FINANCIAL ISSUES CONCERNING CHILDREN AND DIVORCE
1.One of the biggest issues we as financial planners specializing in divorce face is what I refer to as “guilt spending for the child”.
(I will provide examples of guilt spending from both the custodial and non custodial parent and what financial problems can result.)
Too often parents (and this is not limited to just divorcing parents) sacrifice their own retirement savings for their kids-not just for college, but for cars/car insurance, vacations, etc…they want to help their kids so much they neglect their own financial well-being. Possible result is the kids end up having to financially support their parent because of their sacrifice-many times which is guilt driven.
Solution: hire a financial advisor who will show you the consequences of providing varying degrees of financial support to your kids.
(We recommend “backing into” an amount you can give to your kids AFTER securing your own retirement is properly funded.)
Kids are more resilient than you think-do what you can-any shortage?-they can work/student loans/go to a less costly school.
Out of the 5 top financial decisions to address after a divorce, 2 deal directly with children: child support and their education. Improper planning in these 2 areas directly affect all 5.
- inventory assets/liabilities-make a budget
- develop investment strategy based on your risk tolerance.
- plan for child’s education
- plan for your retirement
- family support=combination of alimony and child support.
2.Securing Child Support Payments-making sure that life insurance (and disability insurance!) is used to guarantee payments. While more settlements do include insurance, we often find that the owner of the life insurance is the paying spouse-NO GOOD!!!
(I will provide examples of why the owner of this type of life insurance must be the custodial parent.)
the owner of the life insurance controls the policy and therefore the beneficiary and making sure the policy stays in force. The most ideal is to have the custodial parent own the policy-they control!
We have also seen too many examples of inadequate face amounts on the life insurance. Present value calculations need to be done to ensure that all child support are guaranteed, should the parent responsible for such payments pass away.
3.Unexpected Cash Needs for Children-How Best to Get $$$!!
(I will provide examples of how to access cash in emergency situations)
- tap into home equity- est. line of credit. –accessible/deductible.
- Borrow-friends/family/bank
- Retirement plans-10% penalty is waived -