February 14, 2025

Divorce Basics

Posted

Written by Lars Lambrecht, CFP, CLU, BFA, AMPA, CDFA, CLTC, CSLP, owner of Island Time Financial Services, Inc.

The article covers some divorce basics.  Please note I am not an attorney and strongly advise all clients to have legal counsel.

If your divorce is amiable, mediation is typically the least expensive route.  One downside is that a mediator’s role is unbiased, which means they are not acting or focused on what is in your personal best interest.  Mediators often will not provide legal advice or specific direction.  Because of this, it is generally recommended that each spouse also retain their own legal counsel.  This can be done on a limited basis to keep costs down.  For example, your attorney’s role may be limited to reviewing a draft settlement agreement.

Asset/Debt Division.  You will need to decide how you will split your assets and debts.  Massachusetts is an equitable law state, which means your divorce has to be equitable.  Equitable is not the same thing as equal.  Generally, you both walk away with roughly the same value.  Determining the specifics can be overwhelming.  For example, will you sell your house or will one of you keep it?  If you keep it, how will the other spouse be compensated for their share of the equity?  It is common for one spouse to have more money in retirement and investment accounts.  There are processes to transfer retirement money from one spouse to the other in divorce.  One common vehicle is a Qualified Domestic Relations Order (QDRO).  QDROs are legal documents, so there is added time and money to utilize them.  One benefit of a QDRO is the receiving spouse can pull money out of the QDRO without having to pay a 10% penalty that typically applies if you access funds before the age of 59 ½. 

Support Payments.  One spouse is often ordered to make child support and/or alimony support payments to the other.  In Massachusetts, child support is typically paid until the child graduates college.  It also can end once your child graduates high school, provided they are working full time.  In contrast, alimony is paid for a period of time based on the length of your marriage.  Recent legislation requires a Cavanagh calculation looking at both child support and alimony.

Parenting Plan.  If you have minor children, a parenting plan will be a major part of your divorce agreement.  Parent coaches can assist.  A good parenting plan includes which parent has primary physical custody, parent time with children, holidays, decisions on summer camps, how large expenses are split and much more.

Other areas.  There are several miscellaneous areas also addressed in most divorces such as health insurance and how much life insurance each spouse must maintain.  One critical area is who will receive tax benefits if children are involved.  Tax planning is critical as it can save thousands of dollars in taxes each year.  In most cases, the benefits are split.  For example, if you have two children, each spouse receives tax benefits for one child.  Or, if there is one child, you take turns each year receiving tax benefits. 

Why work with a CDFA?  A lawyer is obviously a critical party to assist with the legal implications of decisions and options.  An equally important party is your Certified Divorce Financial Advisor (CDFA).  Your CDFA should be comfortable with laws and rules but does not provide legal advice.  His/her expertise is to help you make financial decisions, including the pros and cons of each option and tax implications.  CDFAs should also have software to assist in calculating support payments, including Cavanaugh calculations.  Having a CDFA on your team generally lowers your legal fees, as your CDFA can typically produce court financial statements for you at a significantly lower cost than your attorney.  Lastly, CDFAs should have special software to value pensions if you have one.

Lars Lambrecht, Rehoboth resident and Certified Financial Planner, is available to answer questions or meet for a consultation.  617-947-6428

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