Don't Let Divorce Lead to Financial Turmoil

If you are going through a divorce, you know that it's difficult for everyone involved. However, by making the right moves, you and your spouse can at least avoid crippling your respective financial futures. It won't be easy - but it's worth the effort.

What steps should you take to make the best of your situation? Consider the following:

• Share all financial information - For starters, make sure both of you know where you stand, as far as your finances. If one person in a marriage has pretty much handled all the money and investment decisions, the other one needs to take a "crash course" to catch up. List all your investments - stocks, bonds, mutual funds, etc. - and determine who is listed as the owner. Also, go over all your debts, such as your mortgage, car payment and credit cards; here, too, you will need to know if one or both of you are listed as the responsible party. Keep in mind that, at this point, you are not trying to "split up" assets or debts; you just need to know what's out there as a basis for later actions.
• Establish new investment strategy - You and your spouse may have had different investment styles. For example, one of you may be an aggressive investor, willing to take greater risks in the hope of higher returns, while the other is more conservative, accepting lower returns in favor of preserving principal. While you were married, you may have reached some "common ground" in terms of your overall investment strategy, but now that you are going to be single, you'll need to base investment decisions on your own risk tolerance, long-term goals and time horizon. To build your own investment portfolio, you may want to work with a financial professional - someone who knows your needs and goals.
• Don't overlook " joint objectives" - Just because you are getting a divorce, you don't have to abandon all the joint objectives you held with your spouse. If you have children, and you both want to help them pay for college, you'll want to work together to contribute to the best college-savings strategies and vehicles, such as tax-advantaged Section 529 plans.
• Evaluate your insurance - Once you are divorced, you may lose some of the forms of protection you had while you were married. Consequently, you may need to consider adding, or expanding, your life and disability insurance. Also, once you reach your 50s, you might want to take a close look at long-term care insurance. You may never need to spend time in a nursing home, but, if you did, the costs would be enormous - and, if you're on your own, the expenses will loom even larger. A long-term care policy can help protect your financial independence - and the younger you are when you buy a policy, the less expensive the premiums will be.
• Update estate planning documents - If you have already drawn up a will, living trust or other legal documents related to your estate, you will definitely need to revise them. Since some of these arrangements - particularly personal trusts - can be complex, you will need to work with your legal and tax advisors.
• Change your beneficiaries - Review the beneficiary designations on all of your financial papers, including insurance policies, retirement plans and annuities. Many people forget to change their beneficiaries when they divorce; if they eventually remarry, they will leave earlier spouses in a position to receive assets, at the expense of new spouses.

Be patient...

It can take a great deal of time to settle the financial matters related to a divorce and embark on one's own long-term investment strategy. But if you can work amicably with your spouse, and you're patient, you can achieve good outcomes down the road.



Piper Jaffray & Co., Member SIPC and NYSE.