Case Study: Divorced and Managing the Transition

Setting:

No one ever anticipates getting divorced, and our client was not an exception. She came to us once her divorce was nearly final. Understandably, she had many questions and areas of concern. She requested our help to sort through the settlement, get organized and build a new plan for financial independence for her and her two children.

How Did We Help?

  • We listened. And then kept listening. It is important for an advisor to truly understand a client’s fears, goals and priorities.

  • We counseled our client to take it one step a time, and specifically, to not make any sudden financial moves until we all understood the opportunities and constraints associated with the ultimate divorce decree.

  • We assisted in taking a full inventory of her assets, liabilities and goals. We worked with her to develop an immediate cash flow plan, and essentially created a detailed snapshot of her present state of affairs.

  • We reviewed the proposed divorce decree, QDROs, insurance components, tax components and child support provisions to look for any triage items that could be realistically addressed. We provided the following observations:

    • The QDROs (documents that dictate how qualified accounts get distributed), as is very often the case, were not written specifically enough to equitably distribute the assets. We made suggestions on how to make the distributions unbiased in amounts and tax implications.

    • By researching the previous year’s tax return and reading the decree, we noted that a sizable tax loss carryforward amount was being afforded to her ex-husband. We suggested that tax loss carry forward amount be split evenly.

    • We educated our client that the existing 529 plans for the children would be granted to one spouse or the other. In other words, if the 529 plan accounts were to be awarded to her husband, they would be his sole property to do with as he wished - with no requirement to benefit their children.

    • The Health Savings Account (HSA) account with accrued assets was not noted in the asset inventory of the draft settlement.

    • The child support provision required neither party to financially support the children post the age of majority. We suggested this be extended to the age of 22 if the children chose to continue in higher education.

  • We assisted our client with engaging an independent CPA. We worked with that CPA to create a draft return to anticipate her tax liability, and to generally educate our client on the myriad options she had available to reduce her tax burden.

  • She needed to update her estate plan. We provided a checklist for her to consider and also consulted with her estate attorney to ensure her new plan was in line with her expressed desires. We also confirmed that she updated the beneficiary designations on her accounts and insurance policies to be in consonance with her updated estate documents.

  • We evaluated her insurance coverage to identify any possible shortfalls. We helped her think through her protection needs which included more affordable term life insurance and a new umbrella policy.

  • We continue to monitor investments and systematically review her goal plan to track progress and recommend action items to guide her along her path. She values our advice, our role as an accountability partner, and she maintains the comfort of knowing we are a trusted resource available as life happens.

Result:

Our client is confident and on the right path to achieve her goals. She is taking the necessary steps to save and invest for her future and for her children. With our guidance, she is able to enjoy her passions now with the comfort of knowing she’s also protecting her future.