Financial Planning for Divorce: Making the Most of a Bad Situation
Their marriage may be over, but before parting ways, divorcing couples should take steps to ensure their finances do not meet a similar fate.
The decisions people make during the divorce process will have major and lifelong financial implications for each spouse and their children. It is vital that couples start thinking through those decisions early in the process, said Wendy W. Spencer, a Certified Divorce Financial Analyst (CDFA) and family law mediator who runs Spencer Capital Strategies in Arvada, Colo. Divorcing couples “need to get real about their financial situation, to think through the details and the what-ifs,” she explains.
With so much at stake, and given the complexities that come into play in many divorces, consulting a financial adviser who specializes in divorce issues can help avert some of the financial hardship and hard feelings that often accompany the dissolution of a marriage. To find one, search the Financial Planning Association’s national database at
www.FPAnet.org/PlannerSearch/PlannerSearch.aspx. Additionally, you may want to have your financial planner who is an expert on divorce matters work collaboratively with your family law attorney and/or tax professionals. To learn more important steps to take during the divorce process visit www.FPAnet.org/LifeCrisis/GettingaDivorce/.
With or without a specialist’s help, here are a few of the planning steps that experts such as Spencer recommend divorcing couples take:
Develop a spending or cash-flow plan. Each spouse needs to establish a plan for handling their finances once the divorce is final with full appreciation of the “new normal”.
Compile a complete financial picture including all assets and liabilities on the couple’s balance sheet. Include real estate holdings, insurance policies, stock, bank accounts and retirement portfolios. When analyzing assets keep in mind some assets such as real estate have significant expenses and do not produce income. “This way you can make smart judgments about how to divide things,” said Spencer. “The court is going to require you to gather all your financial information anyway.”
Be flexible and ready to make financial trade-offs: Such as child support or spousal support, to dissolve the family business or keep it, and to keep or sell the house. Additionally, a couple must decide how to divide the debt burden. Handling of issues like these will have a major financial impact both short term and long term which is one more reason to enlist the help of a specialist.
Weigh the tax ramifications of divorce-related decisions. This is one area where a specialist can really help. From how spousal support and child support payments are treated to how retirement plans are divided and beyond, said Spencer, “the tax code is full of weird little nuances that create big problems if they are not handled the right way.”
refinance the mortgage? What if one of us loses our job or must file for bankruptcy? Be sure the divorce settlement agreement accounts for those kinds of uncertainties with “If…then…” steps. BOILER PLATE
August 2011 — This column is provided by the Financial Planning Association® (FPA®) of ___________, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of ___________ if you use this column in whole or in part.
The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.
Get Out of the Red: Six Steps to Cut Debt
Debt, the amount a person or entity owes to a creditor for funds borrowed. This is not just a problem for the U.S Government; it is a four-letter word in many American households. As of 2010, consumer debt in the United States approached $2.4 trillion, excluding real estate holdings. For consumers who are not careful, a useful money-management tool when handled responsibility may turn into a monster capable of wreaking havoc on individuals when abused. Debt issues “can limit your options and impact your life in a lot of negative ways,” from buying a home to getting a new job, said financial planner H. Jude Boudreaux of Upperline Financial Planning in New Orleans, La.
Thankfully, consumers do not need to wait around for politicians in Washington, D.C., to solve Uncle Sam’s debt issues to start addressing their own situation. In many instances, reducing the cumulative burden of credit card balances, home mortgages, loans and the like boils down to a few straightforward steps:
1. Give yourself a reason to say “no” a carrot to confront your debt situation. Promise yourself that if you reduce your debt burden by a certain amount or percentage, something good will happen: taking a vacation, quitting a second job, or buying something you have wanted for a while.
2. Get a clear picture of what you owe, the interest rate each creditor is charging and how you are spending your money.
3. Plan, prioritize, and be patient. Some people prefer to start paying off their largest or highest-interest-rate debts first. Others might opt to start by paying off smaller debts in their entirety, while chipping away at the larger, more imposing ones. Regardless of how you approach it, you need a debt reduction plan, and patience, said Boudreaux. “It takes real, focused attention to get out of debt and it takes time to make progress.”
