Your "A" Team of Advisors After a Divorce
How to secure your independent future – financial, and otherwise
Divorce is one of the single worst experiences anyone can endure. Yet, unfortunately, with the divorce rate averaging about 45 percent, odds are that many of us might end up confronting the failure of a marriage.
We are most vulnerable when we are dealing with something out of our control, especially when it is as contentious and stressful as a divorce. It is really difficult to think clearly and make good decisions about money matters when you are upset or angry and that is where top-notch professionals can be really useful.
If you are in the midst of a divorce, one of the first items you should address is assembling a stellar team of advisors that are experts in their respective fields and focused on placing your needs first. This is the one time in life when one-stop shopping doesn’t work. There are too many inherent conflicts of interest involved when trying to use one professional to handle a variety of tasks.
You might think it makes sense to use the same advisors as your former spouse.
The last thing you want is your ex knowing what you are doing with your alimony or divorce settlement. If you shared a team of advisors when you were a couple, you’ll need to hire a new accountant, estate planning attorney, investment advisor and insurance agent.
You will need a good accountant who understands how alimony works, particularly since the tax laws regarding alimony have changed.
In 2019, the spouse paying alimony can no longer deduct that expense on their tax return and the spouse receiving the alimony no longer has to pay income taxes on any of the income received. This is a huge change from the way things used to be. If you are the spouse receiving alimony, this could mean an extra 30 to 40 percent in your pocket. Make sure the accountant you choose is well-versed on the recently passed tax plan and how it may affect you moving forward.
Now that you are no longer married, you will need a new estate plan, specifically naming children or family members as beneficiaries. If you have any retirement accounts you will need to remove your ex-spouse as your beneficiary. In most cases, you will need a new estate planning attorney to draft an updated will, or establish a new trust with new trustees. You may also need to change the guardians for your children should you die. Medical and durable power of attorney documents should also be updated.
When it comes to picking an investment advisor, the most important thing is to choose someone who is a fiduciary, meaning that by law, they have to put your interests first. Not all financial advisors are fiduciaries, so this is a very important question to ask. Another vital question is how does the advisor get paid? Do you pay just one fee or several layers of fees? The fees should be transparent and easy to understand. Lastly, consider an advisor who can help you grow your assets safely, since you’ll likely want to minimize risk while you’re sorting your finances out. This may mean hiring someone who has an investment strategy that generates income to live off or simply investing in low-cost index funds for long-term growth.
Finally, you may need to acquire new life insurance. Term-life insurance is a safe purchase, as it is the cheapest form of insurance with the lowest annual premiums. If you buy a 20-to-30-year term life insurance at a young age, the annual premiums are likely to be very low and you’ll be able to lock in that premium for the entire term of the policy. You can get a large amount of insurance coverage for very little outlay.
So now that you know who you need on your team, how do you go about finding them? The best way is through referrals from someone you trust that already works with a credible accountant, attorney, insurance broker and money manager. Interview prospective professionals in person to get a better sense how they operate and whether it will be a good personality fit. That will also give you the opportunity to meet their employees, who will likely be serving you in a support role. Before committing to work with someone, ask for three references of current clients.
A lot of homework and due diligence upfront will save you time and money, but in the end, it will be worth it, because you’ll have your own “A” team to take very good care of you – hopefully for a long long time.