Going through the divorce process can be an emotional, stressful and confusing time full of difficult decisions. It is important to surround yourself with a team of professionals that can address the unique financial issues that arise during the settlement process and give you confidence that you are achieving the equitable resolution you desire.
Making sure you understand the short and long-term financial attributes of each asset and liability on your financial balance sheet is a crucial component to obtaining an equitable distribution during a divorce. Here are a few common financial oversights couples may not be aware of when dividing their assets and liabilities:
- Valuing Retirement Assets “Dollar for Dollar” with Non-Retirement Assets: Retirement assets can be complex and have conditions that make them difficult to understand. Not all retirement assets are created equal. Many people make the mistake of using a statement balance of a retirement asset with no consideration of the asset’s qualities such as possible vesting schedules, tax implications for each spouse, or consideration of what portion of the asset is considered marital vs. separate. The complexity of dividing and valuing a pension plan is another oversight many couples may encounter. Failing to understand and incorporate the complexities of each type of retirement asset you and your spouse hold during your divorce settlement can have long lasting financial impacts for both individuals.
- “Double Dipping” Expenses & Inaccurate Income Calculations: Once both parties complete their financial affidavits, it is important to audit them closely for items that are commonly counted twice. Each party’s income and expenses should give an accurate account of their financial status and well-being. A few items to be aware of are:
Income: Misstating or failing to report payment frequencies, inclusion of disallowed deductions, other sources of income, or miscalculation of social security withholding.
Expenses: Incorporating property tax and insurance expense within mortgage payments in addition to including them as separate expense line items. Loans that may be counted as separate line items and included within credit card expenses.
- Marital Properties: When determining the value of properties, parties may be tempted to only consider the equity in the property as the assets value. Values are often simplified by using figures they “think or agree to” as the properties fair market value then deducting the debt. This net value is then used on their balance sheet. When determining property value, it is important to hire an appraiser to receive an accurate fair market value. In negotiation, it is important to also consider expenses of selling and maintaining the property, as well as the capital gains tax that may arise due to any excess gain not excluded by IRS limits.
A Certified Divorce Financial Analyst (CDFA®), which specializes in the financial aspects of divorce, can work with your attorney to assist in financial matters throughout the divorce proceeding.
At Choreo, our team has decades of experience helping individuals and families navigate complex financial situations, including divorce. We have CDFA® professionals who can help provide confidence and comfort in understanding your financial stance during divorce and beyond. Our core services also include financial and retirement planning, tax planning and investment management.
Ashley Fowler, CDFA® is an advisor of wealth management with Choreo, an independent firm focused on redefining the RIA’s place in the wealth advisory industry. She helps clients navigate all areas of their financial lives. choreoadvisors.com
Choreo, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training of the adviser or its representatives.
