Will the divorce rate spike in the US when we fully reopen?  It seems likely that this could be the case for marriages that were already at risk. Between the months of being together in isolation, the real economic pressures, and troubling health fears, couples may be pushed over the edge. There are early indications coming from China that couples emerging from months of isolation from the pandemic are running to their divorce attorneys in record numbers.

The fact is divorce is already quite common.  Although more than 90% of people get married by age 50, about half of all marriages in the US end in divorce.  The divorce rates for subsequent marriages is even higher: 60% of all second marriages and 73% of all third marriages end in divorce.  While the average marriage lasts 8 years, there has been a rising rate in late in life divorces, effectively doubling in this category over the last 20 years.  Presently 25% of those who are divorcing are over the age of 50 – an extremely difficult time for both parties to regroup economically while they are on the brink of retirement.  If you or someone you know is faced with the prospect of divorce, what steps can you take?

Step 1: Assemble Your Team

Divorce is not the time to go it alone.  Even if the split is amicable, you will need the support of a mediator, divorce attorney, psychologist, and a CERTIFIED FINANCIAL PLANNER™.  Each of these parties serves a valuable role and will provide the guidance needed to get you through a divorce and rebuild your life.  Get referrals and interview candidates to ensure the best team.

Step 2: Gather the Data

One of the worst parts of divorce is reducing your married life to a summary of assets, liabilities, and cash flows.  However, to get an equitable settlement, you will need to dig into the numbers. In our experience, one person in a couple is usually the gatekeeper to the finances; they pay the bills, make investment decisions, and file the taxes.  If this is your role – great! You will have an easier time with this part.  For the less financially involved spouse, this exercise will be more difficult, but it is critical that you both understand the numbers.  Get copies of all the source documents.  You may trust your ex-spouse but verify everything.  Your CFP® can help you organize and understand these records.  Some of the documents that will be needed include:

• Tax returns for last 3 years
• Credit card statements
• Bank statements
• Mortgage documents and property tax bills
• Insurance policies and premiums: life, health, home, and auto
• Investment account statements including retirement plans
• Utility bills, HOA fees, Rent
• Automobiles: value, title, and loans
• Income: pay stubs, bonuses, stock options
• Closely held businesses: Profit and loss, balance sheet, tax returns
• Social Security statements
• Other household expenses: transportation, childcare, education, food, personal care, entertainment, clothing, home maintenance, medical

Step 3: Educate Yourself

Divorce laws are specific to your state of residence.  Your attorney and mediator should be extremely helpful in giving you the basics about the laws regarding asset division, alimony, and child support.  Naturally, the internet is also a great resource and if you are in the early stages of contemplating a divorce, it would be wise to educate yourself beforehand.  MaritalLaws.com is one website that has compiled divorce laws for all 50 states including such items as the residency requirement, filing fee, alimony calculation and processing time for divorce.

Step 4: Prepare a Post-Divorce Budget

Divorce negatively impacts both parties financially.  The average cost of a divorce in the US is $15,000 but it can be much more in metropolitan areas or when the divorce is contentious, and parties cannot agree.  Almost 50% of parents with children move into poverty after a divorce. To successfully move on, we recommend developing a post-divorce budget and setting goals for yourself.  Your budget should be based on what you make, plus or minus any alimony and child support.  This budget is a critical piece of information in determining whether to keep or to sell the house.  Can you afford the house considering the mortgage, real estate taxes, insurance, and on-going maintenance?  The home is an emotionally charged item; however, after the divorce, it may not be feasible to keep it.  Your CERTIFIED FINANCIAL PLANNER™ can help you run the numbers and evaluate different scenarios.

Step 5: Take Care of Yourself

With all the focus on numbers and business, it can be easy to forget to focus on yourself.  This is where your psychologist and divorce support groups can be helpful.  Divorce is emotional, painful, and messy.  Most people need help in dealing with emotions; friends and family can be a great support.  Don’t forget to take time for exercise and nutrition.  This is a marathon, not a sprint.  Avoid lavish expenditures in the pre-divorce stage made from spite which could be construed as an advance on asset division.  Although it might feel good in the moment, it may come back to haunt you.

Step 6: Splitting the Assets

After gathering the data (in Step 2) you should be able to develop a Net Worth statement that outlines your assets (the things that you own) and liabilities (the debts that you have).  Sometimes during this process, one spouse discovers “hidden debt” – such as credit cards with charges incurred by the ex-spouse.  Running a credit report early in the process can uncover any such surprises.  The financial assets will likely either be in taxable investment accounts or in retirement accounts.  It is important to consider how withdrawals will be taxed when splitting accounts so that you are able to assess the after-tax value.  For example, distributions from a traditional IRA are taxed when taken, but withdrawals from a Roth IRA are tax-free. Assets that are inside of company retirement plans like a 401(k), 403(b) or pension should be split via a qualified domestic relations order (QDRO) issued by the court.  When dividing a taxable investment account, you need to give consideration as to how it is distributed.  If the assets are sold before being distributed, you may incur capital gains taxes.  If they are distributed “in-kind” then such taxes may be deferred.  Your mediator should be able to guide you through the potential split up options, working closely with your financial planner to make sure that your current and future needs are met.

Step 7: Changes to You Insurance

It is likely that your family health insurance was covered by one party in the couple.  To make sure that there is no lapse in medical coverage for either spouse or children, insurance should be covered as part of the negotiations in the divorce.  Life and disability insurance is likely needed on the spouse who is paying alimony and/or child support to protect that income in the event of their premature death or disability.  Again, this can be part of the negotiations through the mediator or attorney. Auto insurance is an often-overlooked area during a divorce. Auto owners’ policies cover the “named insured” (the first person listed on the policy) and a spouse who lives in the same household. Even if they are still married, when one spouse moves out, whoever is listed second on the policy must get a new policy. If the named insured moves out, they can keep their original policy, but they must update their address.

Step 8: Update Your Accounts

After your divorce is finalized it is important to review the titling on all your financial accounts – checking, savings, investment- to update accordingly.  Joint accounts will need to be retitled in your individual name.  Do not forget to review the beneficiaries on your insurance policies and retirement accounts.  It is likely that your ex-spouse will need to be removed and new beneficiaries added.  Finally, once your financial assets are split, see if any adjustments need to be made to your holdings and/or your asset allocation.  You may have a different risk tolerance than your ex-spouse and may have different goals going forward.  Your CERTIFIED FINANCIAL PLANNER™ can assist with this process.

Transitions like divorce can be stressful, but they are made easier when you get the support that you need.  Please reach out to us if we can help.