Aviva Pinto is a CDFA, CDS and Managing Director and Wealth Manager at Wealthspire Advisors.
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The headline on a recent New York Post article I saw read: “Newly divorced mom scammed of entire $100,000 401k savings in Tinder ‘pig butchering’ scheme.”
Divorce is a very emotional time in clients’ lives and when they are at their most vulnerable. Scammers know this and target those who are recently divorced. Online romance can lead to real relationships, but as the saying goes, “If it looks (or sounds) too good to be true, it probably is.”
However, if you’re going through a divorce, scammers are not the only ones who can take advantage of you. Unfortunately, divorces are not always amicable. One or both parties can be bitter about the demise of the relationship, and in my experience, the No. 1 area where spouses exact revenge is money.
There are pitfalls you can avoid by being astute and watching out for “tricks.”
When trading ‘equally’ valued assets, make sure they’re actually equal.
I have been involved with cases where one spouse will want to keep the house at all costs so the children can stay in the family home. The other spouse can use this to their advantage.
In one case, the house had a market value of $2 million that had been verified by appraisers and recent sales of comparable homes in the area. One spouse told the other that they could keep the house. Meanwhile, the first spouse would keep the $2 million investment portfolio.
It sounded like a fair deal (assuming the spouse keeping the house could afford the maintenance and taxes). However, there was a $1 million mortgage on the home that the spouse keeping the house was unaware of. The true value of the home, when taking into account the mortgage, was therefore $1 million and not $2 million.
Understanding your financial situation is important so that you are not tricked into taking less than you are entitled to. As a certified divorce financial analyst, I work with divorcing clients so that they can understand what assets they own, what the assets’ value is, what they are entitled to and the best way to split the assets.
In another case, the spouses were going to split the investment portfolio. One spouse would get the cash and cash equivalent assets while the other would keep the same amount in stocks and bonds. The issue with this arrangement is the stocks had highly appreciated. The spouse keeping the stocks had little liquidity and no other income. To pay bills, they would have had to sell off part of the portfolio and thus realize capital gains that would be taxable.
Obtain up-to-date valuations.
Be cautious about valuations. If your spouse owns a business that is a marital asset, make sure you get several up-to-date business valuations before agreeing to a split. Likewise, if you are staying in the marital home, get appraisals to determine the true value and make sure you understand what is left on the outstanding mortgage.
Calculate retirement assets carefully.
I was involved in a case where one spouse had worked for many years before the marriage. Although this second marriage lasted over 15 years, there were assets from the 401(k) that were clearly not marital assets. The spouse tried to claim all the appreciation as separate property. We needed to determine the value of the 401(k) plan since the commencement of the marriage and the appreciation of those assets and deduct the assets and appreciation that were earned before the marriage.
This kind of situation is not easy and straightforward, and professionals should be involved to help you determine what is fair and equitable.
Don’t forget to consider debt.
When couples divorce, all debt that was accumulated during the marriage is equally divided. In one case, a client was unaware their spouse had multiple joint credit cards that had very large outstanding debt balances.
If an ex-spouse files for bankruptcy, regardless of what the divorce decree says, lenders can still come after you for the total amount of the joint debt, plus interest and penalties. It is very important to do a thorough review of all debt through a credit check. This will guard you against being left with paying the debt and having your credit ruined for a long time.
Know where you can turn for help.
Because divorce is complicated and fraught with emotion, make sure you arm yourself with allies who can assist. Talk with your matrimonial attorney, accountant, investment advisor, close friends and family before agreeing to your divorce settlement. If you do not have someone to confide in, you can find a CDFA who can work with you by going to the Institute for Divorce Financial Analysts’ website.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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