Divorce is one of the largest financial transactions you will ever make. It is imperative to understand the divorce settlement and its impact on your finances. Each decision you make in the divorce settlement will impact your financial future. This page provides answers to the most commonly asked questions regarding divorce settlement and finances. If you have a question that has not been addressed here, let us know and we will gladly answer your question.
Am I going to receive alimony in my divorce settlement?
The tests for spousal support (also called “alimony” or “maintenance”) include some of the following; however, keep in mind that no two cases are the same. You need to seek individual advice in order to determine how the specifics of your case may impact your ability to receive spousal support:
- Need. Can you support yourself with earned income plus investment income?
- Ability to pay. Does the payer of alimony have sufficient funds to pay?
- Length of marriage. A long-term marriage (ten years or more) is typically a stronger case for the lower-earning spouse.
- Health of both parties.
Will I lose some or all of my pension as a result of divorce?
Pensions and retirement plans are marital assets; generally speaking, the portion you earned during your marriage will be subject to division. Depending on the state you live in, the portion that was earned before your marriage could also be considered a marital asset. However, it may be possible to keep your pension intact and have it offset with other assets.
I’m the custodial parent. Should I keep the house?
This is a great question. The answer is sometimes yes, sometimes no. It’s important to pinpoint exactly what it will cost to maintain the home, factoring in taxes and insurance. The next step is to analyze if there is enough money coming in to stay comfortable in the home (in other words, pay the bills each month and keep the house in good repair). Once that has been determined, the advisability of retaining the home must be compared to the advisability of giving up other assets (such as liquid accounts, retirement plans, etc.). Finally, all decisions need to be weighed against current economic and stock market conditions. A Certified Divorce Financial Analyst can help help you answer this question before committing to a divorce settlement that cannot be changed.
What if I brought a house into the marriage that was in my name only – but after we married, I added my spouse’s name to the deed?
In this case, the whole house could be considered marital property. You might have made a “presumptive gift” to the marriage and should consult with a family law attorney to discuss your options. In some areas, if your spouse moved into this house, and both of you lived there during your marriage, the house is marital property no matter whose name is on the title. Again, you need to discuss your unique situation with a family law attorney.
Is my retirement account considered marital property? It’s in my name only.
Everything acquired during the marriage, no matter whose name it’s in, is typically considered marital property. In a Missouri divorce, the increase in value of your retirement account, due to contributions made during the marriage, is considered marital property. In some instances a retirement account may have had contributions made before the marriage. In this instance, the pre-marital value may be considered separate property and the income produced by the separate value (e.g. dividends and interests) during the marriage is considered marital property. Work with your divorce financial planner to determine how best to support the separate and marital portion of your retirement account. You should evaluate the financial drawbacks to having your retirement account included in the list of assets you will retain post-divorce. Remember, the funds in a retirement account cannot be accessed before 59 1/2 without paying a 10% penalty for early withdrawal. There are exceptions to the 10% penalty when accessing the retirement funds in divorce, but there will be income tax consequences for doing so. It is important seek the advice of a St. Louis CDFA™ professional about your options.
I have never worked or I haven’t worked enough to qualify for Social Security. Can I still get Social Security?
If your spouse has worked and if you have been married for 10 years or more, than you are entitled to one-half of your spouse’s Social Security or your own, whichever is higher – even if you are divorced. Your spouse still retains 100% of his/her Social Security benefit. This is an automatic guarantee and therefore it is not a negotiation point in a divorce settlement. To learn more about social security benefits in divorce visit the Social Security Administrations website on divorce and social security or seek the advice of an experienced divorce financial planner.
How do we figure how much child support should be paid?
Every state has Child Support Guidelines that are mandated by the state. However, the Guidelines get tricky when one (or both) spouses is an independent business owner who can control their wages. In this situation, it typically helps to bring in a financial or tax expert who can help determine the true potential income of the business owner spouse(s).
Child support in Missouri is determined by guidelines that are mandated by the state. Generally speaking, it is based on these factors:
- ages of minor children (under 18)
- number of minor children
- income of the parents
- number of overnights the child(ren) spend with each parent
These factors are plugged into a formula, which then supplies a recommendation for the Court.
The Guidelines may not cover the children’s actual costs – for instance, extraordinary medical expenses, private school tuition, or extracurricular activities are generally not covered. It is worth mentioning, the way child support is discussed in mediation or collaborative divorce is often different than the way it is addressed in traditional litigation. If this is an area that you and your spouse would like to be creative or discuss in a more problem-solving way, then be sure to reach out to an amicable divorce professional to explore your options.
Do we have to go to court to get divorced?
Only if you can’t reach an agreement. Then, a court date is set and a judge hears the case. Less than 5% of all divorce cases go to trial in the United States.
What is a QDRO and why do I need one?
A QDRO (or Qualified Domestic Relations Order) is the legal document that divides up a qualified pension or retirement account (including 401k’s) pursuant to a divorce. The Judgment of Divorce is not sufficient to divide up qualified plans, a QDRO is needed. There are many nuances that go into QDRO’s and make it an advocating (versus neutral) document. In order to protect your assets, be sure to obtain qualified advice in this area from a specialist.
Who can help us to sort out our finances during divorce?
A Certified Divorce Financial Analyst is trained to help people through the maze of divorce. They sift through the financial issues including incomes, expenses, assets, tax issues, pensions, division of property, and help you reach an equitable divorce settlement that is fair to both parties. A CDFA professional has specialized skills and experience that enables them to analyze financial issues in divorce in their long-term context. A CDFA can take the offer on the table and project out 5, 10, 20 years to show you what you’ll have to live on if you sign the agreement.
How is a CDFA™ professional different from a financial planner or accountant?
There are many designations for a financial expert, including: financial planner, Certified Financial Planner® (CFP®), Chartered Financial Consultant (ChFC®), accountant, Certified Public Accountant (CPA), Chartered Accountant (CA), Certified General Accountant (CGA), and Certified Divorce Financial Analyst® (CDFA™).
The role of the financial planner (usually a CFP or ChFC) is to help people achieve their financial goals regardless of whether they are divorcing or happily married. After determining the client’s goals, the next step is to take an inventory of current assets and liabilities and then the planner looks at what needs to be done to achieve the client’s goals.
Conversely, an accountant typically looks at the details of the scenario as it is today and makes no future projections. In a divorce, they are hired to calculate the tax effect of dividing property and the effect of spousal and child support for one or two years. They typically do not project further into the future.
To best meet the needs of divorcing spouses, you need a blend of these two ideologies; the CDFA™ designation was created to fill this need. The role of the CDFA™ professional is to assist the client and his/her lawyer to understand how the financial decisions he/she makes today will impact the client’s finances on the day of divorce, as well as 30 years down the road. That way, the client can knowledgeable decisions in the divorce settlement and understand how those decisions will likely impact his/her future.