Wealth Advisory & Planning
Navigating Life Transitions: Divorce
Going through a divorce can be an emotional rollercoaster. Add to that, divorce is a life event that can initiate a process where you will need to inventory and prioritize your personal and financial assets, often amid wide-ranging foreseen and unexpected challenges.
Although the circumstances of each divorce are profoundly personal and different, anyone experiencing this life transition will need to approach decision-making with a clear mind, relying on informed and sound reasoning and being cognizant of particular short- and long-term objectives.
During this time, it is prudent to work with your advisors, including your divorce attorney or mediator, accountant, financial advisors and insurance agents, who can help you be well-positioned to make intelligent, fact-based financial decisions in the context of your needs and objectives.
Who gets the advisor?1
If you and your spouse share the same advisor, consider who “gets” the advisor in a divorce. The interests of the parties in a divorce can conflict, which makes the role of advisors more complicated. An investment adviser, for example, has a fiduciary responsibility to a client.2 So if your agreement with your investment advisory firm is signed by only one spouse, the advisor’s duty is owed only to that party. If the agreement is signed by both you and your spouse, the advisor’s duty is to provide both parties with advice in a nonconflicting manner, which may be difficult to do during a divorce proceeding.
Get organized and collect information
Through this period of change, we have found many individuals greatly benefit from becoming informed about the divorce process, gaining confidence and a sense of equilibrium from knowing what to expect. Fairly early in the process, you likely will need to produce detailed lists and schedules of your personal assets and liabilities, as well as jointly owned assets, properties and liabilities.
Below are action items associated with the divorce process. Your advisors can help explain these items.
- Obtain current statements for bank accounts, investment accounts, retirement plans (e.g., 401(k), traditional IRA, SEP, Roth), pensions and Social Security, 529 plans and other education savings accounts.
- Identify individual and jointly held business assets.
- Gather your will and trust agreements.
- Obtain copies of pre- and post-nuptial agreements.
- Collect insurance policies, including home, umbrella, life, long-term care, health and auto.
- Determine if there are any assets or accounts that have been inherited and in separate accounts (i.e., non-commingled inherited assets).
- Collect beneficiary designations.
- Ascertain liabilities, such as mortgage statements, outstanding lines of credit or loans.
- Obtain copies of real estate deeds to properties co-owned with spouse.
- Obtain titling for cars and lease agreements.
- Request tax returns from accountant, i.e., income tax (last three years) and gift tax return(s), to look for any deferred tax assets (e.g., capital loss carry forwards or charitable carry forwards).
Establish a property settlement
As you organize and collect all documents and information, you will also need to meet with your divorce attorney or mediator, accountant and financial advisors to finalize the property settlement and other issues. Below are the primary topics that should be discussed and finalized:
- Distribution of property and assets; pay particular attention to the tax costs of dividing assets
- Child support and current and future educational costs, as well as alimony payments
- Custody of children
- A qualified domestic relations order
- A final divorce decree/settlement agreement, including alimony and spousal support, if applicable
Create a new financial path
It may take a year or even more for a divorce to be finalized. Consider using the interim to think about your immediate financial future and discuss options with your Glenmede Relationship Manager. You may want to explore and create a plan for your lifestyle, legacy and philanthropic objectives. We often begin with these financial planning fundamentals:
- Identify total assets and liabilities: Work with your advisor to create a balance sheet to determine your net worth (what you own minus what you owe).
- Analyze current income and annual spending: Identify sources of income, including salary, investment income and dividends, annuities, trust distributions, Social Security, retirement plans and IRA distributions:
- Determine fixed versus discretionary expenses.
- Assess special budget items such as tuitions, medical expenses, children with special needs or assistance to family members.
- Evaluate annual spending and develop a budget.
Establish a property settlement
- Complete Glenmede’s Guide for My Family and Advisors.3
- Notify insurance companies and financial institutions to change joint-account titling and open new accounts in your name.
- Partner with your advisors to develop future lifestyle goals, such as spending needs, charitable goals and multigenerational planning.
- Review your estate planning documents with your advisors and your attorney, including your will, trust agreements, power of attorney and healthcare directives.
- Revisit and update beneficiary designations for life insurance policies and retirement plans.
- Review your current and future tax planning with your Glenmede team and accountant, including income tax and gift tax.
- Consider retaining your own accountant if you do not already have one.
- Work with your Glenmede Relationship Manager to establish an investment plan and discuss time horizon, risk and liquidity needs.
A divorce is a life-changing event. Your Glenmede team will work with you through this life transition, helping you to regain a sense of stability and confidence for now and in the future. If you want to learn more about navigating life transitions, please contact your Relationship Manager.
1Excerpt from “Sharma, M. A., and S. Templeton. “The Fiduciary Responsibilities of Your Investment Advisor During Divorce.” Divorce Mag.com. https://www. divorcemag.com/articles/the-fiduciary-responsibilities-of-your-investment-advisor-during-divorce (updated July 6, 2020).
2Under the law, an “investment adviser” is a fiduciary. Other financial advisors – who are not investment advisers – are not necessarily fiduciaries.
3Please contact your Glenmede Relationship Manager for a copy of the guide.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information obtained from third-party sources is assumed reliable but is not verified. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.