9-Step Plan for Financial Security
Many clients facing divorce, including wealthy clients in high-asset divorce cases, wait too long to begin planning their financial future beyond divorce. Our clients, like many facing divorces, initially focus on emotion and child custody alone. However, it is important to your financial security and the security of your children, that you develop and follow a plan for financial security in your divorce.
This 9-Step Plan for Financial Security in your high-asset divorce is an important tool on your journey to financial freedom and prosperity after divorce.
1. MEET WITH EXPERTS TO PLAN FOR FINANCIAL SECURITY
Knowledge is power, which holds true in preparing for a high-asset divorce. The first step you should take in preparing for your high net-worth divorce is meeting with experts, such as your financial planner, CPA or tax advisor, and your bank, along with an experienced Maryland divorce lawyer. Financial advisors and tax advisors can explain the following to you:
- Tax consequences of divorce, such as capital gains, capital loss, available deductions related to alimony or child support, and the best time for your divorce
- The costs and benefits of settlement or disbursement of your marital and separate assets, prior to initiating the divorce process
- Financial planning for your business and investment interests that will be impacted by your divorce
- Avenues to seek increased income, which will be your separate property after the date of separation in your divorce, i.e. prior to your divorce being finalized
- How you can protect your separate assets through tracing in your Maryland high net-worth divorce
2. UNDERSTAND YOUR LIQUIDITY
Prior to filing for divorce, you need to evaluate how your lifestyle will change during divorce and after your divorce is finalized. It is a good idea to identify ways to increase financial liquidity before divorce. The cost of high net-worth divorce litigation increased living expenses (two households to maintain) and the distraction from your endeavors that produce income can drain your liquidity faster than you think. Identifying a budget that is more conservative than your current monthly budget may assist in protecting your liquidity during a divorce.
3. THE RIGHT DIVORCE TEAM IS AN INVESTMENT
Far too often, those facing divorce with substantial assets on the line will try to “save money” by hiring a less expensive divorce attorney, tax advisor, or financial planner. Trying to find the divorce attorney with the cheapest billable hours or lowest retains in your divorce is a dangerous strategy.
The initial investment to work with the Right Divorce Team to provide you with experience and proven advice during your divorce may be an investment that pays dividends for the rest of your life.
By hiring the best and the brightest divorce team, you are far better prepared to face the division of your marital estate and to develop a financial plan for divorce and beyond. Years of experience and satisfied customers prove that hiring the best Maryland divorce lawyer will pay for itself in the long run with the protection of your financial future it will provide.
4. PAY YOUR BILLS
Divorce is a highly emotional and stressful process, even when you work with the best divorce lawyers. Many clients facing divorce will become consumed by the divorce process at one point or another. Sometimes the stress of the divorce process leads to divorce clients forgetting to pay their bills or the spouse that was responsible for physically paying the bills no longer lives in the same home.
Failing to remember to pay your bills during divorce can negatively impact your credit. However, there are tools and tricks to help protect you from forgetting to make payments. You should establish auto-payment on at least the following accounts to ensure you do not miss payments:
- Mortgage Payment
- Credit Card Payment
- Vehicle Loan Payment
- Utility Bills
- Other essential routine payments
You should continue reviewing your monthly payments each month for budgeting and accuracy; however, by establishing automatic payments, of at least the minimum balance, you will avoid a collection action or worse a negative impact on your credit score. During your financial planning and strategizing for your high net-worth divorce, ensure you have a plan for ensuring payments of essential bills continue.
5. TRUST YOUR DIVORCE ATTORNEY FOR PLAN FOR FINANCIAL SECURITY
Never accept a divorce settlement offer without speaking with an experienced divorce attorney. Additionally, if you are wealthy and/or have diverse assets, it is important to meet with an experienced high-net-worth attorney, tax advisor, and financial planner. A settlement of your divorce and division of marital assets today may have huge financial and tax implications down the road. Alternative dispositions of transfers of marital assets may protect your estate from capital gains tax and other negative consequences. Some settlements of your finances and divorce may seem financially beneficial today; however, you need to consider the advice of an experienced divorce attorney, future tax implications, income potential, depreciation and appreciation, retirement assets, and your financial flexibility or desire for liquidity. The advice of experienced financial advisors and high-net-worth divorce attorneys may protect you from threats you have not even considered.
6. UNDERSTAND YOUR DIFFERENT FINANCIAL ASSETS
Prior to considering what an equitable distribution of marital assets would mean in your divorce, you need to understand your different financial assets. We use our high net-worth divorce experience, the assistance of financial advisors, and a variety of appraisers with expertise in determining the value of assets, in order to assist clients in the equitable distribution of marital assets. Appraisals are not always needed to reach an agreement about the value of property in a divorce; however, it is important to take advantage of these tools if necessary to identify the fair value of an asset for dividing marital assets in your divorce.
