Financial planning during and after a divorce can be overwhelming. Financial resources that had supported one household now must support two. Having a clear picture of your income, expenses (including taxes), and assets post-divorce is crucial. Understanding your cash flow now and into the future can play an important role in creating financial peace of mind for your life post-divorce.
Income and Assets After Divorce
After a divorce, each spouse’s financial resources will generally be reduced due to division of assets, spousal and/or child support and potential changes in expenses. Our divorce division team can help you to develop a spending and savings plan for your lifestyle post-divorce. Additionally, we can help you to evaluate various asset division and support options and their implications for your long-term financial future. Layering in your income from various sources (salary, Social Security, pensions, required minimum distributions, rental income) and expense estimates (including taxes, house purchases, or other significant expenses), we can create long-term cash flow and retirement projections to project approximately how long your assets will last.
We use retirement projections to look at your long-term goals and viability. Our team can determine the impact of transactions on your financial plan by running stress testing in order to give clarity on the amount of assets needed to achieve your goals. The projections may also highlight any lifestyle changes that are needed in order to improve your retirement readiness. The combined effect of these steps can help create peace of mind when analyzing different divorce options to ensure that they are appropriate for your next chapter of life.
Note: Retirement projections take into account an estimate of your monthly and annual income and distributions based on normal life expectancy. If there is longevity in your family, that may be taken into consideration when tailoring projections to your individual circumstances. By focusing on factors within your control, namely saving more or trimming expenses, we can evaluate actions needed to improve your long-term financial outcomes. Additionally, we take into account the character of the various assets in your portfolio (i.e., taxable assets vs. tax-deferred retirement assets) in generating long-term retirement projections.
Taxes and Filing Status
Income taxes are a necessary part of retirement projections. When going through a divorce, tax projections may change due to a change in filing status as head of household or single rather than married filing separately or married filing jointly. They may also change due to a change in available deductions or a difference in the amount of income producing assets each spouse has, and their marginal tax brackets. These factors should be incorporated into decisions when dividing assets, especially regarding ownership and timing of the sale of a house or investments that have significant unrealized gains.
In our retirement projections, we account for tax liabilities in order to give our clients an informed view of their monthly after-tax cash flow that is available for spending needs.
Conclusion
Our team is available to assist you during the divorce process by helping you to 1) clarify your income, expenses, and budget and 2) evaluate various asset division and support options. By running cash flow and retirement projections tailored to the specifics of your financial situation, we can help give you peace of mind towards understanding how your resources post-divorce may support your lifestyle goals now and through your retirement years. We aim to assist you in identifying methods to enhance your sense of future security.
Don’t feel you have to go it alone. Contact CBM’s divorce financial planning team via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
