Money in Motion | Top 5 Scenarios You’ll Encounter & How to Stay Ahead
In marriage and divorce, through life and death, your money is in motion. Making the right financial decisions can feel downright impossible when relationships and emotions come into play, but protecting your family and future is especially critical during these times.
Here are five moments when your family may set your money in motion and what to look out for when they do:
You probably already know that nearly 50% of all marriages in the U.S. end in divorce or separation, but did you know that arguing about finances every week increases the likelihood of divorce by 30%? Just like in a relationship, good communication is key to financial success. Working with a financial planner can help you to identify and communicate your shared and individual goals. From there, you and your partner can work together to reach those goals – even if you both don’t always see eye-to-eye on household spending habits.
Going through a divorce
If you do find yourself in that segment of roughly 50% of American marriages that break up, your primary financial goal is to stop your money from moving. You’ll want a good divorce lawyer to help you navigate this scenario, yes, but don’t forget your advisor. Financial advisors help their clients protect their money from unjust seizure, such as taxes or lawsuits. And many people consider losing half of their assets in a divorce “unjust,” too! Beyond keeping your money, your advisor can help navigate pension and retirement plan issues, calculate whether you or your ex-spouse can afford to keep the house, consider the effects of dividing property, and do the math on children’s education costs.
Starting a family
Having kids is expensive. According to the USDA, it costs more than $233,000 to raise a child through age 17 in the United States – and that was before our recent, record inflation. But there’s a lot more than changing cash flows to consider when starting a family. What new tax deductions will you qualify for? Do your current insurance plans fully protect everyone in the family? Do you have a plan to provide for your children if something happens to you (including life insurance, an updated will, and designated guardians)? And of course, when, and how will you save for college expenses? It’s best to speak with an advisor before your little one arrives – not just because it’s your responsibility to protect them, but because you’re about to be very, very busy for a very long time.
Paying for college
How much of your money will be in motion when your child leaves for college? Somewhere between $27,000 and $54,000 per year, depending on where they enroll. If you started saving for your child’s education at birth, you’re way ahead of the game. But college isn’t all about how you pay for it, it’s about how much you pay, too. Your financial advisor can help you maximize your child’s eligibility for financial aid, find schools that provide the best value for your student, and determine the most beneficial way to pay the bill. Since college financial aid is based on income in the prior prior year (ex. 2020 tax year for the 2022 school year), you’ll want to have this conversation well before the acceptance letters start arriving.
Receiving an inheritance
This money movement is one of the most emotionally fraught, and is more common than you might expect. Approximately 1 in 5 U.S. households will receive an inheritance in their lifetime. When that day comes, you may find there is friction in your family about how the money is used or you may worry about how best to honor your loved one’s legacy. With so much emotion involved, it’s essential to take your time before making any major decisions, and to consult with a trusted financial advisor. You may find sitting down with an advisor can help ease communication among family members and diffuse conflicts. You’ll also want to discuss the following: How can you reduce your tax liability? What is the best way to spend, invest, or donate the funds? How can you use this gift to meet your financial goals?
When else is your money in motion? Read “Your Money is in motion – don’t get left behind” for five of the most common scenarios you’ll encounter, and what to watch for in each.
This content is adapted from Don’t Run Out of Money in Retirement (Advantage/ForbesBooks), a new book by Allen Harris, which will be available in late summer, 2022.