What looked fair at the time of
divorce may appear totally different in the cold harsh light of post divorce reality. Perhaps emotions prevented you from looking at the big picture, including the short and long-term financial effects of decisions made at the time of your divorce.
Not all assets are equal
"A dollar may not always be worth a dollar," says
Deb Johnson, a partner in the
Divorce Resource Centre of Colorado, "A dollar in a savings account is worth a dollar, but a dollar of retirement assets is really worth about .70 cents, depending on how much unrealized tax is embedded in the asset." As a Certified Divorce Financial Analyst™ and
Mediator, she has helped divorcing couples avoid inequitable distribution.
Even the same amount of assets can present challenges down the road. "The lower earner may need to tap into liquid and retirement assets earlier than planned," states Johnson. "For example, a woman in her early fifties might have to liquidate retirement assets to maintain a moderate standard of living," she continues.
Keeping the marital abode, or notGenerally it is the woman who is tied to the marital residence. Most likely she decorated it, raised the family there and has close ties with the neighbors. She may want to keep the house at all costs.
"The residence is an illiquid asset that can't pay bills or buy food, rendering the owner 'house poor'," Johnson comments. "Exploring short term and long term scenarios can determine the impact of selling the house."
A penchant for pensionsMen are most often tied to their pension; calculating the pension's present value, then giving the other spouse an asset of equal value.
Johnson cites a client, a pilot for a major airline, who kept his pension worth 700 thousand and gave his spouse retirement assets of comparable value. "Recent airline industry woes caused his pension to be cut in half. He assumed the pension risk and lost," Johnson said.
The importance of the QDROWhen dealing with pension funds, the
QDRO (qualified domestic relations order) must be included in a divorce agreement. It establishes your soon-to-be-ex-spouse's legal right to receive a designated percentage of your qualified plan account balance or benefit payments.
When a qualified retirement plan is divided in divorce, a legal document must be drafted, signed by a judge and executed by the plan administrator immediately after the divorce decree is entered.
If not, if the plan participant dies, the ex spouse may not receive what is awarded as part of the divorce.
Turbulence caused by the ripple effectCouples need to understand how financial decisions cause a ripple effect. A divorce financial analyst can dramatically illustrate this by producing
short and long-term scenarios of what can happen. The financial professional helps the couple separate emotion from the divorce process in order to make informed decisions. "It's important to make the best decisions during the divorce process," states Johnson, "Once it's a done deal, it's virtually impossible to reverse a decision without a great deal of time and expense," she concludes.
What to do now to avoid regret later - Assemble the right team of professionals, including a family law attorney and a
financial professional to help with tax issues
- Avoid emotional decisions
- Have a child specialist if children are involved
Make no mistake, the divorce process costs money. But view the cost as an investment in the future of the family.
Deb Johnson ChFC, CDFA, a Denver based financial advisor for more than 20 years, is a Certified Divorce Financial Analyst™ and Mediator. She is a published author and speaker and managing partner of the
Divorce Resource Centre of Colorado, LLC.
www.drcofcolorado.com
Note: This was posted by Rosanne Gain, the publicist for the Divorce Resource Centre of Colorado (DRCC). Deb Johnson, one of the DRCC partners, wrote this article.