By Mary Helen Gillespie
“June,” 75, says her post-divorce retirement financial lifestyle exceeds her original expectations. Learn how she managed her personal finance challenges to achieve these goals in the 25 years since her divorce.
Has your divorce financially impacted your retirement plans?
Yes.
Did you hire a financial adviser, a CPA, or another finance professional to help you plan your retirement needs during the divorce proceedings?
Yes. I checked out three different advisers, gave them each $10,000, and told them in one year I’d make a choice about which one to use. Have still used the winner for over 25 years and he’s like one of my kids.
Was your divorce attorney concerned about your retirement finances? Was the divorce judge?
Yes, they both were. Their focus: I was 50 years old at the time and needed to plan for retirement.
How would you describe the quality of your financial life post-divorce?
It’s better than expected. I followed a frugal lifestyle, took investment courses, and watched my accounts daily for abnormal behavior. My style is to be consistent; I can’t handle huge upswings and huge downswings. I also went back to school to learn more about finance and investing.
What other information would you like to share with women in similar situations?
Be aware of what you have and how to make the most of it. If you get involved with a significant other, don’t sign anything with them. And be aware of what can happen to your finances if you do get remarried.
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We asked Philip Herzberg, CFP®, CDFA®, CTFA, AEP®, lead financial advisor at Team Hewins, for his thoughts on June’s situation.
As a divorcing baby boomer or Generation Xer, you may face the complicated retirement planning predicament of splitting your accumulated assets and related investment accounts. After seeking the guidance of a qualified attorney who is knowledgeable about pertinent state laws on splitting assets, you can work with a CERTIFIED FINANCIAL PLANNER™ professional to evaluate your retirement planning options and build a sound foundation for your later-in-life finances.
Following are some considerations for handling the financial planning challenges of divorce and enhancing the likelihood of a fulfilling life.
For women currently facing challenges:
- Prioritize establishing a sturdy safety net in the event of an unforeseen job loss or medical event.
- Fortify an emergency fund with at least six months of non-discretionary living expenses in cash.
- Appropriately assess your life and health insurance needs, as catastrophic bills can possibly be the most significant threat to sustaining family retirement planning and wealth.
- Confirm that you have updated all your designated primary and contingent beneficiaries on your insurance policies and tax-advantaged retirement savings accounts, including your Roth/Traditional 401(k), IRA, and Roth IRA.
- Should you, as the custodial parent keep the house or should it be sold or assigned to your divorcing spouse? As splitting the house may be more challenging than splitting up, you can factor in current economic conditions, capital gains, and post-divorce cash flow to decide whether to keep the primary residence or allot other assets. In tandem with divorce attorneys and qualified tax professionals, you should evaluate how your property will be divided in your divorce settlement, taking into account income taxes and liquidity of your marital homes and other assets.
If you have a new significant other:
You can enhance peace of mind and the quality of your new union by clarifying your financial expectations and fully disclosing the assets and liabilities you bring to the new union.
- Consider outlining your financial wishes and estate planning intentions in a prenuptial agreement, a contract that is especially advantageous if you own a business or have substantial assets.
- Clarify specific stipulations in your prenuptial agreement. You can spell out and decide whether you will file joint or separate tax returns, how you will pay your mortgage and household expenses, and what type of education your kids will receive in this premarital arrangement.
- A prenuptial agreement is also an invaluable financial planning tool for you in protecting the inheritance and interests of your children from a previous marriage. Without a prenuptial agreement, you and your spouse will be subject to the property settlement laws and elective-share rules of the state in which you reside. While a prenuptial agreement perhaps does not sound romantic immediately before a remarriage, safeguarding your financial future can make you happier than dealing with the stress from a possible economic and emotional nightmare.
Post-divorce income for women, especially in retirement:
As a single woman, your income and expenses may be different than when you were married. Notably, you will want to match your new income to your new lifestyle. If your expenses exceed your income, you will likely be spending down your savings or maybe incurring debt.
- Be sure to track and categorize where you spend your money. Since you are solely responsible for your spending goals, once you know where your money is going every month, you will know where you can cut and where you can increase.
- If you are not earning enough money from a full-time job to cover living expenses, you can consider taking on an additional work-at-home job to generate additional income for your household.
What to consider while going through a divorce, regardless of wealth:
Anyone going through a divorce, especially those who are not proficient in handling their own finances, would find a significant benefit in starting financial planning during the divorce process. It can be challenging to make clear decisions during emotional turmoil. Financial planning can help visualize the short- and long-term outcomes of settlement options, as well as the potential tax implications impacting your divorce settlement.
Working with a CERTIFIED FINANCIAL PLANNER™ professional can help you define your goals, and then review settlement options to see which ones best support your goals. They will also help you understand the trade-offs for your decisions and where you might be susceptible. Vulnerabilities include having enough insurance to protect your net worth, specifically umbrella and long-term care to make sure a health incident does not bankrupt you, and life insurance to cover the support obligation should the provider be unable to work or passes away. In addition, estate planning is important to provide for your heirs and avoid going through costly probate.
Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Certain information contained herein constitutes forward-looking statements. Team Hewins does not guarantee the achievement of long-term goals in the portfolio review process. Past performance is no guarantee of future results, and a diversified portfolio does not guarantee a positive outcome. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or representation as to the future.
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Learn more by watching our webinar, Retirement Daily Roundtable – Women, Divorce & Retirement: Creating Your New Personal Finance Plan, with Robert Powell and panelists Amy Shepard, Rick Fingerman, and Katie Marsden.
To find a financial professional with experience in divorce, visit the Institute for Divorce Financial Analysts website.
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