Financial Considerations for Navigating Divorce Later in Life
By Jeffrey Abadie, CFP®
A major dilemma with navigating the divorce process is that it forces a person into an extremely emotional and gut-wrenching situation, and yet also requires extremely logical decision making to avoid major financial and legal mistakes. A quote by Winston Churchill – who was in the thick of trying to save his country while under attack in WWII – comes to mind when helping clients: “If you are going through hell … keep going.” A simple quote that may sound crass, but is actually honest advice to not allow yourself to be overrun by it, and instead to keep going and approach it on your terms. For those who are facing divorce late in life and often after a long-term marriage, the stakes are even higher, and planning and goal setting are therefore even more important. Moving forward with a professional team to help provide you with a deep bench of knowledge and guidance will ensure that you keep going, enabling you to get through to the finish and thrive afterwards.
There are a few key steps that anyone considering or navigating divorce late-in-life can follow in order to increase the probability of an efficient and successful outcome. The three initial steps are:
doing your pre-separation homework,
prioritizing your goals of the divorce process, and
creating an action plan that will help you negotiate towards those goals.
Your family law attorney will lead the overall process; however, involving a financial advisor early on will help you understand the immediate and long term financial ramifications of your options. As with most journeys in life, your probability of success is highly correlated with the quality of your plan. For those in a long-term marriage that is clearly heading toward divorce, it would be prudent and ideal to do pre-separation homework in order to understand what the true impact of a divorce will be for your particular situation. Reaching out and having exploratory conversations with both a family law attorney and a financial planner who specializes in divorce planning will not only help reduce the uncertainty but also help you build out a solid plan. If separation has occurred and the path to divorce has already begun, then building a professional team of legal and financial advocates is the first step and the highest priority. In tandem with building a team of professionals, it is important to use this early exploratory stage to familiarize yourself with your community finances. This exercise entails:
Working toward getting online access of all community assets and liability accounts available.
Taking note of all current and future community income sources (all salaries / all current or future pensions).
Drafting a comprehensive list of community and separate property assets (real property / investment accounts / private partnerships / options / restricted stock).
Familiarizing yourself with all of the household or community expenses required to maintain the community lifestyle.
Your legal and financial team will help you compile and organize this information, and will use the information to build the foundation of your case. Your financial advisor will then have information to begin running cash flow probability analysis reports that will help you get a more confident feel for what your financial condition may be post-separation. With your pre-divorce homework started, you will be organized and better prepared with an understanding of your legal options and your financial situation.
Once it becomes clear that the divorce process is moving forward, it is important to explore and draft your own set of goals for the divorce process and post-divorce life. Many people skim over this stage and move right into negotiating; however, it is an essential act of self-discovery that will keep you and your team focused on what matters most. At this point, there should be collective discussions with your team about appropriate healthcare coverage, adequate retirement income, and sensible estate planning and how all of these matters and other related concerns will get integrated into your negotiating objectives.
Health Care:
Will current health issues require additional assistance, and therefore increased expenses in post-divorce, daily life and surrogate decision-making?
Will the financial burden for individual health insurance increase for the period prior to Medicare eligibility?
Should retaining the existing health insurance coverage, if possible, be a top negotiation priority?
Retirement Income:
Given the length of your marriage, will Social Security spousal benefit or spousal government/military pension benefit be impacted by divorce?
Will the investment assets received post-divorce provide enough income and liquidity to sustain cash flow through retirement?
Should any illiquid assets be kept or possibly swapped for other things in order to provide greater liquidity, if needed or desired?
Estate Planning:
Is providing financial support for children or grandchildren a priority that will require the creation of a trust to honor and facilitate those wishes?
Should the creation of a life insurance policy or an agreement to receive death benefits be negotiated to secure against the death of a spousal support provider?
Are there estate or family beneficiary goals that can be incorporated into the marital settlement agreement?
As you reach the later stages of the divorce process, it is important to create an action plan by prioritizing your goals before working with your team through ongoing negotiation to achieve those goals in the ultimate settlement proposals. When community assets are divided, many different investment vehicles may have the same market value, but can often carry dramatically different inherent risks, tax liabilities and liquidity features; each one should be carefully reviewed before a final agreement is made. Essentially, your action plan for divorce settlement should be positioned to meet your own personal circumstances and needs, and satisfy the major typical features of your future life, including health care coverage, retirement income and proactive planning for your resulting estate.
At Sand Hill, we focus on these matters and have helped hundreds of clients successfully navigate the difficult divorce process over our thirty-five years. More often than not, clients who follow a well-conceived and goal-based process exit the divorce process better organized and prepared for the future. Following such a process has helped many manage their understandable emotions of the moment and get through – as Churchill would say – a very hellish period of their lives; and furthermore, this has enabled them and their team to stay focused on what was most important and achieve the best possible outcome.
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