Wealth Management Blog

Posts tagged Divorce

Let’s Talk Gray Divorces

By JJ Burns

September 12, 2018

Breaking up is hard to do, and it's something that's made even harder when it happens later in life. "Gray divorces," as they're called, are indeed on the rise. According to Pew Research Center, the divorce rate among folks aged 50 and over has doubled since the '90s. Most people in this boat find themselves in completely new terrain. The single life can be a disorienting new reality for those who've built a decades-long life with their partner.

Divvying up your assets and debts comes with the territory for any divorce, but I've learned over the years that those who split up later in life usually have more moving parts to consider. If emotional heartbreak is one side of the stress coin, disentangling your finances is the other.

Being thrown into new financial waters is often jolting for both parties, especially if you're the spouse who wasn't the breadwinner during the marriage. For the first time ever, you may find yourself 100% financially on your own. Do you know how to confidently manage your budget, long-term goals, and investment portfolio? Taking over the financial reins can be an intimidating experience for anyone, particularly those reeling from a midlife divorce.

Even if you were the primary earner, splitting up could majorly rock the lifestyle you've grown accustomed to living. Transitioning to the single life—which may or may not include alimony—is bound to disrupt your financial health. At JJ Burns & Company, we sit down with our clients and help them develop a detailed, customized financial strategy before any divorce plans are in motion. This is the best way to get a realistic snapshot of your new financial norm.

If you're contemplating a gray divorce of your own, it's wise to check in with your financial advisor about the best way to move forward. Doing so can help you sidestep these common pitfalls.

How it Might Impact Your Lifestyle (Especially in Retirement)

When all is said and done, the average cost of a divorce comes in at about $15,500, with some paying more than $100,000. This could potentially put a major dent in your retirement nest egg, especially if you're already behind on saving. What's more, your retirement accounts could very well be considered joint assets, and how they're split up varies from state to state. I won't dive too deeply into the legal technicalities here, but before you do anything, you need to know if you live in an equitable distribution state or a community property state. This directly dictates how your assets and debts are divided.

So what does this have to do with your retirement? While your original plan may have been to live out your golden years together, drawing on the same funds, a divorce may translate to a smaller payout for you. If you're approaching retirement age, this could mean downsizing your lifestyle or finding ways to make up the difference (i.e. delaying retirement or picking up a part-time job after you retire). Divorcing also means eventually cashing in on one person's Social Security benefits instead of two.

Again, there are a lot of moving parts. Every couple is different, but knowledge is power. Before making any decisions, we always advise our clients to zoom out and look at the big picture. The end goal is knowing you can still enjoy a comfortable quality of life should you divorce.

How the New Tax Law Factors into the Equation

Making the decision to divorce is one that's inherently emotional. Be that as it may, some couples know deep in their bones that going their separate ways is the healthiest path forward for everyone. Couples who agree that divorce is the best option are in somewhat of an unorthodox situation these days—thanks to the new tax reform plan taking effect January 2019, it might be in your financial best interest to split up sooner rather than later. Why? As the law reads right now, alimony payments count as a tax deduction. Once the new tax reform goes through, the tax break for spousal support payments will be eliminated.

In simple terms, divorcing will most likely get even more expensive. In no way are we encouraging married couples to break up—anyone who's endured a divorce knows how painful it is. However, if divorce already feels right in your heart, the new tax reform is worth your attention.

While money certainly can't buy happiness, it can empower us to live a life that's more in line with our values. As gray divorces continue trending, it's definitely worthwhile to weigh the financial repercussions before signing on the dotted line. At the end of the day, being our client means knowing that we're taking the long view when it comes to your financial health, whether you're partnered or single.

Negotiating Your Finances When You Divorce

By JJ Burns

March 23, 2017

Whether you have been married for a year, or several years or longer, getting divorced can be difficult—certainly emotionally, but also financially.

With the right mindset and planning, divorce doesn’t have to drain your financial assets. Instead, there can be negotiations that benefit both parties.

For most, divorce is not always easy. There may be property, children, businesses, and debts that need to be addressed. Before the papers are signed, people should know what they want to accomplish when they dissolve a marriage. Is it wealth preservation, child custody, asset protection?

Few people want to think of marriage in business terms. It’s not romantic at all. And when you get married, you hope that it will last forever. For some, relationships can run their course.

Your State of Residence Matters

According to lawyers, the simplest divorces are the ones where it’s simply dividing up property. Nine states are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. This means that whatever you earn, or property that you acquire during the marriage, is subject to a 50-50 split when you divorce.

In all other states, it’s a bit more complicated. Take the hypothetical case of Katie who was married for 16 years, has two kids, and helped build her husband’s dentistry business by introducing him to key people in the community.

Legally, she is entitled to part of the value she put into the business, as well as some of what the couple both earned and saved during their marriage, and a portion of the house and other assets. This all takes time to sort out.

A Formula for Support

Family courts have a formula to determine an amount of support. In New York, if you have one child, you will receive 17 percent of the salary from the non-custodial parent, two children may receive 25 percent, and three children may receive 29 percent of salary.

Even so, if you’ve been a stay-at-home mom like Katie who has put her career on hold to raise kids who attend private school, suddenly getting a high-paying job to support your family can be a bit unrealistic. How is she going to continue her—and the kids’— lifestyles?

It all comes down to a valuation of Katie’s participation in her former husband’s business and family responsibilities, and then strategic negotiation to give her a desirable result.

What it also means is for her to take herself out of the emotional equation of the divorce, and assemble a team of financial specialists, lawyers, and mediators who can work with her best interests in mind. It also gives Katie the resources to communicate “individually” with each team member, “checking and balancing” the advice given to minimize or eliminate conflicts of interest, so she gets the results she desires. 

It’s a smart move for both sides. Depending on the situation, a collaborative team can cost much less than a litigious divorce lawyer.

Getting Wise Counsel

Most of us take out insurance to protect ourselves in case something happens. A review with a financial professional in the case of a divorce is the same thing—protection. To learn more, download our divorce toolkit "Suddenly Single: What to Do When You’re On Your Own Financially" and get the proper guidance on how to protect your assets and financial future.