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One of the most financially challenging events a person may experience is divorce planning. We tackled this sensitive financial topic head-on, with our Wealthbuilder live event in February 2022. In this discussion, Pam Krueger, Founder of Wealthramp and creator/co-host of PBS’s MoneyTrack, along with Lorraine Ell, a divorce financial planning expert in the Wealthramp network, shared the essential knowledge needed to avoid the top five money mistakes during a divorce.
Hi everybody, I’m Pam Krueger, the founder of Wealthramp and co-host of the Friends Talk Money podcast on PBS Next Avenue.
For anyone who doesn’t know Wealthramp is where you go when you are looking for the right financial advisor – advisors who work only and directly for you – not as a sales rep for a brokerage firm or insurance co. And when you do want an advisor you’ll want to know that advisor is legally bound to act in your best interest, and has been rigorously vetted by me personally. Wealthramp is “the” go-to resource and we are the only platform that does not share your personal information.
Welcome to our second “Wealthbuilder Series” discussion. This is a live event we host once a month where you’re invited to dive deeper into personal finance topics you care about, featuring one of our experts.
Today we’re going to shine a spotlight on the biggest money mistakes people make during divorce, and how to avoid those expensive mistakes.
We know relationships are complicated enough. Then there’s the ‘financial life’ that also exists throughout a marriage. Un-coupling is traumatic enough so it’s no wonder that financial details can get lost in the divorce process.
That’s why I’ve asked financial divorce expert, Lorraine Ell to walk us through the biggest mistakes. Lorraine is CEO and founder of Better Money Decisions and she’s one of the certified financial planners in our network who is accessible to you.
Hi everyone. Pam, Thank you for having me today to discuss divorce planning. It’s certainly one of the most challenging and emotional events one may experience.
Lorraine, let’s jump into one of the most emotional parts of separating one of a couple’s biggest assets – your home. What’s the trap you see people falling into here?
Emotionally we get attached to the house – we consider the house one of our most valuable assets. Maybe yes, but not always. When emotions are running high, it’s hard to see the forest through the trees. We tend to overlook other high-value assets that may actually be worth much more than the house. It’s important to think of your house as an asset because you may be better off selling it, and it’s the number 1 biggest money mistake in divorce planning.
Lorraine, taking an inventory of what you own and what you owe, both marital assets and debts and your individual balance sheet is key to negotiating. And there are other assets your spouse may have at work that also need to be considered. I’m thinking employee stock options and/or your spouse’s pension(s). Do you see people missing the big picture here on these assets because they aren’t as obvious?
Absolutely! Pension plan distributions can be confusing. A 50/50 split sounds fair but what happens if the former spouse dies? Does the pension add cost of living adjustments? And what about valuable stock options your spouse may own? You may not realize they could be worth more than the house! You should not under value your pension and stock options. Learning about those benefits that have potential cash value is a huge oversight.
Lorraine, on the debt side, couples have commingled their finances over a lifetime but even if it’s just over a couple of years… you have debts. What’s the absolute need-to-know about who’s on the hook here?
Pam, I see this all the time. You must close all debt issued in both names including mortgages, credit cards, car loans, etc. If one spouse goes bankrupt or stops paying, the ex-spouse will be liable for the debt. Even when a divorce is friendly, I can’t stress this enough, it’s a huge mistake to not close every joint account. There’s no upside to maintaining joint credit when you and your ex are going separate ways.
Lorraine, without trying to be a detective or enlisting help from the CIA, how do people in the real world uncover savings accounts, or other investments and assets a spouse may have not told you about but that matter greatly to a divorce settlement? And frankly, I don’t think most people realize your attorney may or may not pay attention to finding any hidden accounts.
Hidden assets can be a major issue. Not knowing that your spouse has these accounts you know nothing about. This happened to one of my clients recently, where the husband was hiding assets to avoid splitting them in the divorce settlement. If you’re concerned about this possibility, and your situation is complex or there’s potentially a lot of money involved, you may even decide to hire a forensic accountant who understands how to do that correctly.
Lorraine, this last mistake is one I’ve seen over and over and it’s maybe the most expensive and yet easiest to avoid: when you have that settlement in your hands, it’s natural not following through on every single directive or instruction that’s in your settlement agreement.
Right. Your divorce agreement is now sitting in your nightstand drawer. You don’t want to look at it ever again. But this is a huge mistake – ignoring the terms of the divorce settlement. For example, a new client of mine recently discovered that the QDRO was not completed and the account was still in her ex-spouse’s name even though she was receiving monthly distributions. (For those who are not familiar, QDRO, Qualified Domestic Relation Order, is a legal document in a divorce agreement that recognizes that the ex-spouse is entitled to receive a predefined portion of the account owner’s retirement plan assets.) Following through with the division of assets is very important but often not complete as the emotional impact of divorce deters further contact with the ex-spouse.
Lorraine, these are truly valuable insights, and thank you so much for spending the time with us.
To recap, the five biggest money mistakes to avoid during divorce we’ve learned from Lorraine today are:
1. Feeling so emotionally attached to the house that you lose sight of the big picture with other assets;
2. Neglecting to close out all joint accounts, credit cards or other debts;
3. Undervaluing pensions and stock options;
4. Missing hidden assets or bank accounts;
5. Not paying close attention to the deadlines and terms spelled out in the divorce settlement and assuming your lawyer will remind you.
If you have questions for Lorraine, or me – or you want to know more about how to reach our advisors, please email me at AskPam@wealthramp.com
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