By Chuck J. Rylant, CFP, MBA
Santa Maria, CA
www.cjrylantwealthmanagement.com
If you are going through a divorce, you may be feeling fear, anger, resentment, distrust, and a range of other emotions. These feelings can wreak havoc on your finances.
You will be making major financial decisions that will likely impact you for decades at a time when your emotions are clouding your judgment. Here are six common mistakes to watch out for during a divorce.
1. Choosing the wrong attorney
If you can end the relationship without a legal fight, you will begin your new life with far more money. Legal battles are very expensive. A good attorney can prevent you from making a major financial mistake, but be cautious because it’s easy to be taken advantage of during a divorce.
There are many ethical attorneys practicing family law, but there certainly are a few that take advantage of people when they are the most vulnerable. Because of the design of our legal system, attorneys may provoke fights between spouses, causing long drawn-out legal battles that can drain your assets. These stressful battles rack up fees that, if prevented, could have been used for retirement, education, or bills. Consult with several attorneys until you find one you are comfortable with and who is interested in resolving the divorce efficiently. More and more lawyers are gaining experience with collaborative divorce, where the spouses and all the professionals agree not to litigate. You do not want an attorney that will drag you and your spouse through an unnecessary battle.
2. Leaving debt in your spouse’s name
During your marriage you probably obtained credit that was also in your spouse’s name. It’s very important to pay off or refinance debt so it’s only in the name of the spouse who will be obligated to pay the debt. Often one partner takes responsibility for joint debt, which leaves the other at risk of negative credit ratings from late payments. Even if payments are made on time, the other spouse may be anxious about the situation, which can lead to unnecessary stress and arguments.
3. Staying in the house
Divorcing spouses often fight to the end to keep a house. Perhaps we want to maintain some stability in what feels otherwise like an out-of-control situation. The financial reality is that the income that formerly supported your family must now support two households. Keeping a home (especially one that was a stretch before the divorce) spreads the budget even thinner. More often than not, selling the home allows both parties to downsize until they are able to reestablish themselves. Sometimes we must take one step back to take two steps forward. Try not to go too far in loving the house. It can’t love you back.
4. Neglecting to consider the tax consequences
Divorce may force you to make the largest financial decisions of your life. You may need to sell or refinance your home. Your retirement accounts may be split or used for other expenses, and you may have alimony and child support obligations that last for years. These transactions can have huge tax ramifications that affect both of you. Don’t let taxes completely drive your decisions, but seek professional advice from an accountant or a fee-only financial advisor before you agree to a settlement.
Attorneys typically are not expected to analyze the tax aspects of your divorce decisions, so it is up to you to seek additional help. Most likely, the fee you pay these professionals will be more than offset by the savings their advice provides.
5. Ignoring insurance
An often overlooked but critical consideration in divorce is insurance. As soon as your divorce is final, notify all of your insurance providers that you are divorced and no longer living with your spouse. Changes in address can affect your coverage. You may also need to apply for individual health insurance or pay for costly COBRA coverage. Finally, do not forget to change beneficiaries on any life insurance policies and on annuity and retirement accounts like 401(k)s and IRAs. Very often people forget to make necessary changes and mistakenly leave the first spouse as the beneficiary even after a second marriage. But be cautious of making changes during the divorce proceedings because you can violate court orders, so it’s always best to seek advice from your attorney first.
6. Trying too hard to win
The final pitfall is the most dangerous and may be the most difficult for you to avoid. Although ending a relationship is tough emotionally, try to separate your feelings from the financial side of the divorce. Do not try to win because there are no winners in a divorce. The harsh reality is that the financial side of the divorce needs to be a business decision. Unfortunately, it doesn’t matter who was at fault in the divorce or who is to blame. The more you are able to look at the finances as a business transaction, the smoother it will go and the better off you, your former spouse, and your children will be in the long run.
August 18, 2009
August 7, 2009
Are We Turning the Corner Yet?
By Bert Whitehead, MBA, JD
Frankiln, MI
http://www.bertwhitehead.com/
We have finally seen some positive news on the financial front, and many optimists think the stock market has hit the bottom and bounced off its low point. It’s pleasant to be able to take a breather from the brutal onslaught of bad news over the past year.
Many ACA advisors have been citing the dangers of being out of the market, even when it is falling. Although it has been stressful psychologically to maintain equity positions over the past year, recent market activity shows the folly once again of trying to time the market.
For the eight bear markets that occurred in the last 50 years, the average gain for the S&P 500 in the year following the stock market low is +36.5%. We’re currently in the ninth bear market of the last half century. The S&P 500’s closeof-trading low point of this bear market (so far) was 677 on March 9, 2009. Through the end of April, the S&P 500 gained 29% (not counting the impact of reinvested dividends).
As our clients, you pay us to “watch your backs.” So without being an outright pessimist, I think we are still in a perilous financial situation. The future of the auto industry is teetering, and the economic reality goes even deeper than that. We are restructuring our national economy to be capable of truly participating in a global economy.