Appraisals do not set the value of an asset unless the parties agree upon the appraised value of an asset. You can contest the identified value of an asset, either by an appraiser you hire or more likely by the appraisal done by the other party. Working with a Maryland divorce attorney experienced in high asset divorce and contested divorce cases will make you better prepared if you and your spouse cannot reach an agreement on the value of a marital asset during divorce.
Cash is king, i.e. liquid funds in bank accounts are often the most advantageous. However, other liquid assets with minimal tax consequences exist. In determining the complete picture of the value of an asset, i.e. a home, an investment, or a business, you should consider the following:
- Taxes on the property, i.e. capital gains tax liability or capital loss, which can offset income tax
- Transactional costs to convert an asset to a liquid asset, i.e. realtor fees or commissions for the sale of a business, real property, or a home
- Net present value, which is often less than the appraisal value
- Benefit of holding an asset until maturity of the asset or liquidating at the conclusion of your divorce
7. TAKE EMOTIONS OUT OF PROPERTY EVALUATION
You should not let your emotions interfere with your evaluation of assets. The true value of many marital assets in a divorce can be difficult to define; however, relying on your opinion alone is not a smart move. Experts exist to appraise and determine the value of almost any marital asset or type of property. Appraisers use objective analysis, i.e. not emotions, in determining the market value of an asset.
More importantly, an appraisal may determine a fair market value for an asset, which you will not be able to sell the asset for in the current market. Therefore, the liquidity of the asset may impact whether you are willing to accept an appraised value or not. The same goes for a business, which has a brand, reputation, and/or goodwill, which can be very difficult to define an objective value on. Personal property items are more readily appraised, such as vehicles, boats, jewelry, antiques, or other items with fewer characteristics to consider in a specific market.
Once you have identified an objective value of the marital assets in your divorce, you can begin to identify what assets you want to keep or convert to separate property after divorce and which assets you are willing to give to your spouse. Our experienced high-net-worth divorce attorneys can help you explore options to keep the marital assets you want with a strategy to protect your prized possessions while compensating your spouse with assets that are less important to you. The level of liquidity you want at the end of your high net-worth divorce will be instructive to our strategy for what assets you seek to protect. Many of our wealthy clients own some or many of the following types of assets that we have helped them protect in divorce:
- Businesses, both family businesses, and privately held businesses
- Classic car collection
- Deferred Compensation Plans
- Diamonds and other Jewelry
- Fine Art and coin collections
- Inheritance and/or gifts from parents
- Oriental Rugs
- Property held Internationally
- Rental or Investment Properties
- Vacation Homes
Assets held before marriage as separate assets that are converted to marital assets, still retain a separate asset value or premarital value. The determination of this value, which is excluded from equitable marital division can be worth a substantial amount of money. Retain experienced high-net-worth divorce lawyers to ensure you maximize your financial security in your divorce.
8. THE STOCK MARKET IS NEVER CERTAIN
Current and projected values on stocks and other investment accounts are uncertain and volatile. Stocks and index funds may be worth far more or far less in the future and determining a strategy for the distribution of stocks is difficult in divorce. It is important to beware and proceed with caution when electing to keep or transfer stocks in your divorce. The right investments may be of greater value than a more concrete asset; however, the opposite may be true as well. Whatever your position is concerning the division of stocks that are marital assets, remember the tax implications, if you elect to liquidate stocks, i.e. capital gains tax.
9. INSURE ALIMONY AND CHILD SUPPORT OBLIGATIONS
In high net-worth divorce cases, alimony and child support can far exceed half a million dollars over time. You want to ensure you will continue to receive that substantial income stream if you are the spouse receiving the spousal support/support alimony. Conversely, you want to minimize your alimony liabilities, if you are the spouse responsible for the payment of support alimony. Maryland divorce courts allow the imposition of life insurance policies to protect the dependent spouse’s interest in alimony payments. Working with an experienced high-net-worth divorce attorney will provide you their experience and strategy in developing a plan to best address alimony and child support obligations for your interests.
PLAN FOR FINANCIAL SECURITY
This brief outline of the 9 Step Plan for Financial Security in High Net Worth Divorce is simply a tool to get you thinking about the issues that will be relevant to your financial security and interests in your high net-worth divorce. Read our divorce guide and other resources, if you are facing divorce and have a high net worth or substantial assets. You deserve fair treatment and equity in your divorce. Divorce With A Plan will do whatever we can to build a strategy with you and help you protect your future.
CONTACT YOUR FIERCE ADVOCATES™ FOR THE 9-STEP PLAN FOR FINANCIAL SECURITY
Divorce is a stressful process; however, you can reduce your stress by ensuring the divorce attorneys you work with have experience representing clients facing issues similar to your own issues in divorce. Divorce With A Plan has legal experience in high net-worth divorce cases to help you achieve the best possible outcome in your divorce.