Divorce can be less common among doctors than other professionals.1 With that being said, the process of divorce can be complicated for anyone - maybe even more so for medical professionals with complex financial standings.
Divorce can be hard for healthcare workers to manage for a few reasons. Doctors may be less eager to take such a major step simply because the process of a divorce, which is difficult for anyone, can be an especially troubling distraction for an individual with so many responsibilities. A kind of grief follows a divorce, one that may be difficult to shake. And there is, of course, the financial aspect of divorce. If you have children, both you and your former partner will need to make decisions about their care.
In this article, we will examine some things to consider as you dissolve your marriage. We will also provide some suggestions that will be helpful to doctors navigating their post-divorce financial life.
First, Build Your Team
As a first step, find a financial professional who is experienced in helping individuals navigate divorce. Better yet, you may benefit from someone who has worked with medical professionals and understands the complex nature of their financial life.
This person should have the skills to assess a divorcing couple’s finances comprehensively and forecast the potential short-term and long-term financial outcomes of a settlement. In addition, that professional can help spouses develop spending and cash management strategies and consider the tax implications of a split.
A professional can help keep your financial situation – your income, your expenses, the needs of your children – at the forefront of your mind both before and during the divorce process.
A Checklist for Doctors Going Through Divorce
Here is a checklist you can use to prepare yourself for a meeting with a financial professional to discuss matters related to your divorce.
Retirement Income & Savings
You must review your retirement income sources such as projected Social Security benefits, any future pensions, potential inflows from your retirement assets and the way you invest; if you own your own practice, you may have your own retirement plan, as well. In doing so, you can make clearer decisions about how you want to divide your retirement accounts and still realize the kind of lifestyle you would like to have in retirement.
People often forget to change beneficiary designations on their life insurance policy and accounts including bank, investment and retirement accounts after a divorce. If these go unchanged, your former spouse may stand to inherit a large portion of your assets.
Estate tax laws give certain breaks to married couples that are unavailable to individual filers. A trust may give you an avenue to pass along more of your assets to your heirs rather than the IRS and may prove critical if you have children or dependents with special needs.
If you have a will or living trust, your spouse may be the executor/trustee and may also be the sole or primary beneficiary of your estate. This is something to check on. Incidentally, many states abide by an elective share statute, meaning that a spouse (whether estranged or married) is automatically entitled to a percentage of your estate.
Joint Accounts & Property
Some things to consider: Do you own your practice, partly or in full? This will be of primary concern, as it will need to be either dissolved and assets divided between both parties or will constitute part of the assets you are keeping after the marriage. See that titles and deeds are appropriately transferred (Cars, boats, campers, motorcycles, and other vehicles; Homes, rental property, vacation cabins, other real property types). Don’t forget bank accounts and credit cards. Change joint accounts to individual accounts. Remove your name from your spouse’s accounts.
Student Loans & Debt
Up to 89 percent of medical school graduates have taken on educational debt.2 Not only are the majority of medical professionals in debt, but the amount of debt accrued can be substantial. On average, doctors and physicians face $241,600 in student loan debt.2
As a medical professional, you may have student loans and other debt to consider amidst a divorce. Your spouse may have their own loans to pay off as well. Make sure that your payment services are aware of your new marital status. After all, responsibility for these loans depends on whether or not you took the loans before or during the marriage, or whether you accepted a joint consolidation loan.
Pull your credit report and check all accounts to assure their validity. Contact your creditors to cancel or close accounts, change contact information or remove your spouse’s name.
Power of Attorney
Does your spouse have a Durable Power of Attorney? Think about revoking it so that it cannot be misused. There have been instances where a DPA has been used to take out loans in the name of a spouse or to transfer a spouse's assets to the other party.
Do you have life insurance policies? Change the primary beneficiary to a financial trust or another individual. You may want to purchase more coverage if it is needed.
If you are divorcing after April, should you and your spouse file one more joint return? This calls for a chat with your tax professional. Filing jointly could of course save you money compared to filing singly, but it also means you are jointly responsible for everything on that 1040 form. Working with a tax professional may help you answer the many questions you will have, as well as those you have not yet considered.
Long-Term Financial Concerns
An “equal” settlement is not always an equitable one, as one spouse may be left with much greater potential to build and retain wealth than the other. The reason for this is that, in many cases, physicians earn more income than their spouses, assuming the spouse works at all. This is still applicable in cases where the spouse who isn’t a doctor earns more or comparable income. That is the most important long-term issue to address, so carefully weigh that potential well before a divorce is finalized.
There’s a great deal for you to think about. Some of it will be painful, some of it may come as a relief. Whatever emotions this time of your life brings to mind, don’t let frustration become a major part; a good start comes from engaging financial and legal professionals who can help you through the process.
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Since 2004, TCM Wealth Advisors has been providing Fee-Only Fiduciary Advice to our clients in Northeast Ohio and around the country.