Important Financial Considerations for the Later Stages of the Divorce Process
As you reach the final stages of the divorce process, there is no time more critical to ensuring you accurately receive your agreed upon share of the community assets in order to launch your new life. While the tough negotiating has been completed, the process of settling up is an extremely important step to make sure that the assets that you’ve fought to secure will be properly and efficiently transferred to your sole ownership. It is also important to make sure new brokerage and bank accounts, investment plans and property titles are in place and ready to receive your assets. The shift from legal and financial negotiations to settlement logistics requires astute advice and careful oversight, so take advantage of the knowledge and momentum you and your professional team have built and ensure this final step is fairly and accurately accomplished. Your family law attorney and financial advisor can help you oversee the re-titling and transfer of all your various assets consistent with the agreed division, and the implementation of your investment plan on your portion of the community assets. Your time and energy spent focusing on the details of the final stage of the dissolution process will not only ensure efficient closure, but will also pave the way for a successful start to your new life.
Reviewing your Marital Settlement Agreement closely before signing it with both your attorney and financial advisor is the first step in understanding what the property division process will need to be. While most investment assets, like stocks, bonds and mutual funds, can be split evenly and properties can be re-titled, there are other assets, such as options, restricted stock, pensions and partnership interests, which are not easily divisible or transferable. In situations where splitting the asset is not possible, parties may need to agree to an ongoing administrative process of holding the asset together, sharing communications, distributions, capital calls and the like over the remaining life of the investment. In some cases, one party may propose trading assets of similar value. In those events, it is important to evaluate the risks, opportunities, and tax considerations of agreeing to such a proposal. Though investment assets are often compared solely on market value for purposes of splitting the community property, even similar investments carry these different elements. You should not assume an “apples to apples” comparison!
While a comprehensive review of the community asset split is underway, it is important for you to begin working on creating an investment strategy and a budget appropriate to your future needs. Your financial advisor will review the investment assets you expect to receive and will want to discuss both cash flow projections and proposed investment plans. The discussion should help you explore your comfort with taking investment risk, whether you will have the cash flow to support your lifestyle, and the personal and financial goals you would like to accomplish. Prior to receiving your share of the community assets, it would be ideal to have your new estate plan and an investment plan in place so you are ready to put your assets to work in a manner appropriate to your circumstances. This process will include the establishment of investment accounts to be managed according to your investment policy statement (IPS) as well as updating beneficiary designations in your retirement accounts to ensure they match your estate goals. Life insurance policies may also need to be reviewed at this point to ensure the beneficiaries are updated and whether or not the policies themselves still make sense to retain after evaluating your post-divorce goals.
Once the marriage settlement agreement has been signed and assets are ready to be transferred, it is extremely important to have your team, especially your attorney in the case of real property transfers, and financial advisor in the case of securities and other financial assets, coordinate and monitor the division and transfer of assets to ensure errors are caught and corrected quickly. It is not unusual to have the instructions in Marital Settlement Agreements misunderstood by financial institutions tasked with splitting those assets or calculating the community property portion of an investment. While some investments and/or accounts can be split relatively easily, sometimes even prior to a final agreement being reached, others are not so simple. For example, qualified retirement accounts (e.g. 401K, 403b, pensions) require that a QDRO (Qualified Domestic Relations Order) be drafted by an attorney. Ensuring this process is completed before your professional team disbands is essential to avoiding additional costs, delays, mistakes, misunderstandings or contentious dialogue with your ex-spouse.
Given the nature of the long and sometimes emotionally draining process of marriage dissolution, it is no wonder that we at Sand Hill often find the late stage of the divorce process to be the most vulnerable to unexpected pain and problems. Many feel the hard road to a settlement agreement essentially ends with the signing of the Marital Settlement Agreement and that executing the division of assets is mainly a matter of paperwork. As financial advisors tasked with gathering and transitioning assets for a long term relationship, we sometimes witness the unraveling of good and hard-fought negotiations because the energy or momentum was lost before all loose ends were neatly tied. An individual prepared to have their divorce team focus in on the minute details of the final stage of the divorce process will serve you well and prepare you to launch their new life on a positive footing.
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