Your Life Simplified

Splitting Equitably: The Financial Considerations of Divorce (24:15)

August 6, 2019

Divorce can be a very difficult time, and with emotions running high, it can be beneficial to have someone advocating for you when it comes time to look at how to split your finances. We invited Megan Brozowski, of Mariner, to discuss how having an advisor, and specifically a Certified Divorce Financial Analyst®, can alleviate the burden of making those decisions on your own, as well as running the numbers to know what you need to continue living your lifestyle.


Brian: Thank you for downloading another episode of Your Life, Simplified. My name is Brian Leitner, and I’ll be the host of this episode. At Mariner, we serve as advocates for clients, helping clients through the best of times, like helping with a strategy for paying for their kids’ school, providing them with a retirement plan, tax strategies and things of that nature.

On the other end of the spectrum, we also help clients and support them through perhaps some of the most challenging times in their lives. Divorce may be one of these challenging times. For many, it is a very unpleasant experience. But, working with the right wealth advisor can make all the difference.

An advisor who understands emotionally what that individual is going through, as well as the financial implications of doing so. Our guest today is Megan Brozowski, a senior wealth advisor with Mariner. She’s carved out a specialized practice in this area, helping individuals navigate divorce. Megan is a certified financial planner and she also has a designation that is called a certified divorce financial analyst designation, which makes her uniquely qualified to speak on this topic. So Megan, thanks again for coming onto the show today.

Megan: Thanks so much for having me, Brian.

Brian: Megan, can you take maybe a minute or two and discuss with us your background and your focus as it relates to divorce within your client base?

Megan: Sure. I’d be more than happy to. I’ve been doing financial planning for almost 20 years and while I was studying to get my certified financial planner designation, my mother and father were going through a divorce. So during that time, I was learning all about the CFP and said, you know what, my mom, who does not have much of a financial background, is really stuck right now, and I want to help her through this budgeting process, help her kind of get through this. Then I found out that there was a designation, the CDFA. So, I decided that, once I passed the CFP a couple of years later, I also got the CDFA.

Brian: Megan, it sounds like you got this designation based on personal experience and what you saw your mom and dad going through during a divorce process. I think that’s probably one of the ways in which we learn best. And obviously that’s why you have a passion for it.

Megan: You’re right Brian. Having lived through a divorce with my own family and seeing that there is a light at the end of the tunnel. My parents are both happily remarried, and you know, it did take them a couple of years to go through this. But, it helps me to relate to other clients who are in that beginning point and don’t even know where to start, where to go, or where they’re going to end up.

Brian: I’m sure that there are a good handful of individuals who are listening to this podcast now who have never heard of this certified divorce financial analyst designation. And I think a lot of us think about, you know, attorneys, divorce attorneys because this is what they specialize in, of course. Can you discuss maybe some of the differences and when somebody might want to be involved with a certified divorce financial analyst and how that maybe complements the relationship with an attorney?

Megan: Sure. It is a growing designation in the United States and Canada. There are over 5,000 individuals who have this designation. So, you know, more people are hearing about it. But when going through the divorce process, there is a lot of financial planning. But, it’s working with an attorney to understand what alimony is, how a client needs to fill out their information statement. And then once those numbers are there, we help, or I help, them to plan for what things are going to look like, not just next year, but five, 10, 15, 20, 30 years down the road. After everyone’s divorced and all the assets have been split to see what, financially, they are going to look like on their own.

Brian: Megan, obviously when people get divorced, there is a lot going on, whether it’s the emotional aspect of it, the financial aspect of it, but you bring up a great point. I mean the attorney is qualified to do what they do from the legal perspective, but a lot of this relates to finances. And if they were a couple and maybe they were both working, maybe one wasn’t working, now that they’re splitting, I would imagine the financial aspect of what happens next is huge.

Megan: You’re right Brian. And it all depends on who is initiating the divorce. I rarely see where both people decide, “Okay, it’s time to go our separate ways.” Usually one isn’t aware of the situation. So that person who has been told, “I’m leaving you,” really is in a much greater emotional state of mind. And then once he or she says, “Oh my goodness, my spouse is leaving me,” then all of this paperwork needs to be filled out. And figuring out your budget and a lot of the legal work and someone feels pretty lost. So, there’s a lot of handholding and really just listening to someone who is, at that point, blindsided by this.

