Control. Confidence. Closure.
There is little doubt that the anticipation of divorce will cause fear of what the future will look like. During divorce, spouses are often at their most vulnerable both financially and emotionally, and it’s easy to become overwhelmed. When this happens, knowledge and information can be the best weapons to avoid making costly mistakes, and having a successful long term outcome.
In our monthly Second Saturday workshops, we ask that participants fill out an intake questionnaire. We want to gauge how they are feeling toward the topics we discuss. As we start the workshops, we often find participants describing emotions like fear and anxiety toward their financial situation and the idea their life changing. But the reality is that with the right guidance, the divorce process is actually an opportunity.
An opportunity to take CONTROL
Planning can alleviate fear and anxiety and put you in control of the situation. What you do today has long term implications, so now is the time to pay attention to detail.
There are two really important things that need to be done DURING the divorce process.
#1 Create a realistic budget.
This needs to be done for multiple reasons. First, I want you to remember that half of the marital estate is yours, regardless of who “earned” it during the marriage. Understanding where the money is being spent, what it’s being spent on, what account it’s being spent from is tremendously empowering. Secondly it’s important to understand your household and children’s expenses as you negotiate for ongoing support. Lastly, it’s more difficult for a spouse to hide money or hide activity if there is accountability from you for those cash flows.
#2 Understand your marital assets and the tax consequences of selling.
Half of the equity in the home, half of the brokerage accounts, IRAs, 401k plan assets, pension, stock options or RSUs vested during the marriage…belongs to you. And you need to know what they are worth if you’re going to split them.
Prepare a list of the assets by Fair Market Value, Cost Basis, and Liability (if there is one). Cost basis is sooooo important to how the marital estate should be divided. For example, the taxable gains on the sale of your primary residence hinge on the sales price, what you bought the property for (plus improvements), how long you held it, and your tax status when you sold it. Your equity is something completely different! It’s the current Fair Market Value minus your Mortgage.
Around here Restricted Stock Units are a big deal, right? RSUs are effectively stock that is given to the employee upon grant. That “gift” shows up as W2 income in the year the RSUs vest. If the stock is not sold, but held onto for longer than one year, it becomes taxed at long term capital gains tax rates that are lower than most ordinary income tax rates.
Should you be targeting the marital home in the settlement?
Should you be targeting the RSUs in the settlement? OR a combination of both?
Divorce is a very cash intensive process. Most couples are maintaining two households, retaining attorneys, paying therapists, mediators, filing fees…the list goes on! It’s important to have assets that will sustain the lifestyle you need to make the transition.
An opportunity to gain CONFIDENCE
Having a better understanding of your financial situation (both assets and cash flow) will give you the CONFIDENCE you need to make the best decisions for you. I really want to make the point that you need to take care of yourself BEFORE you take care of anyone else. Our children, family, friends, and careers are all important, but none of those things co-exist well if you don’t first take care of yourself.
An opportunity to find CLOSURE
When you have confidence that the decisions you are making are the right ones for you, it allows you to have closure that those decisions are the best ones for you. This is tremendously important as you look to move on with your life and create happiness in the way that YOU see most fit.
We do not give legal or tax advice. Any discussion here is for general information purposes only. Always consult proper legal and tax counsel prior to making any decisions.
Second Saturday offers non-biased financial, emotional and legal information from qualified local professionals, providing people with the knowledge, support, resources and trust that they need to survive the divorce process and move forward with confidence toward a new life.