When a couple is in love and living a blissful life, they don’t often pay attention to post-divorce financial planning or estate planning together. Many couples think that talking about finances and the stake of each of them in the joint finances or estate is unromantic and they don’t discuss it much. This approach is not correct. Every couple must ensure that they have their finances in the right order and both have knowledge of family finances in case their marriage falls apart in the future.
Survey on Post-Divorce Financial Planning
New Personal Financial Planning (PFP) Trends Survey of CPA financial planners conducted by the AICPA has recently highlighted that 75.6 percent or three in four retirement age divorcees need to develop a better understanding of how to manage their personal finances. The people who are wondering why good financial planning education is needed for people nearing retirement should note that the divorce rate for Americans who have crossed the age mark of 50 has doubled since the year 1990.
Divorce Deteriorates Spending Habits of Older Couples
The survey has also unveiled the fact that when an elderly couple go through a divorce, 25.7 percent of women and 24.9 percent of men go through a stage where their spending habits deteriorate. This is the only common thing between the sexes because there is a huge difference in how men and women approach their finances when they are preparing for retirement or handling their finances post-divorce.
CPA Financial Planners say Women Adopt Positive Financial Behavior Post Divorce
Several CPA financial planners have stated that women are more likely to adopt positive financial behaviors post-divorce as compared to the male clients. Around 40. 2 percent women even sought a job while just 20.6 percent men did the same.
Women Stress on Increasing Retirement Savings Post Divorce
About 41.3 percent of women worked towards increasing the retirement savings post a divorce while only 16.4 percent of men made the retirement secure. Around 42.3 percent women improved their spending habits as compared to 11.7 percent of men. Women were also seen seeking financial advice post a divorce. Around 60.4 percent women went for it while just 4.4 percent men did the same.
Tracy Stewart, CPA/PFS who serves as the member of the AICPA’s Personal Financial Planning Executive Committee has stated that when couples get divorced later in life, they realize that there was only one partner who kept a hold on all finances and did all the bad or good financial planning. In the Boomer age couples, the responsibility is handled by males.
Such a scenario leads to one person having exact information on everything related to the finances, including the retirement savings while the other has bare minimum information. Stewart says that it is vital for couples who get divorced later in life to take a long view when making financial decisions and dividing the assets.
Points to Remember
In the survey, the financial planners were asked what steps the couples nearing retirement should take so that they can be financially secure post a divorce and have a steady retirement income. About 75.6 percent of the financial planners advised that people should understand how to manage their personal finances. About 73 percent urged that each couple should understand the long-term consequences of any divorce settlement while 56.9 stressed on understanding the tax implications of any divorce settlement.
Key Elements of a Financial Plan
Stewart says that when happily married couples make a financial decision, they rarely consider what will happen to their good financial planning efforts of the present in case they went for a divorce in the future. The sad truth is that the process of dividing assets is very complex as compared to saving or investing. The good thing is that CPS planners have a strong understanding of tax planning and they can often ensure that the divorce is settled in a tax-efficient manner.
Stewart also stated that divorce is a complex financial event that often involves calculating child support or spousal support, understanding pensions & investments and deciding what to do with the house a couple shared. In order to do good financial planning, both parties should understand what they have.
Approximately 51.2 percent of CPA financial planners think that people should regularly update their wills or trusts if they want to do financially well post a divorce. Around 50.7 percent CPA planners think that increasing saving for retirement is crucial while 42.8 percent thought that decreasing the spending is vital. About 36.1 percent also cited that establishing a pre-nuptial agreement is a good step in preparing the clients financially for a divorce.
Open Communication on Finances
Stewart also suggests that couples should hold open and regular communications about good financial planning, estate planning, retirement savings and all other aspects of their financial life so that they can get on the same page about their approach to spending and saving.