In a Collaborative Practice case, we often add a financial professional, usually a certified public accountant, to the team. Why? Because they add essential information to the agreement to help make it sustainable. Information that a FP can provide includes:
Budgeting: It is common in a marriage that one partner is in charge of the finances and other partner relies on him/her to manage the family's money and investments. The other partner may not know much about what the family spends or how to manage money. That partner may be terrified at the prospect of having to make their own payments and balance their own checkbook. That terror may impede getting the case settled. Answer: Have the less financially experienced partner learn how to budget his/her future household expenses and how to meet those obligations. Once they feel they can control this important aspect of their lives, you can get on with settling the case.
Spousal Support or Alimony: Usually one spouse wants to receive spousal support or alimony and the other either wants to resist paying it or keep the payments as low as possible for as short as possible. The tension between these two positions can be a serious impediment to finalizing the case. A couple of considerations can help. A) It already costs the paying spouse something each month to be married to the receiving spouse. For example, the receiving spouse may be spending $2,000 per month on food, clothes, living space, hobbies, etc. Being married to your spouse is not free. So, accepting that paying spousal support is another way of providing support to your spouse often makes the concept of having to pay it at all less difficult. B) Spousal support payments are taxable to the recipient and deductible to the payer. If you do end up paying $2,000 a month to your spouse in support, the actual after tax cost to you, depending on your income tax bracket, will be something less. C) You don't have to wait until you file income tax returns to get the tax benefit. You can increase your exemptions when you start paying support to realize some tax savings right away to help with the cost. (The money you are paying to support your spouse during your marriage is in after-tax dollars.) An accountant has the knowledge, skill and software to help you figure out what spousal support will REALLY cost you. She can also help figure out how to adjust your exemptions now, to avoid having to pay taxes when your return is due.
Exemptions for the children: Many parents do not understand the reason for assigning the children as exemptions to one parent or the other. Some think that it is related to the parent's claim for custody. Divorce provides the parents with an opportunity to minimize their tax obligation. A financial professional can help you figure out which parent will receive the greatest tax savings from assigning the children as exemptions. For example, if mom takes the exemptions, the tax savings may be $1,500 a year. If dad takes the children as exemptions, the tax saving may be $800.00 per year. It makes sense that mom should take the exemptions. This is purely a financial decision to keep your taxes as low as legally possible. There will be an adjustment for that savings to mom in the child support program.
Whether to file the next income tax return as a married couple or as single or head of household individuals: Divorce affords the couple an opportunity to minimize tax costs. The financial professional can determine whether it would be less expensive for the couple to file married, filing jointly for another year or whether it would be financially beneficial for them to be divorced at the end of the year. Especially for couples who are negotiating their settlements during the fourth quarter of the year, it's useful to consider what tax savings can be realized.
How to invest a property settlement. This can be very helpful for the non-financially savvy spouse. Often the fear of having enough money and making it last for a long time can keep that spouse from coming to the table ready to settle. A financial professional who can help that spouse figure out whether he/she will have enough money and that they can make it last, will facilitate settlement. Also, if there is not enough money, the financial professional may have some ideas about configuring the estate to help both parties live apart and meet their obligations.
Whether one party can afford to keep the house. This is often a very emotionally charged decision. The emotions often obliterate the real question; can you afford it? Working with a financial professional can often balance the emotions with the financial reality.
These are just some of the issues with which financial professionals can assist the divorcing couple. Making good use of financial professionals can save the couple time, money and help them fashion a lasting, comprehensive settlement.