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The Importance of Financial Planning in the Divorce Process
Unfortunately, one of the most overlooked aspects of a divorce is the financial impact that a divorce settlement agreement will have on the litigants’ future subsequent to the finalization of the divorce process. Without question, the divorce process is a very emotional and trying experience. Both lawyers and clients are focused on immediate problems such as ensuring that there is enough money available to pay the bills, sharing time with the children during holidays and special events and rendering a determination as to whether or not the marital home will be sold. What is often not heavily discussed during the divorce process is the prospective financial impact of the parties’ financial agreement.
Develop a Budget with Your Lawyer and a Financial Professional
There needs to be a conscious effort on behalf of both the attorney and the client to focus on the future and the client’s financial needs. The attorney should sit down with his or her client and prepare a comprehensive budget to ensure that the amount of alimony and child support, either being received or paid, will enable the party getting divorced to survive financially, and be in a position where they can continue to accumulate assets and save for retirement.
It is important to note that most lawyers are not financial planners, nor are they tax professionals. The client must take an active role in preparing for their post-divorce financial future. Any prospective divorce client may wish to inquire with an attorney they are interviewing about whether the attorney has previously worked with any financial planners or, more specifically, a certified divorce financial analyst.
Certified financial planners and divorce financial analysts understand the financial implications of a divorce agreement on a post-judgment basis. They can assist the attorney and the client in preparing prospective budgets and ensuring that both long-term goals and financial needs are met. It is very important that you involve a financial planner in your divorce case prior to your divorce agreement being signed and formally finalized. The ability of the financial professional to help you is somewhat limited once the agreement has been signed.
What Should I Do Before the Divorce?
Prior to your divorce being finalized, you need to make sure that you have in your possession a complete inventory of any and all assets that were acquired during the marriage, including any insurance policies, prior year’s tax returns, mortgage statements, home equity loan documents, comprehensive listing of any and all outstanding bills, investment account statements and retirement account statements, if applicable.
When you have this information, your attorney and your financial planner will be able to provide you with detailed worksheets and financial scenarios based on various settlement options. Through this process the financial planner and your divorce attorney can evaluate with you the appropriate choice of settlement. The financial planner and often times an accountant will help you with various tax calculations and engage in appropriate tax planning with you. They will also assist in developing a comprehensive budget for you.
Choosing a Divorce Attorney
It has often been said that if you do not properly prepare for your divorce you are, in essence, planning to fail. It is highly recommended that you retain an attorney that knows their limitations as it relates to complex financial and tax issues. Anyone who is contemplating a divorce should meet with a financial planner to assist in the process. If you are thinking about filing for divorce, it is recommended that you speak with any potential divorce attorneys about their willingness to work within a “team approach” through the divorce process, wherein all professionals work together to ensure that your rights and interests are properly protected.
New Jersey has five types of spousal support. Rehabilitative alimony is a short-term monetary award that allows a spouse to go back to school or obtain training to re-enter the workforce. Limited duration alimony is awarded in cases of a short marriage when rehabilitative alimony doesn't apply. Reimbursement alimony is awarded when one spouse makes a personal sacrifice so that the other spouse could receive professional or career training. Alimony pendente lite is awarded when a divorce is pending so that both parties can maintain their current standard of living until a final judgment is made. Finally, there is permanent alimony which is usually appropriate in long term marriages and typically terminates upon the death of either party or remarriage.
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