Then saying, “Okay, I know you are stuck where you are now but let me help you transition at least the financial piece of when you and your husband or wife are split, this is what it’s going to look like when you are on your own.” And it takes them a while to grasp that, because they’re so used to being married to someone and there’s the emotional aspect of now being on your own. Then the financial piece of, “Oh my goodness, am I going to be okay? Can I afford to get divorced?” So, there’s a lot of emotion that goes through it but helping them to at least see the numbers piece.

As I say, the numbers don’t lie. It’s okay if you spend this, and you want to stay in your house, you may need to go back and get a job or, if you do want to stay in the house, you may need to cut your living expenses by $10,000 a year. And I think helping clients to at least start to understand the financial aspect of it helps them also with the emotional piece of, “This is what’s going on, this is what I want to do.” And I try to help them figure out what it’s going to look like, at least financially, at the end of the day.

Brian: You bring up a lot of great points. One of them is that, for one of the spouses, this is going to be a complete surprise to that individual, or it could be a complete surprise. That person is overwhelmed from a variety of different perspectives on what to do next. And when I think about what you do and how you come into play, what does a typical engagement look like? Because I would imagine you can’t work with both the spouses in this case. So, you’re generally working with one of those individuals. Can you talk a little bit about what that looks like?

Megan: Sure. You know, there are all kinds of flavors of divorce situations. I have worked with a husband and wife who were going through mediation, and they just wanted me to help them to split their assets in the most tax efficient way. They were already at the point of, “Okay, we’re getting divorced. We don’t want to drag this out. How do we split our assets?” And then on the flip side, I worked with a woman who was blindsided by her husband. He owned a business. She really knew nothing about finances. He used to just give her cash every week. I mean, it was really helping her learn from step one and helping her to understand her budget, can she afford to stay in the house? And the big question of, as her husband sells his business, should she get a piece of that?

And Brian, what was really interesting with that situation was that I had done probably six to eight months of background work saying, “If you’re spending $20,000 a month, and you get this amount of money, you’ll be okay.” And I was in the attorney’s office. The husband and wife were mediating. I was with a wife from one office. The husband was in the other office. The mediator was coming back and forth and saying, “If I give you wife $10 million today, is that going work for you?” And I was using planning software to run the numbers as we were going back and forth negotiating.

They come in all shapes and sizes for what the divorce situation is, but really it’s to understand where they are at that point and where they want to be. And even if they can’t see what’s going to happen next week, yes I understand that, but we really need to look at what things are going to look like post-divorce.

Brian: Do you think when you go through this process, I mean, you obviously were simplifying it saying this person could have $10 million, is that going to be good enough? There’s a lot of different ramifications as it relates to assets that folks have when they go through a divorce and how you split assets. If you had an IRA or a 401(k), that may be all pre-tax money versus something that is an asset that’s already been taxed. I mean there could be substantial differences there. So, making sure that they have someone like you to walk them through that process and make sure that it actually is going to be divided accordingly with that in mind from an after-tax basis. Right?

Megan: Yes, that’s correct. I had one of my worst divorce situations where someone was referred to me after she had signed on the dotted line and in the divorce agreement it had said to split each account 50/50, but it didn’t specify the positions, it just said the dollar amount. So, when I met with the wife after she had been divorced, her assets had been split. I looked at what she had received, and she received the low cost basis positions while her ex-husband took all the high cost basis positions. So, I had to tell her, and she was 100% in equities, which was not her risk tolerance at all. But we had to go through the education process of, if you do want to take some risk off the table, there is going to be some tax involved and here is the potential tax bill you may have to pay in April. That was probably one of the worst situations where I thought, I wish I would’ve been there earlier so she would not have had to of gone through that.

Brian: Yeah. Leaving her with all those gains to pay. Can we talk about maybe a different asset at the risk of getting too technical? How would 401(k)s work if you were going through that divorce process and maybe they both have 401(k)s or 403(b)s? Or, maybe just one of the spouses does. How does the splitting of that asset work, because you have issues as it relates to, we’re not 59 ½ yet. Is there a penalty tax? Those sorts of things.

