3. USING YOUR BOSTON DIVORCE LAWYER AS YOUR FINANCIAL PLANNER (3rd in a Series)
While your Boston divorce attorney may be an expert in the LAW, don’t expect them to be an expert in TAXES, INSURANCE, CREDIT, or RETIREMENT.
And when you think about it, once you get beyond child custody issues mostly everything else in a divorce is all about money – how much, who gets what, how to split it up.
And each of the decisions embodied in your divorce agreement will have far-ranging impact on all aspects of your financial life for years to come.
It is easy to simply rely on your attorney but to properly protect your interests now and prepare you for the next stage of your life you really need expert guidance – the kind that can best be provided by professionals who are expert in their respective areas that will impact your future finances.
Though an experienced divorce attorney will know and have seen many things, there are nuances about your finances, taxes, future college funding or retirement that he is not prepared to help you answer. And in those nuances you’ll find a host of possible tax and financial pitfalls if not carefully considered.
Often when there are children involved everyone wants to do what’s best for them. But too often lawyers may not be aware of the risks they are putting their clients at by not properly drafting the agreement to name one parent as a primary custodial parent. Why? Because the IRS only allows the primary parent to take certain exemptions and credits. A fifty-fifty split on this issue is a tax audit hazard that can easily be avoided.
There are numerous other instances such as in dealing with net operating losses (NOL), tax loss carryforwards for capital losses, passive activity losses and S-Corp losses. These tax losses are a valuable marital asset that is often overlooked by busy attorneys or unsuspecting clients.
While health insurance is usually considered in a final agreement, often reference to any life insurance is left for the couple to implement after the divorce is final. By that time it may be too late to find out that a spouse is not insurable or the cost of the life insurance is prohibitive and too costly to maintain. And how much life insurance is enough? That is something that needs to be considered in light of future alimony, child support and college funding obligations but is something not regularly or easily calculated by a lawyer or an untrained staff.
And what about disability insurance? There is a much higher statistical likelihood for a disability to occur than a death during the prime working and parenting years.
How you manage your credit is as important as almost any other asset you have. Your credit score may determine the premium you pay for auto, life or homeowners insurance. It may also impact your ability to get the best lending rates for a car or home loan. While divorce attorneys typically include language that says that one party holds the other harmless for a particular debt, the credit card and loan companies don’t see it that way. And authorized users may be unfairly burdened by credit card debts that are not technically their responsibility.
If you have kids than, eventually you’ll have to deal with who and how someone will be paying for college. There are a number of options ranging from Education IRAs, Roth IRAs, 529 College Savings Plans and trusts that should be considered as savings vehicles. And the way the agreement is drafted may have an impact on qualifying for future financial aid. Often legal professionals are not aware of the nuances of these different programs or the important alternative tax and cash flow strategies that may be used to improve your family’s chances for financial aid through a lower Expected Family Contribution (EFC).
These are just some of the many issues that a divorcing couple in Boston and nationwide generally need to consider as part of their divorce financial plan.
For most attorneys, life the rest of us, it is a matter of not having enough time. It is also about not having the specific skill set or tools to help with the analysis. Most attorneys do not have specialized training in taxes. Most do not offer tax preparation services that may keep them up to speed on some of these issues. And most will not have the specialized software to help with any tax or financial projections. And at upwards of $400 per hour, paying them or their staff for financial data entry and analysis can quickly run up massive legal bills.
To help organize yourself, consider the tools available as part of your free Divorce Shield plan.