Destination: Financial Fitness — A Travel Guide
GPS: Good Planning for Security
You know how your GPS reacts when you change course. “Recalculating,” the computerized voice reports. How reassuring! You can’t get lost since the program constantly reassesses your position. Well, divorce is definitely a departure from the financial road you had been traveling as a couple. Maybe you handled the household finances, or maybe your spouse did. Perhaps you shared the responsibility. But, in any event, the math has changed and you need to recalculate.
Now is the time that difficult, thoughtful choices must be made both on your own behalf and that of your children. A financial planner may well prove to be your most valuable asset; an experienced, objective guide to help you navigate what can be a most challenging terrain.
The Starting Point
“Just getting certain things in place in the beginning can make a world of difference down the road,” says Jonathan McSurdy, a Certified Financial Planner who is part of the mediation team at the Alpha Center for Divorce Mediation. He credits a clear understanding of the fundamentals, good habits, and taking the long view as the ingredients for a solid financial footing.
Whether he’s working with someone who’s a sophisticated investor or someone who has never written a check, McSurdy starts with “the basics, a budget, habits you want to form and what to look out for.” Based on the division of property, allocation of assets and liabilities, determination of alimony and child support outlined in the Marital Settlement Agreement, the budget is a specific, detailed, picture of what is needed to maintain the household in the present, as well as sustain it for the long run. Using his client’s current expenses and sources of income McSurdy creates an Excel spreadsheet which can then be adjusted as circumstances change. He sees his role as helping people anticipate what those changes may be. For example, what income can they count on? Is their job stable? Is it recession-proof? “Alimony and child support are finite,” McSurdy advises, “it’s important to have a plan for when they end.”
It can be overwhelming for someone going through divorce to contemplate daily expenses, let alone the what ifs (what if the car breaks down? my child needs orthodontia? I get laid off?) not to mention planning for college expenses or your own eventual retirement.
A financial counselor can be instrumental in helping you map out a viable route to financial security.
The Right Route
If the house needs to be sold, the equity is usually split between the two parties. While it is tempting to use that money to buy a new residence, it may not be wise to use up all your liquidity to do so. Owning a home is a big financial commitment. McSurdy recommends that recently divorced people have 3 to 6 -months worth of cash on hand.
Members of a two-income household are used to (and able to afford) a lifestyle that a single income household often cannot sustain. Here’s where an impartial, experienced consultant can offer you a reality check and help you find ways to minimize expenses and maximize income.
If your cash flow has been greatly reduced, you may need to reevaluate a college or vacation fund. What’s imperative is that your budget has to be in the black and that you find efficiencies to control expenses.
A sound financial plan also includes a checklist to make sure that you have closed or cancelled joint bank accounts and credit cards, consider who you want to use as your accountant, serve as your estate planner, to have Power of Attorney. “The non-financial spouse usually wants to make a clean break and use different financial professionals, but needs to be careful not to be taken advantage of,” states McSurdy. He (as do all members of the Alpha team) takes a fiduciary level of care, making sure all his recommendations are in the clients’ best interest.
Reaching Your Destination
Even if you are not in a great place financially the fundamentals (good habits i.e., monitoring and adjusting your budget, paying yourself first, etc.) are invaluable in the long run. Putting something – no matter how small- into an investment account every week that will compound as the years go on can get you where you want to go. “Time can make up for a lot,” McSurdy says. “You don’t necessarily need a large return or a big investment to build a nest egg to achieve the lifestyle you want.”
And, if you are in a good place financially, a consultant can review financial statements and investment portfolios for whether the allocations are reflective of your current situation, as well as the risks, returns and tax ramifications for short term or long term gains. “Many times people are unaware of what the costs are for investment services and ways to control those costs,” says McSurdy, who has close to 20 years experience in the investment management business. “They may not realize or understand that strategic portfolio changes can save tens or even hundreds of thousands of dollars over the years. That’s a lot of money in play down the road.”
You may need the courage of a lion, the steely resolve of a tin man and the brain the scarecrow longed for to follow that road but it will all be worth it when you arrive.
©2016 Alpha Center for Divorce Mediation
Wayne Ruston | Dreamstime.com