can bring a great sense of relief. Todd R. Moss, CFP Todd R. Moss, CFP, is Vice President of Greystone Financial Group, Inc. Todd has attained the designation of CFP (Certified Financial Planner) granted by the College for Financial Planning. In addition, Todd has an extensive background in lecturing, including teaching retirement and investment planning strategies at Michigan universities, colleges and to Fortune 500 companies. Todd received his undergraduate degree from Michigan State University in 1980, where he was a member of the Track and Cross-Country Teams. He began his career in the financial services industry in 1980, before co-founding Greystone Financial Group, Inc., in Todd s professional and community associations include the Financial Planning Association and the Detroit Estate and Financial Planning Council. Barron s Magazine chose him for its list of Top Financial Advisors in the United States for 2007, and he is the two time recipient of the Consumers Council of America s Honor for America s Top Financial Planners. He currently serves on TD Ameritrade's national Advisory Council. He is a former Vice-Chairman of the Independence Township Planning Commission and is a past-president, and current board member of The Clarkston Foundation. Todd is a past President of the Michigan State University College of Social Science Alumni Association and is a member of its Varsity S Alumni Club. Greystone Financial Group, Inc. Greystone Financial Group, Inc., is an exclusive wealth management organization comprising a dedicated team of professionals specializing in all aspects of investment, tax, risk management, retirement, and estate planning. We serve the needs of successful individuals and families, corporate executives, and closely held businesses. In particular, we have a special niche in assisting women in transition with their unique financial circumstances. Following the death or divorce of a spouse, the stress of adjusting to a new lifestyle often makes managing household finances a secondary concern. We mitigate that stress by assisting with the special needs arising from these life events. 6

7 Greystone Financial Group, Inc W. Long Lake Rd. Suite 255 Troy, MI W. Twelve Mile Rd. Suite 100 Farmington Hills, MI To learn more about Greystone Financial Group, Inc., and to schedule a no-obligation discovery meeting, contact Deborah Agosta at DAgosta@GreystoneFG.com or Securities offered through Comprehensive Asset Management and Servicing, Inc.--Member, FINRA/SIPC/MSRB;