By Brian Stumpf CFP®, CRPC® and AJ Jugan CFP®, CRPC®
 
 

Breaking Up the Assets is Hard to Do: The Financial Side of Divorce

Couples who decide to divorce must deal with the daunting task of dismantling a life that was once a partnership. An important step in the divorce process is dividing the assets between the two parties. If you are preparing for a divorce, there are important steps you need to take to ensure that the assets are divided properly.

Who should be involved

Let’s start with the obvious answer: lawyers. It’s critical that lawyers are involved, especially when the individuals are in conflict. In addition, many people benefit from the help of a financial advisor who can sort out the complexities of splitting joint assets.

Getting started

Sorting through the financial side of a divorce should happen right away. This is important because once the divorce is finalized, making changes to the financial settlement is extremely difficult. Here are some important initial steps:

  1. Find out what your joint assets are. Any assets you’ve accumulated while married are joint assets, at least in most states. This includes homes, autos, boats and jewelry, and also includes business interests, retirement savings, investments, cash, bank accounts, and anything of value like antiques. Make sure all asset values are in writing.

  2. Do the same with liabilities. Any debt including mortgages, car or boat loans, tax liabilities and/or penalties should be disclosed and tracked.

  3. Create a new budget. Each party should determine their financial needs for their life after the divorce. Don’t overlook items that were once shared like health or life insurance premiums. This is an important step that will influence the way in which the assets are divided.

  4. Explore what the long-term picture looks like. What will your lifestyle be after the divorce proceedings? How will the divorce affect income? Will the former stay-at-home spouse get a job? If so, what is the salary and benefits? Where do child support and alimony fit in? It is worth thinking about these issues now, even if the actual numbers are only estimates.

Your changing insurance needs

When couples split, each person’s insurance needs change immediately. Whether you carried the lion’s share of insurance policies, or you were the beneficiary of your spouse’s policies, you need to make changes.

  • Health insurance. If you will no longer be covered by your spouse’s health insurance, you will need to find your own plan, either through an employer or another source. You will need to work out which of you will carry health insurance for your children as well.

  • Life insurance. You may no longer want to list your former spouse as a beneficiary of a life insurance policy; on the other hand, if you were the beneficiary and will not be going forward, you will also need to explore your own life insurance needs. Individuals who will be receiving alimony or child support payments might also consider taking out a life insurance policy on their former spouse to ensure they can continue to receive that money if the ex-spouse passes away.

  • Other insurance needs. Long-term care and disability insurance may be more important to both parties, now that each is running a household. Auto and home insurance will now be up to each individual as well.

  • Other documents. You will need to update key documents like wills and living wills. They can be rewritten or you can create entirely new ones that reflect both your wishes and the current state of your household.

Your financial know-how

If your spouse always handled the checkbook and the budget, you’ll need a crash course in the basics–and soon. Take a class in basic money management, work out a budget for your new life and stick to it. As you embark on your own separate path, this is a skill you will need, and you won’t have anyone else to handle it for you.

AJ Jugan and Brian Stumpf are financial advisors and Certified Financial Planner™ professionals. Andrew (AJ) can be reached by calling 412-635-5813 or emailing andrew.m.jugan@ampf.com. Brian can be reached by calling 724-799-2782 or emailing brian.d.stumpf@ampf.com.