Megan: Yes. So as part of the divorce process, after it’s decided that the husband needs to split his 401(k) 50/50, the attorney will then file a qualified domestic relations order or what is known as a QDRO, which is a form that tells the plan administrator, we need to split out the 401(k) 50/50. And then once that’s done, her portion will be rolled into an IRA that will avoid a 10% penalty or any possible ordinary income that may be due. Or, if she did take that 401(k) amount and put it in her checking account. So, it allows for a rollover to an IRA so it can continue to be in a tax-deferred account.

Brian: Thanks Megan. Appreciate that detail. You know, I guess not every asset is created equal, especially as it relates to divorce and splitting of assets. It’s great that there is this strategy that’s in place that’s employed by attorneys. It’s also really important that you’re working with the right attorney. We had a conversation a couple of weeks ago where we talked a little bit about how it’s almost like having the right tool for the job. Well, there are a lot of different attorneys that practice and a lot of different areas, so there are some intricacies as it relates to some of these strategies. Working with someone who specializes in divorce, if they are going through that process, can make all the difference in the world.

Brian: Thanks again for downloading this episode of Your Life, Simplified, which is produced by Mariner. At Mariner, we’re here to serve as your advocate. We help people chart a course to reach their personal and financial goals so that they may have greater peace of mind and that may lead a more fulfilling life. We do this by always putting our clients first. As you listen to this podcast and have questions about maybe your own financial situation, or you’d simply like a second opinion, or even you have an idea for a future podcast, please go ahead and email us at [email protected]. If you found the information on this podcast valuable, please go ahead and share it with a friend or family member who you think might benefit from this information. And please don’t forget to subscribe to this podcast so you don’t miss an episode. Thanks for listening, and now back to the episode.

Brian: Outside of splitting the assets, something else that generally comes up would be Social Security. Can you talk a little bit about what happens, as it relates to divorce, with people’s Social Security?

Megan: Sure. So what happens with Social Security as someone goes through the divorce process, as long as someone has been married to that person for 10 years, the wife or husband is able to qualify on their ex-spouses Social Security benefits. So, let’s use an example of the husband has, you know, worked his whole life. They decided to get divorced in their mid-50s. She does not have much of a Social Security benefit. But they were married for over 10 years, so she’s able to qualify for Social Security. She can claim half of his benefits still, so that does not go away. Even if her ex-husband remarries, she can still claim the benefit. So potentially, he may have two to spouses claiming his Social Security benefit. So one thing that most wives are always concerned with is, “I stayed home with the kids. I don’t have much of a Social Security benefit. I fear I’m going to lose that.” And that’s not true. As long as they’ve been married for 10 years, they can still qualify on their other ex-spouses benefit.

Brian: In that example, the spouse did not remarry, so he or she collected on the ex’s benefit. But, if that individual did remarry, does that change things?

Megan: Yes. If the ex-wife was claiming her ex-spouse’s benefit but remarries, she would lose her ex-spouse’s benefit and go to her new spouse’s benefit. So she would lose that.

Brian: Okay. That’s interesting. Thank you. Megan this detail is terrific. I know that there are certain people who are really interested in this and, at the same time, I don’t want to bore people, but as it relates to alimony, that’s a tricky area of tax. I know there have been some changes in that area, too. Would you talk a little bit about how alimony works from a tax perspective?

Megan: Sure. Prior to the Tax Cuts and Jobs Act of 2017, the payor was able to deduct any alimony on their income tax return and the receiver of the alimony, they had to report it as taxable income. Since that Act has passed, that is no longer. It cannot be deducted, and alimony is not considered taxable income on the receiver’s side.

Brian: So that’s a game changer certainly as it relates to getting a divorce and the financial aspects of that.

Megan: Yes, it has been. I know prior to the Tax Act passing, a lot of the divorce attorneys were very busy, because they wanted to get the agreements signed, sealed and delivered before it was in effect.

