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Staying Fiscally Focused Through Divorce

by Erica Bauwens

Divorce happens. No one plans for it, and most aren’t as prepared as they’d like to be. Putting aside emotional concerns, the financial strain can lead to a whole new set of issues that you might not be ready for. But creating and settling into a single-parent household doesn’t have to be a hardship—especially with the right financial steps.

GOING IN WITH A PLAN
When it comes to handling finances in a brand new personal setting, SHM Financial Group’s Stan Molotsky has written the book … literally. “It’s almost starting over, you have nothing and you’re going forward,” says Molotsky, who co-authored Exit Strategies for a Secure Retirement with his son and business partner Lee S. Molotsky. “It’s a matter of saying—these are my assets, this is my income, what are my liabilities and where do I go from here?

“You need to create some kind of basic formula to do what you can to put yourself on a financially sound platform. You can’t wing it. Sit down with somebody—whether it’s an entity like ours or even a family—and figure out what you need to set aside, and where it needs to come from.”

Having a solid financial plan before and during divorce includes managing legal fees, which can skyrocket during traditional litigation.

“The biggest mistake people make in divorce is litigation,” says Bruce Matez, a managing partner with Borger Matez. “It’s an extremely expensive method. The best away for people to try to immediately start being financially responsible is to do it through mediation or collaborative divorce, so everyone is sitting down together and figuring out how to get from Point A to Point B without bankrupting their family.”

Along with mediation, Joy Pearson-Schneck of Berg & Pearson says that finding the right financial planner to work as a separate entity from your attorney is more of an investment than a cost. “It is very crucial to seek financial help and advice. Although your divorce lawyer can certainly guide you, we are not accountants or financial advisors.”

One of the assets that can be lost in the jumble of court proceedings is life insurance. “A lot of times when you break up 401ks, [a] 403(b) individual retirement fund (IRA) moneys, there’s a lot of penalties involved unless it’s done the right way,” says Molotsky. “If those are in the husband’s name he’ll want to hold onto that, but he has to give up something to benefit the spouse. How you negotiate that can be handled legally.”

Matez says that mediation often saves time and court costs that could go toward building your future as single parents, and is often the best first step for both parties preparing for or in the midst of divorce. “Except for when it comes to custody and parenting issues, people could look at divorce more from a business standpoint. There’s a lot of money, assets that need to be divided, and we need to allocate property, debt and the bills. It may be difficult, there may be fighting, but the difference is, as contentious as it is, they are still willing to sit down and problem solve instead of letting a judge decide for them.”

FOCUSING ON THE FAMILY
One of the biggest concerns that should be considered for the future is any children. Financial planning can make all the difference for a child’s future during divorce.

“Parties should create a new post-divorce budget for themselves, and examine the retirement accounts that exist and any support he/she will receive from a divorce settlement,” continues Pearson-Schneck. “The amounts of support, income and retirement should all be discussed with an accountant and advisor to determine the best way to invest these monies and save for the future.”

College funds should also be considered from the get-go.

“The contribution of college funds should be addressed in every agreement prior to finalizing a divorce regardless of the age of the child,” stresses Pearson-Schneck. “The amount or percentages of contributions should be determined, if applicable, as well as determining which party will be put in charge of the accounts.

“Another way to handle the issue of college funds and to plan for your child’s college education is to convert marital assets to be used as future college funds for the child. Such assets could include equity in a house, vehicles or other personal property acquired during the course of the marriage. The parties may also want to explore the availability of loans, grants and/or scholarships for the child, and any other custodial accounts that are held for the child. These may include savings, checking accounts or CDs.”

Determining who would fill out financial aid forms is crucial as well, as is determining whether savings will be put into a mutual account—managed by one parent—or separate, equal accounts. And the conversation needs to start again once college draws near. “An exchange of all financial information in the year leading up to college would be warranted in order for the parties to obtain a clearer understanding of their available finances for contribution,” says Schneck. “The parties may agree that each will contribute based upon their respective percentages of incomes at the time.”

BUILDING A HOME
Finding a new home can seem like a daunting task, but it can also be a healthy step toward your family’s future, if done correctly.

“In order to find a living situation that fits the needs and budget, you need to talk about it,” says Matez. “If you want to find the right living situation, the best way to do it is to sit down and talk about it and ask how you are going to make this work. And if you can’t how are we going to get the money to make it work?”

Tg Glazer, president of New Jersey Realtors for 2016, says that while each situation is unique, a look at your assets can determine whether renting or buying is the right course of action. “Buying a home has the advantage of building value in equity, but it also requires a down payment and maintenance,” says Glazer. “Renting is typically maintenance-free, but offers less freedom and can often have a monthly payment similar to a mortgage. Ultimately, it does come down to a person’s financial situation and their lifestyle desires.”

Glazer says the most important thing to consider when buying a home is what you can afford. “From there, you should think about the location—how close it is to your kids, to your job, things that would impact your life significantly—and then you should think about other must-haves and wants that would impact your decision.”

Also consider what sacrifices—both long-term and short-term—you are willing to make, with the help of a financial expert. “It all depends on an individual’s situation and what they’re willing to sacrifice in addition to things that probably need to be given up in order to meet other must-haves,” says Glazer. “For some, it’s the size of the home. For others, it’s the type of housing—a condo or apartment versus a single-family home. For others, it might mean moving to the next town over.”

PLANNING FOR THE FUTURE
While planning for the future during a divorce is important, what happens after is also vital. Keeping in touch with financial advisers and lawyers is a good idea as well, especially as things change through the years. “Parents should keep in mind that the law may change in the future regarding the contribution towards college tuition and expenses from parents who are divorced,” says Pearson-Scheck. “It is also advisable to review the child support amount every three years, as either party may be entitled to an increase or decrease in child support.”

Molotsky suggests re-examining your 401k after the first few months of divorce. “You don’t go into a marriage planning for divorce, but you can plan for an exit strategy in life. Whatever you’re going to do, your gut reaction is very important. If you don’t understand what you’re about to do financially, don’t do it. Take a step back and get help.

“Getting divorced is not a sentence to poverty. People can plan financially for their future and their kids’ futures if they do it well and do it smart and if they’re smart from the beginning,” says Matez. “But even if you didn’t—maybe you lost money in litigation— you can look at your finances and your choices and look to the future. It’s possible for everyone to save money and be financially responsible and live within their means and budget, and do it well.”

Published (and copyrighted) in Suburban Family Magazine, Volume 6, Issue 10 (December, 2015).
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