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Financially Sound: Divorce Aftershock
Good planning helps financial settlement.
by Tricia Mulcare, Senior Associate, Homrich & Berg
September 8, 2008
A
lthough it may seem like you're alone, divorce affects one in five marriages. The
"honeymoon period" seems so long ago as you stand on the doorstep, divorce papers in hand. So many
emotions ... fear, anxiety, sadness. Now what? Allow yourself to take a deep breath.
Let yourself cry. Accept a quiet hug from a dear friend.
As soon as the
decision to divorce is made and your emotions settle, you can think clearly, muster your own team
of professional advisers. In addition to your divorce attorney, hire a CPA or financial planner
knowledgeable about divorce planning. Because marital dissolution can be managed in various ways,
many couples choose arbitration or mediation in an effort to avoid the fees associated with
litigation. One model, collaborative law, is a process in which each party hires its own team of
advisers (attorneys, therapists, financial advisers, etc.), and all parties agree to focus on a
mutually agreeable settlement.
No matter the legal situation, your financial planner should walk you through these
important first steps toward establishing financial freedom:
1. If you do not already have a budget, develop an estimate of your current necessary
monthly expenses.
2. Open a separate post office box to ensure delivery of confidential documents.
3. Establish separate checking, savings, brokerage and credit card accounts, all of which
will allow you to begin building individual credit. Be aware that on a joint credit account, all
named individuals are liable for debts incurred.
4. Order a free credit report from each of the three major credit agencies. Check the
reports for accuracy and identify all joint accounts that will need to be closed.
Your team of financial advisers will often request specific documents to support your assets
and expenses. It will be necessary to access prior tax documents (including income, gift and
business returns), bank account statements, brokerage statements (including IRAs and 401(k)
accounts), credit card statements and mortgage statements. You will also want to contact your
insurance agent for copies of your insurance policies (medical, life, auto/home, etc.) and gather
vehicle registrations, property deeds and any recent property appraisals. Finally, copies of
payroll stubs, W-2s filed with your previous tax returns, a marriage certificate and employment
contracts may also be requested.
Your attorney will likely advise you to consider which marital assets are especially
important or have sentimental value. Your team of advisers should evaluate the tax consequences of
keeping certain assets. Often overlooked marital assets include season tickets, club memberships
and timeshares. If you have minor children, consider the financial implications of various custody
arrangements, including education expenses and the effect of inflation.
Depending on your current career, various steps should also be taken and decisions
considered. Small-business owners should inform any partners of the pending divorce. If you and
your spouse are involved with a family business, examine the roles of each spouse and how they will
be affected. Stay-at-home moms should weigh via cash flow analysis the financial implications of
continuing this role versus going back to work.
Georgia applies a doctrine of "equitable division of marital property" in divorce. This
doctrine is designed to ensure that property accumulated during marriage is fairly distributed and
can frequently override the current legal title of property owned by both parties in the divorce.
As a result, the spouse who does the best job of planning in advance of the divorce hearing is
often the party who stands to gain the best settlement. For this reason, be sure to select a team
that has experience with your special needs during this transition.
Tricia Mulcare, CPA, CFP®, PFS, CFDP®, joined Homrich & Berg in 2003
after spending four years with Ernst & Young. While at E&Y, in addition to becoming a CPA,
she led teams within the federal tax consulting group to determine Research and Development Tax
Credits for major corporations throughout the Southeast. Homrich & Berg is an independent
wealth management firm based in Atlanta that serves select clients in nearly 30 states.
