This article wraps up our series on financial planning issues related to divorce. We’ve covered a lot of ground so far. We’ve discussed cash flow, taxes, and long-term planning and insurance as well as ways to care for yourself during a difficult time. There are a few other things we’ll cover. Let’s look at issues related to assets and debt that you need to consider during a divorce.

Was there a prenuptial or postnuptial agreement?

If so, check to ensure that all terms are addressed in your divorce proceedings, and that all assets and debts are properly allocated.

Is a plan needed to divide assets and labilities?

If so, consider the following:

  1. The division of assets should factor in the tax character of each asset, recognizing future tax consequences. For example, Roth retirement money grows tax-free, while pre-tax or Traditional retirement money grows tax-deferred. In other words, Roth assets are more favorable and should be treated as such in an agreement.
  2. Some property may be classified as separate property, owned by one spouse, rather than marital property.
  3. All assets and debts should be fully disclosed and properly valued.
Do you or your spouse receive variable compensation (such as from gig work or a bonus)?

If so, consider how to factor that into your settlement.

Could there be debts that you will be responsible for that you are not aware of?

If so, monitor your credit report.

Do you need an emergency fund (or liquid assets) to pay for legal fees and other costs associated with the divorce?

If so, consider setting aside three to six months of non-discretionary living expenses.

Is a plan needed for your housing?

If so, consider the following:

  1. If you will receive the marital home, evaluate the merits of selling, keeping, or renting it.
  2. If selling, consider the impact of potential capital gains tax and changing gain exclusion limits. For example, single taxpayers can exclude up to $250,000 of capital gains (with certain restrictions) on their home, while married taxpayers can exclude up to $500,000.
  3. If you need housing, evaluate the merits of renting or buying.
Are there retirement accounts that must be transferred to you or to your spouse?

If so, consider the following:

  1. A QDRO will be required to transfer retirement accounts and it should stipulate how the assets are to be transferred (trustee-to-trustee or directly).
  2. If you need cash, distributions from a 401(k) as a result of QDRO transfer are subject to ordinary income tax but no 10% penalty.
Do you own a business?

If so, consider the following:

  1. An appraisal may be needed if you can’t agree to a valuation.
  2. If you have business partners, look to your relevant agreements to understand any restrictions on transfer and other conditions triggered by your divorce.
  3. If there were personally guaranteed debts, they may need to be handled separately.
Have your investment goals or risk tolerance changed?

If so, you’ll want to communicate those changes with your financial planner. If your risk tolerance has changed, you’ll want to reconsider what you own within your retirement or other investment accounts. You’ll also need to consider how those changes might affect your ability to meet your goals. Further, if the goals themselves have changes, you’ll want to revisit your financial plan to see how likely you are to meet those goals. Working with a fee-only financial planner who focuses on the comprehensive financial plan can help a lot in those instances.

We sincerely hope this series will help you stay organized and feel more informed about many of the financial issues you’ll need to address as you progress through your divorce. If you want an easy-to-read document that outlines these issues, just click here to provide your contact information, and you’ll be able to instantly download the checklist. Finally, while blog posts and checklists can be helpful, your most helpful resources — at least from the standpoint of dealing with the financial issues — will be a good divorce attorney and a fee-only financial planner. If you’d like help navigating these issues, please reach out to us. We’d love to help.

Photo by Nupo Deyon Daniel on Unsplash