Prudent Portfolio: Financial Strategies for Navigating Divorce
By Mary Gibbons Gardiner and Cindy Rudbart
Divorce involves money and often involves children. When these two intersect, it makes a stressful experience even more difficult. Not only do you worry how your children will cope with the new family dynamic, but you worry whether you can still effectively provide them with what they need now and down the road.
Humans are resilient. We have the strength to recover and go on. Somehow, kids adapt. As parents, our job is to make sure they have the emotional and financial support to do so.
The more you know about divorce and your legal and financial options, the better equipped you will be to pursue the goals you have for you and your children.
Planning for your financial life after a divorce begins with a detailed analysis of your pre-divorce financial situation and holdings. Critical information includes how much you have earned as a couple over the past five years and how much debt you owe. You should also:
- Determine how much money you have in all of your financial accounts.
- Understand how the money is allocated among stocks, bonds and cash.
- Determine if you have other assets that may need to be valued (i.e., real estate, business holdings, artwork).
- Know who owns each account if they are in separate names.
Equally important is an understanding of how much it costs on an annual basis to maintain your lifestyle. This includes monthly bills, mortgage payments, home maintenance, tuition, vacations and other expenses.
Dig into the Details
It’s critical to know the details of your divorce agreement to help minimize conflicts. Often, during the divorce process when emotions are high, it is difficult to focus on the fine print. Once the dust settles, reread the agreement to make sure those details are top of mind as you co-parent with your now ex-spouse.
For instance, is college tuition covered by a 529 plan with school incidentals split 50/50 or are expenses covered using a different formula? Having a clear understanding of how future financial activity will be handled will reduce conflict and relieve stress for everyone involved.
Health Coverage
If you have been covered under your spouse’s employer-provided health insurance, you have the right to continue coverage for 36 months after your divorce is final. This coverage, referred to as COBRA, may be expensive and should be a topic of negotiation. Make sure you pay attention to all related deadlines.
Coverage for your children can be maintained under a Qualified Medical Child Support Order (QMCSO), which may require your former spouse to continue coverage under their employer’s plan.
If you take a new job after divorce, understand the healthcare benefits being offered. You may not need to pay for health benefits because you are covered by your ex-spouse’s plan. This can help save you important dollars you can put toward other financial goals.
Prioritize College Funding
Your divorce agreement should include specific provisions related to the children’s education expenses. Without a clear agreement, you could find yourself backed into a corner later and forced to tap into assets set aside for retirement or other important purposes. If you remarry, your new spouse’s assets and income could become a factor in any legal dispute with your former spouse over college costs.
Many parents set up a 529 plan to save for educational expenses, such as tuition, room and board, books, computers and other supplies. It’s important to keep the 529 plan intact to optimize the growth of the plan. Determine which parent controls the plan and how distributions will be made.
Having a clear understanding of all these areas will help reduce conflict with your ex-spouse and help you move forward as co-parents. Children are resilient and take our lead. Being clear and calm on the details will help the parents and the kids be all right.
Mary Gibbons Gardiner is first vice president and a financial adviser in Morgan Stanley Wealth Management’s Purchase office. Cindy Rudbart is a senior vice president and a financial adviser in the same office. They can be reached at 914-225-5119.
The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. Diversification does not guarantee a profit or protect against a loss. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.
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