Posted January 3, 2023
January 2023 Tip: 6 Pivotal Financial New Year’s Resolutions After Divorce
January is the ideal month for clients impacted by divorce to lay the groundwork for a successful year. Here are some foundational steps clients can take to begin the New Year, and this new chapter in their lives.
1. Create a Sustainable Financial Plan
It’s important for clients to have a clear picture of their finances and to implement a thoughtful long-term plan to help ensure that settlement proceeds and alimony funds will sustain their lifestyle. Some clients might not have been aware of all the assets/accounts or cash flow during the marriage that supported their lifestyle if they were more passive on the financial/investment front. They may feel overwhelmed and intimidated at the prospect of taking charge of their finances. A financial advisor can help organize finances, conduct an in-depth analysis, run cash flow and net worth projections, model projected rates of returns with inflation assumptions, and evaluate different lifestyle scenarios to create a sustainable financial plan that can instill client confidence.
2. Establish Bank Accounts & Build Credit
Has your client established their own individual banking accounts? Unless a settlement agreement or divorce decree provides otherwise, advise clients to close joint accounts they may have with their ex-spouse and establish accounts in their name. Remind them to change log-in identifications and passwords they may have used during the marriage to protect their assets and their privacy. Suggest clients open credit cards in their name, particularly if they have previously relied on their ex-spouse’s credit, so they can start establishing their own credit history.
3. Update Estate Planning Documents
During times of transition, particularly involving a divorce, it’s critical to review all estate planning documents and beneficiary designations to ensure they reflect a client’s current wishes and that ex-spouses are removed if that is the intent or part of the settlement agreement or divorce decree. If so, it will be important to remove ex-spouses not just from being beneficiaries of the estate, but also from acting in important roles under a will. Ask your clients: Are the people or institutions named to serve as executors and trustees in your will the best choice for your family right now? If a client does not have a will, the laws of their state will dictate where their assets pass and who will administer their estate, which may not reflect their intent and will likely benefit a soon-to-be ex-spouse if the divorce is not final. Powers of attorney and health care directives should also be updated so that ex-spouses are removed if desired and the right individuals are poised to make important financial and health care decisions on a client’s behalf.
Some documents can be changed while divorce is pending, while others must wait until the divorce decree is issued. Documents to consider include:
- Will and trusts (usually can be changed while divorce is pending)
- Power of attorney and health care directive (usually can be changed while divorce is pending)
- Retirement accounts and plans (usually cannot be changed while divorce is pending)
- Jointly named real estate and financial accounts (usually cannot be changed while divorce is pending)
- Authorizations to access digital accounts, including financial accounts, email accounts, social media accounts, etc. (usually can be changed while the divorce is pending)
4. Revisit & Review Insurance Coverage
When significant life changes happen, it is important to review insurance policies – both life insurance and property & casualty/umbrella insurance – to make sure clients are adequately covered at a competitive cost, that the insurance is titled in the right names, that the beneficiary of the insurance proceeds is updated and that the premiums continue to be paid by the responsible party. To prevent an ex-spouse’s death from creating a catastrophic void in child support, alimony, higher education costs, or other obligations it is often prudent to secure life insurance as part of the divorce settlement. After life insurance is purchased, it will be important for an independent insurance advisor to periodically review the policies to make sure they are performing as intended and that the premium payments are being made on time to prevent a policy lapse.
5. Prevent the Death of a Family Business
If a client is a business owner, an inadequate buy-sell agreement or lack of liquidity could spell disaster for the business after divorce. To plan proactively, or even if a business has survived the divorce process, clients will be well-advised to ensure that their business has a thorough succession plan in place for the future, including provisions that protect the business against the claims of any business partner’s ex-spouse. If a business owner suffers from a liquidity crunch during or after a divorce, a financial advisor can explore accessing personal credit to satisfy divorce obligations, which often can be an optimal solution that will not imperil business operations.
6. Engage the Right Team
During emotionally difficult times, the support of family members and friends can be invaluable. Despite being well-intentioned, however, friends and family members are often not equipped to deal with the complex tax, legal and investment decisions that confront those impacted by divorce. Going it alone can also seem overwhelming, especially if a client did not manage the finances and left much of the financial decision making to their spouse. A team of seasoned professional advisors is generally best positioned to assist clients in navigating unfamiliar territory. A financial advisor, matrimonial lawyer, estate planning attorney, accountant and insurance or other experts can provide guidance, education, and support to holistically position clients for a successful future.
Sharon L. Klein, Executive Vice President & Head of Wilmington Trust’s National Matrimonial Advisory Practice oversees the delivery of all wealth management services by teams of professionals, including investment management, estate & tax planning, trustee and private banking services . She was selected. by Forbes as one of the Top 40 Women Wealth Advisors in the U.S. and featured on Crain’s inaugural list of the Most Notable Women in Financial Advice. Beginning her career as a trusts and estates attorney, Sharon is a Fellow of the American College of Trust and Estate Counsel and was inducted into the Estate Planning Hall of Fame. www.wilmingtontrust.com/divorce
These articles are for general information only and are not intended as an offer or solicitation for the sale of any financial product, service, or other professional advice. Wilmington Trust does not provide tax, legal, or accounting advice. Professional advice always requires consideration of individual circumstances. Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation.