Brian: Megan, there was an article in The Wall Street Journal earlier this year that referred to a significant increase in those who are 50 or older getting divorced. They’re actually referring to this as “gray divorce.” If you look at the numbers, back in 1990, one in 10 divorces were with people who were either 50 or older. Today, it’s one in four. Do you have any thoughts on why we’ve seen this jump and what those implications might be?

Megan: It’s interesting with this question, because that is when my parents got divorced when they were 55 and 54. So, they fall right into that spectrum. I think part of what happened with them is, and similar situations where, you know, the kids were off in college, it was time that it’s just me and my husband or me and my wife. Do I want to spend the rest of my life with them? I see, for a lot of clients, a trigger of the kids going to college, or they’re moving for some reason. Another example is, I have a client who actually initiated a divorce. She said, you know what, I’ve put up with my husband for all these years. She’s in her late 50s. She said, my kids are all in college now. It’s time. I just need to get away from him. So, that’s kind of a trigger. It seems like for a lot of people, who have been married for 15, 20, 25 years, asking, “Is this the person that I want to be with for the rest of my life?”

Brian: Thanks Megan. That also correlates to the fact that a lot of us are living longer and that trend is going to continue. The other thing that I think is interesting as you think about it is, years ago there were a lot of people who were getting married a whole lot younger than they are today. And so maybe they made some quick decisions, and a lot of those marriages didn’t work out within the first couple of years. And so again, from a statistics perspective, seeing this shift sort of make sense when you look at all the trends that are in place. So, Megan as we begin to wrap up, what tips might you have if there’s a listener who is out there, maybe they know of someone who is going through a divorce, or they’re going through a divorce, or they know that this is on the horizon. As it relates to having a team in place to support them or their loved ones, what are some of your thoughts on things that they could be doing?

Megan: So I think part of whether they’re contemplating or they have a friend who is contemplating, at times it’s a starting point of, “Can I do this, am I going to be okay?” And what I tell clients is, whatever stage they’re in, you’re going to get through it. It might take you six months, 12 months, 18 months depending on how vicious the divorce may or may not be, but you will be in a much better spot when this is finished. Part of my role is to listen and help the person going through the divorce and ask, “What are your goals, post-divorce, and where do you see yourself?” And even if the individual has no idea, we can talk about it to get to questions like, “Do you want to stay in the house? Do you want to move?” And help them think about what life is going to be like when it’s just them and not “Mr. or Mrs.” As part of going through that and the financial piece, I always ask or recommend for someone to just to go talk to a therapist. I mean that’s part of when you’re going through such a traumatic life change or life events, it makes sense to go talk to someone who is professionally trained and can help someone in this area. You know, things like, “How are we going to tell the kids? Should I change my name back?” All of these emotional issues that I can listen to, and I can run the numbers on what they want to do, but it really makes sense to go talk to someone who is trained to help the divorcee in this area.

Brian: I think that’s an excellent point. And I don’t know that many people would consider that. They’re so focused on dealing with the emotional issues but seeking counsel from a professional from that perspective makes a lot of sense and obviously complements the conversations and work that they’ll do with an attorney or someone with your background. Thank you. Okay, Megan, I want to thank you for coming on the show, but before we let you go, there’s a question that we ask all our guests. And that question is, what is the worst financial decision you’ve ever made?

Megan: I was thinking about this, and it was my first year out of college. I was living in New York City and was actually saving money. I don’t know how, but I was. I never elected to be in the 401(k) and the company had a match. It’s funny, I was asking my dad about it, this was before I was getting into financial planning, and he said, oh don’t. You’re not going to save much. Don’t worry about it. I think he just wanted me to have fun in the city.

Brian: So, thanks dad. Let me pour a little salt in the wound. Have you ever gone back and thought about how much money you would have contributed if you had and what that growth rate would have been over the past several years?

Megan: No. I haven’t. But what I did do was, I made up for my loss. I helped my sister. I made her enroll in her own 401(k) when she moved to the city three years later.

Brian: Well, great job. I appreciate you sharing, your expertise and your time today. Megan, thank you very much for joining us today.

Megan: Thanks so much for having me. I really appreciate it.

Brian: So, everyone, thanks for listening to the show today. You have questions, ideas, comments for the show. Please go ahead and email him in at [email protected]. Thanks again for listening.


This transcript is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

Contact Us