Our Monthly Tip, as featured in Family Lawyer Magazine:
Although ghouls and goblins are on the prowl at Halloween time, partnering with an experienced divorce financial advisor to plan for your unique goals can help make the next chapter of your life a bit less frightening.
Maneuvering through a divorce can be one of the most stressful events an individual can experience over the course of his or her life. The emotional toll associated with starting over is challenging enough, but when you pile the added burden of post-divorce financial planning on top—particularly for those facing the responsibility for the first time—it can push feelings of stress and being overwhelmed into new territory.
When navigating through a divorce, planning for your future needs without having the proper tools at your disposal is a near impossible task. Imagine a child attempting to go trick-or-treating without any Halloween basket or loot bag to hold the candy—that’s like trying to plan with no “container” or framework for your facts and figures!
To help secure your financial future, you and your attorney should partner with a trusted advisor capable of providing knowledgeable projections tailored to your individual circumstances before negotiations are finalized to help ensure that any long-term plan captures and incorporates the various factors in play.
Four Foundational Steps for a Customed Financial Plan
Is your financial professional taking these foundational steps?
1. Setting plans based on future expectations
Any financial projection should be built on expected future returns rather than assumptions centered around what has previously taken place. We often see financial forecasts based on historical figures, which can lead to overestimating or underestimating future value.
For example, consider a forecast predicated on the underlying assumption that the returns we have experienced over the last 10+ years (outside of calendar year 2022) in equity markets will persist over the next decade. Although some investors might be delighted to see those kinds of returns, the reality could be quite different from the projections.
Basing decisions on backward-looking data can have a significant impact on a portfolio’s long-term sustainability, which could lead to a multitude of issues down the road.
2. Planning for an array of outcomes
If the last few years in markets have taught us anything, it is that markets are extremely unpredictable in the short term. Following several years of muted volatility in both stocks and bonds, we have seen volatility work in both directions as investors have become accustomed to greater fluctuations in account values, irrespective of their allocation. Assuming a static rate of return when forecasting is perhaps the most perilous trap to avoid.
Through the use of sophisticated planning software, both you and your advisors can gain a better understanding of the range of returns you might expect, as well as the anticipated level of assumed risk through analyzing a variety of statistical measures and stress tests.
3. Considering the likelihood of rising costs
Forget the ghosts—one of the most startling things this Halloween season for both investors and consumers has been this year’s inflation numbers. Across nearly every measure of reading, year-over-year inflation is the highest it has been in over 40 years, and people are feeling the impact.
It is key to adjust projections for living expenses to account for the impact of inflation. We recommend creating a budget that incorporates higher future prices to avoid understating your future needs.
4. Communicating and performing wellness checks along the way
The plan is set—now what? Collaborating with a trusted team of advisors is an ongoing process. Over time, it is inevitable that your specific goals and objectives will evolve. In other words, “life happens.”
Having the right planning tools can provide reassurance during turbulent times that your goals are still on track, and it can also help highlight the need to consider a new, more appropriate strategy should there be a material change in circumstances.
You should have a holistic understanding of your financial picture—especially when going through a major life event such as divorce. Partnering with a dedicated divorce financial advisory team that can tailor a plan around your unique goals and objectives can help make the future less scary and the Halloween candy ever sweeter.
Please visit our Matrimonial and Divorce Advisory Solutions resource page for more timely divorce planning content.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances.
Investing involves risks and you may incur a profit or a loss. There is no assurance that any investment strategy will be successful.
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