When you have financial issues that need to be spotted and resolved during a divorce or separation, you should seek the services of someone that specializes in not just finance, but the finance of divorce.
By Jo Ann Thibault, Investment Adviser
Why would a matrimonial attorney hire a Certified Divorce Financial Analyst? Many experienced and well-qualified attorneys have asked me this question. Lawyers tell me that they and their support staff prepare their clients' financials; this is part of what they get paid to do. When you are sick, you seek out the services of a doctor. When you have financial issues that need to be spotted and resolved during a divorce or separation, you should seek the services of someone that specializes in not just finance, but the finance of divorce.
There are several financial issues that a Certified Divorce Financial Analyst can assist with:
The first, and one that can be devastating from a financial aspect of a divorce, is whether you should keep the house? Many people want to keep the house for sentimental reasons but, is it really in the person's best interest? It may be but, if the person gives up liquid assets in exchange for keeping the house, will they have the money to pay all the bills associated with upkeep and still be able to put food on the table? If the person cannot afford to do both, then the person cannot afford to keep the house. A Certified Divorce Financial Analyst can help determine whether your client has sufficient liquid resources to maintain the house comfortably.
Second, how do you know how to divide the other assets? What if the couple's primary assets are: 1) a Savings Account with $100,000, 2) a Roth IRA with $100,000, and 3) a 401(k) with $200,000 in it. Should these assets be split in half; one person receiving the Roth and the Cash and the other the 401(k). This looks like the quick and cleanest way to divide the assets, but what about taxes?
Whoever receives the Savings Account receives after-taxation funds and they can use the money immediately without penalty. The taxes associated with the Roth have also already been paid and that money will be distributed tax free so long as it has been in the Roth for 5 years and the owner is 59 1/2 . What about the 401(k)? This is not a liquid account, unless you are already in retirement or the account has a "loan provision" in it. And taxes on this fund have not been paid yet. So when the money is drawn in retirement, the funds will be taxed at the recipient's tax rate. Depending on the recipient’s tax bracket, one could pay $50,000 in taxes on $200,000.
This is not an equal or equitable division of the assets.
Third, what about spousal support? Most people feel they can't afford it. They don't realize that spousal support is taxed to the person receiving it and deductible to the person paying it. Accordingly, under certain circumstances a client that pays more in spousal support may "pocket" more money because they have dropped a tax bracket. The spouse that is receiving the spousal support needs to be aware that they will be taxed on the spousal support they receive and that the support could change their tax bracket. Properly structured, however, spousal support payments could help both parties.
These are just a few instances where a Certified Divorce Financial Analyst can save your clients money now and in the future. If you are a lawyer, you must help ensure that your client receives the best financial advice.
Jo Ann Thibault is a Registered Representative and Investment Adviser Representative of Equity Services, Inc. Securities and investment advisory services are offered solely by Equity Services, Inc., Member FINRA/SIPC 354 Mountain View Drive, Suite 200, Colchester, VT 05446.