Our prosperity over the past 15 years was based on a worldwide spending spree, fueled by cheap credit and over-leveraged real estate. The current governmental nostrums are designed to spur more spending, but no meaningful programs have yet addressed the banking crisis and the collapse of the real estate market. We see the impact of these issues every day in the “For Sale” and “For Lease” signs in almost every neighborhood and commercial area.
Each of you has a unique situation, so as usual the approach best suited to you depends mostly on what is going on in your own life. If the breadwinner in your family is out of work, or you have kids in college, or you are faced with disability or are retired (or hope to be soon), these circumstances—not the state of the economy—are the key factors in selecting your investment allocation. Although the stock market may look great, don’t kick yourself for having missed out on the recent steep increase.
It is also foolhardy to conclude, based on a recent upturn in the markets, that you should now jump in with both feet. We may not hit bottom until 2010, and then it may take a couple of years to fully recover.
Market timing is a futile waste of energy. But there may be other wise financial moves available to you. For those of you in transitional or distressed situations, we typically advise you to maintain an extra cash cushion. If your life situation is stable and your future income stream is on track (such as through a bond ladder), dollar cost averaging into the stock market is very beneficial. If you haven’t done so recently, it’s probably time to review your portfolio and make adjustments as appropriate.
It may be advantageous to refinance your home mortgage at a lower rate (unless you owe more on your house than it’s worth). However, jumbo mortgages (more than $417,000) still carry very high rates, and it is seldom worthwhile to refinance those.
This experience of living through the worst economic period since the Great Depression of 80 years ago will have a lasting and positive impact on most of us. The losses will ultimately be recouped, and many people—probably more than have realized it—will be able to outlast even a continuing downturn. More importantly, it has made many of us aware that we had been frittering away money on things we didn’t really value. I believe this lesson has to be relearned by each generation as we discover that our investment statements aren’t the scorecard for our real wealth.
Frankiln, MI
http://www.bertwhitehead.com/
We have finally seen some positive news on the financial front, and many optimists think the stock market has hit the bottom and bounced off its low point. It’s pleasant to be able to take a breather from the brutal onslaught of bad news over the past year.
Many ACA advisors have been citing the dangers of being out of the market, even when it is falling. Although it has been stressful psychologically to maintain equity positions over the past year, recent market activity shows the folly once again of trying to time the market.
For the eight bear markets that occurred in the last 50 years, the average gain for the S&P 500 in the year following the stock market low is +36.5%. We’re currently in the ninth bear market of the last half century. The S&P 500’s closeof-trading low point of this bear market (so far) was 677 on March 9, 2009. Through the end of April, the S&P 500 gained 29% (not counting the impact of reinvested dividends).
As our clients, you pay us to “watch your backs.” So without being an outright pessimist, I think we are still in a perilous financial situation. The future of the auto industry is teetering, and the economic reality goes even deeper than that. We are restructuring our national economy to be capable of truly participating in a global economy.
Our prosperity over the past 15 years was based on a worldwide spending spree, fueled by cheap credit and over-leveraged real estate. The current governmental nostrums are designed to spur more spending, but no meaningful programs have yet addressed the banking crisis and the collapse of the real estate market. We see the impact of these issues every day in the “For Sale” and “For Lease” signs in almost every neighborhood and commercial area.
Each of you has a unique situation, so as usual the approach best suited to you depends mostly on what is going on in your own life. If the breadwinner in your family is out of work, or you have kids in college, or you are faced with disability or are retired (or hope to be soon), these circumstances—not the state of the economy—are the key factors in selecting your investment allocation. Although the stock market may look great, don’t kick yourself for having missed out on the recent steep increase.
It is also foolhardy to conclude, based on a recent upturn in the markets, that you should now jump in with both feet. We may not hit bottom until 2010, and then it may take a couple of years to fully recover.
Market timing is a futile waste of energy. But there may be other wise financial moves available to you. For those of you in transitional or distressed situations, we typically advise you to maintain an extra cash cushion. If your life situation is stable and your future income stream is on track (such as through a bond ladder), dollar cost averaging into the stock market is very beneficial. If you haven’t done so recently, it’s probably time to review your portfolio and make adjustments as appropriate.
It may be advantageous to refinance your home mortgage at a lower rate (unless you owe more on your house than it’s worth). However, jumbo mortgages (more than $417,000) still carry very high rates, and it is seldom worthwhile to refinance those.
This experience of living through the worst economic period since the Great Depression of 80 years ago will have a lasting and positive impact on most of us. The losses will ultimately be recouped, and many people—probably more than have realized it—will be able to outlast even a continuing downturn. More importantly, it has made many of us aware that we had been frittering away money on things we didn’t really value. I believe this lesson has to be relearned by each generation as we discover that our investment statements aren’t the scorecard for our real wealth.
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