It’s a sad fact of 21st century life that half of all marriages end in divorce.
And couples who unfortunately end up there have a lot on their minds. But having a financial advisor on the team can help ease money worries and provide reassurance during a troubling time.
One way to illustrate the value of a financial advisor would be a sort of “case study” of how a woman, we’ll call her Annette, came out of her divorce in sound financial shape.
Her soon-to-be-ex-husband had always handled the finances, and she wasn’t sure where to start when it came to financial planning.
Clearly a cause for worry, right? But even in the middle of a highly emotional situation, Annette made a thoughtful decision –getting independent financial advice—to help protect herself and work toward, her short- and long-term goals, and her retirement dreams.
Unfortunately, too many people get caught up in the turmoil and anxiety and, face it, the anger, of a divorce. Without help, they’re liable to make mistakes that can cost them money and result in lost opportunities and unrealized ambitions.
So make sure you add a financial advisor to the professionals who are managing your divorce.
When we work with clients who are going through divorces, we help them prepare for life after the divorce by working with their lawyers to ensure the transition to their new financial realities goes smoothly.
As in many divorces, Annette’s lawyers had reached agreement with the other side on a Qualified Domestic Relations Order (QUADRO) for dividing retirement accounts. And it was a sizeable amount of money.
But what should she do with it? Remember, she had no experience with that kind of thing.
Annette’s financial advisor set up a qualified Individual Retirement Account (IRA) tax-protected retirement account before the QUADRO was agreed upon so her share could be transferred straight into it.
Another way to handle that would have been to receive the QUADRO money directly and deposit it in a money-market or other interest-generating account. Not so smart.
First, that interest is taxable. Even more important, people under 59 ½ years old are liable to a 10 percent penalty for not putting the proceeds of QUADRO in a qualified IRA.
But as I said before, Annette was making thoughtful decisions. By retaining the services of her own financial professional instead of relying on her ex’s advisors—or on her judgments alone—she had a team that was dedicated to her interests, her new goals, her new life and her new directions.
Let’s talk about Annette’s budget again for a minute.
By helping her adjust to her post-divorce standard of living—reduced assets, less household income, and therefore a reduced ability to set aside for retirement—her new financial plan kept her on track for making intelligent decisions.
How? Mostly, it slowed her down from making big moves so she could think them all the way through.
For instance, she wanted a clean, complete break that included relocating and buying a new house.
By showing her how she could make her money stretch to fulfill her longest-range goals—but not if it included a move like that right away--her new financial plan kept her from making what could have been an expensive mistake.
And when she needed a new car, she found one that fit into her plan; not the one she wanted, which would have busted her budget.
It would be nice to think nobody would ever have to go through a divorce. But it’s every marriage starts out with a 50-50 chance of ending that way.
And if it does come to that, you’ll have a lot on your mind, but a financial advisor on your team can ease some of your money worries and give you reassurance.
GDS Wealth Management is not a registered broker/dealer and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Any opinions are those of Glen D. Smith and not necessarily those of RJFS or Raymond James.
This case study is for illustrative purposes only. Individual cases will vary. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.
The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59½, may be subject to 10% federal tax penalty. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.