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Financial Planning and Divorce

Posted by Larry Jones on Aug 24, 2021 9:30:00 AM
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The End of the World

There are few experiences in life, when it comes to pain and suffering, that compare with divorce. Two people who once were partners in everything, who may be parents together, and who know every intimate detail of each other's lives, have now become adversaries. It has been compared to death, but many feel it's worse. At least with death, when someone close to you dies, the funeral begins the healing process. That's not so with divorce, especially when there are children involved. The emotional pain can go on for a long time.

Divorce can be hard on your financial plan. In fact, it may completely wreck it. According to statistics over half of the marriages in our country will end in divorce. Statistically, it's more likely that one of my clients will get divorced in the next five years than that they will die.

What do you need to know in these situations, from a financial planning point of view?

Now What?

No doubt, if you're going through this painful process, then you have an attorney to advise you on legal issues. Here's some helpful things to know as regards your finances:

1. Legal instruments, such as wills, trusts, and insurance policies should all be reviewed and revised as necessary. You may want to change administrators, executors, and other fiduciary roles. Certainly beneficiaries need to be reconsidered. Legal guardianship for minor children may need to be changed. Property may need to be retitled. Consider the consequences of remarriage on your financial picture, both yours and your ex-spouse's. 

2. Determine the tax implications. 

The federal estate tax marital deduction will go away. The basic rule for alimony payments is that they are includible in the gross income of the person receiving, and deductible for the person paying. This is not true of child support, which is not deductible or included.

3. Pensions may be affected.

Divorce may leave both parties with little or no accumulation of pension benefits. If the marraiage has lasted for ten years or longer, divorced persons are eligible for Social Security income based on their former spouse's earnings record.

4. Life Insurance

Life insurance is often involved in property settlement agreements incident to a divorce. Many times ownership of a policy on one spouse may be transferred to the other.  Sometimes the court will require the one transferring the policy to continue to pay the premiums. If that happens, the payment of such premiums is generally treated as an alimony payment, for tax purposes.

Dealing With a Can of Worms

Divorce is ugly. If there is any way to reconcile, it's almost always financially to your advantage to do it. Divorce impacts not only you and your spouse, but your children, your parents, your in-laws, and even your friends. The only people who will be happy after it's all over will be the attorneys. Yet, it may be that it's not possible to hold things together. After all, marriage is a union that both people must want to hold together, or it cannot be sustained. Take heart. Divorce isn't the end of the world, and it won't define you the rest of your life.

Until next time,


Are you going through some life circumstance that concerns your financial situation? I'd be happy to answer any questions you might have. Just click below and I'll be in touch:

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Topics: Divorce

What you don't know can hurt you!

As a fiduciary I am required to always act in your best interests, and as a professional planner, it's my job to be familiar with all types of possible solutions and financial vehicles. In short, I have no interest in selling any particular product or any affiliation with a particular company. I work for my clients.

Are you:

  • concerned that your tax bill is too high?
  • tired of watching your nest egg decline by significant amounts every 5-7 years?
  • wishing you could find more free time?
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  • worried that Uncle Sam is going to enjoy your retirement more than you are?

If any of the above describes you and you'd like to get a question answered then just click the button below and we'll be in touch.

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