4. Be resourceful. Consult with a financial adviser specializing in budgeting and debt. The Financial Planning Association’s national adviser database
www.FPAnet.org/PlannerSearch/PlannerSearch.aspxcan point you in the direction of one. Or use free counseling resources such as the National Foundation for Credit Counseling
www.nfcc.org. Also look into debt support groups locally and online. The website
www.iVillage.com has an online debt support community, for example, while organizations such as Debtors Anonymous www.debtorsanonymous.org sponsor local meetings around the U.S. 5. Track spending habits, tighten the screws where necessary. Rather than leaving excess funds in your checking account, use it to pay down debt. Give yourself a weekly or monthly stipend to function as a spending ceiling. For help tracking spending, check out FREE systems and software from organizations such as www.mint.com. Or invest in systems such as First Step Cash Management www.firststepcashmanagement.com.
charge plenty along the way. In addition, be aware of debt consolidation loans, which “relieve you of a burden without necessarily changing your behavior,” according to Boudreaux. Steps like these already appear to be helping Americans make progress against debt.
According to the credit rating agency Equifax, consumer debt has shrunk to 8.2%, between Oct. 2008 and July 2011.
BOILER PLATE
August 2011 — This column is provided by the Financial Planning Association® (FPA®) of ___________, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of ___________ if you use this column in whole or in part.
The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.
Money Savings Tips for College Students On a Shoestring Budget
Some see college as a step removed from the “real world.” But the many college students find themselves surviving on a shoestring budget know better. For them, saving money is not just a real-world concern; it is a matter of necessity.
With school getting underway again soon, here are some timely tips to help undergrads cash in on money-saving opportunities, courtesy of the Financial Planning Association
(www.FPAnet.org), the nation’s largest organization of personal financial planning experts: To Save on Tuition Expenses: Grants and scholarships offered by public and private sources can take a big bite out a student’s tuition tab. Find scholarship info via the U.S. Department of Education’s website at www.studentaid2.ed.gov/getmoney/scholarship. To find out what’s available in your home state, check with the state education office. Visit
www.wdcrobcolp01.ed.gov/Programs/EROD/ for a directory of those offices.
Additionally, contact the financial aid office at the school you are attending; many have their own grant/scholarship programs, notes Craig Rinas, a financial planner and senior director of
development and gift planning at Southwestern Assemblies of God University in Waxahachie, Texas. “It’s always worth asking, because sometimes you may be the only one who applies.” Students who work should also ask their employer about tuition assistance for employees. To Save on “Leisure” Expenses, Without Sacrificing your Social Life: Search for deals on sites such as Groupon, Living Social, entertainment.com, halfoffdeals.com and restaurant.com. Before you head out check the Facebook page for your destination to see if any deals are posted. Businesses in college towns often provide student discounts, adds Rinas. Ask the student affairs office at your school if they compile a list of those businesses.
To Save on Food Expenses: First, avoid eating out. When you do, check out the
aforementioned websites for deals. If you are prone to late-night snacking, eat what is in the fridge instead of ordering a pizza. For students who are not on the school meal plan, get a discount card for a local grocery store and buy items on sale. The savings it provides can add up fast.
To Save on Transportation Expenses: Instead of keeping a car, consider relying on your feet, a bike, friends and/or public transportation. For some students, a car is necessary to get to and from school and a job. But in many instances, undergrads can get where they need to go without their own vehicle. Going without a car means no fuel costs, insurance and maintenance costs. Check with the local transit agency about special student passes for the public
transportation.
If you do keep a car, be sure to call your auto insurance provider. “If you’re driving fewer miles at school and you are keeping the car in a safer area, you may qualify for a lower rate,” said Rinas.
To Save Yourself Credit Hassles: Students who have a credit card should use it wisely and sparingly, cautions Rinas. “What I try to hammer home is that having a credit card is a double-edged sword. It’s good to have one for emergencies and to build credit score. But if you misuse it, it can wreck your credit faster than anything.”
BOILER PLATE
August 2011 — This column is provided by the Financial Planning Association® (FPA®) of ___________, the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of ___________ if you use this column in whole or in part.
The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.