Financial Planning During a Divorce

Working through the financial aspects of a divorce is always a difficult and time-consuming process. We recently sat down with our friend Rebecca Gill to discuss the financial aspects of a divorce. Rebecca is COO at DunlapGill Wealth Management Group and is a Certified Public Accountant and Personal Financial Specialist. Rebecca and the team at DunlapGill provide excellent services to residents of Indianapolis, Fishers, Carmel, Noblesville, and other central Indiana communities. 

Below are a few concepts that we discuss in the video above. It is important to note that the tips below and the content of the video is for generalized information only. Each person's situation is different and it is important to meet with an attorney and financial advisor to develop a specific plan for your needs.

Start the process early. It can be very difficult to unwind anything after a divorce is final. You’ll want to make sure you have the complete picture, so it is important to gather information on income, physical assets, liabilities, retirement accounts, savings, life insurance, and other accounts. This will prepare you and your advisor to develop a customized post-divorce financial plan. Each spouse needs to have a plan that addresses short-term needs (like liquid assets) and long-term needs (like retirement savings).

 It’s important to have good credit established. We frequently see situations where one spouse has shouldered the financial burden for the household. All assets, deeds, credit cards, retirement accounts, loans, and mortgages are in one spouse’s name. This isn’t a big deal when dividing assets because Indiana’s divorce laws dictate the allocation. It is a big problem after the divorce is final. In this situation, the other spouse will have little or no credit history. It can be hard to get a mortgage, car loan or other credit extended when the bank doesn’t have a credit history to rely on—even though there may be significant liquid assets after the divorce. Make sure both spouses are building good credit to ensure stability after the divorce.

 You have flexibility with retirement accounts. In certain circumstances, you may be able to take early distributions from retirement accounts during a divorce. Remember, you’ll always be taxed on distributions, but you may be able to avoid penalties. It is important to consult with a financial advisor to balance your short and long-term needs via a master financial plan and to make sure your decisions won’t result in penalties or unnecessary taxes.

 Don’t forget to update your beneficiaries. It is common to get so caught up in the more detailed aspects of a divorce that beneficiaries aren’t updated. Don’t forget to update the beneficiaries of any life insurance, retirement or investment accounts during the process. It is also a good idea to review these with your attorney and a financial planner on an ongoing basis. Beneficiaries cannot be argued in an Indiana courtroom!

The Difference Between a Legal Separation and Dissolution

Legal separations can be used in several different situations for Indiana spouses. Generally speaking, separations allow spouses maintain the marriage while living separately with rules regarding expenses, parenting time, custody or other domestic matters. A legal separation is a good option if the relationship needs a “cooling off” period, if there is opportunity for reconciliation, religious concerns, or even if one partner needs to leave the home for medical reasons and Medicaid benefits.

Legal separations are also used in the period of time leading up to an official dissolution. They provide an initial framework while the parties are working out the final terms of the divorce. Decrees of Dissolution remain in effect for only one year, so if you see yourself heading for dissolution of the marriage, the legal separation action should be converted prior to the anniversary of the entry of the Decree of Dissolution by the Court.

In both a separation and dissolution, a decree is issued. The decree is the official document that outlines the parameters, or rules, that the parties will abide by. Because a separation maintains the marriage, it is a more flexible option and gives the parties flexibility in working out the terms of the decree, as well as the option to reconcile or move toward dissolution.

In dissolution, the action is final and permanent. Once the decree is issued, both parties must live by the terms and there is no opportunity to reconcile.

If you are considering a divorce, a legal separation is a good place to start.It allows you to be separated, while also laying out a framework for what each party is responsible for. In some cases, reconciliation happens after the separation. If not, you’ll already have a head start on the dissolution of the marriage and can move forward quickly.

My Story: Why Having a Will is Important

Wills and estate planning are important steps to protecting your family in Indiana when unexpected events happen.

After more than 20 years of marriage, my first husband passed away at the age of 43. As a new widow, I was left with three children, a home, and everything that came with probating his will. Fortunately, as an attorney, we had a will, actually a family trust, in place. We had named guardians and a trustee. Generally, we were well prepared which made things fairly easy to work through.

We never think that we will become a widow, or a widower, or that we will leave our children as orphans. Its uncomfortable to think about.

We live in a society where travel a lot, we’re in traffic, and illnesses occur. It is important to have a plan. Know where your assets will go. Know how you want your money spent and who will spend it. Know who will take care of your children. Plan to make the best of a bad situation, and don’t leave it to the Indiana courts to decide.