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Wednesday, October 26, 2011

Assess the Potential Effects of Divorce on Future Credit and Returns on Investments

When you are ready to invest, there are specific reasons why you choose to do so, and an over-abundance of money does not even come into the picture. Unfortunately one of the effects of divorce is sometimes a reduced return on some investments. This doesn't happen because the divorce itself causes negativity directly but rather because people sometimes during and after divorce people have a tendency to reduce the amount of money they invest in each individual asset ultimately reducing the overall return on those investments Even those investments in the form of businesses or real property may be affected also if the owner applies less money toward their upkeep. 

In addition to the lack of additional money being invested into an asset, there are several others ways that divorce can negatively affect the future returns on investments.
  • Jointly owned investments that were not sold as part of the divorce settlement must be shared with the co-owner thus reducing the amount of income each partner realizes from the investment.
  • Being forced to sell a jointly held asset and then repurchase it in your own name may mean paying a higher purchase price but lower resale price thus reducing any future returns you might realize on that investment (this is more common with real property because the ex-spouse is likely to demand a buy out based on the current market value of the property)
  • If you are a major stockholder in a corporation any publicity about your divorce (especially if there is a great deal of animosity involved) can negatively affect the price of the stock thus reducing the value of your investment
  • If you are forced to sell non-liquid assets such as securities earlier than you had planned, you may not obtain the same price you would otherwise
  • You may be forced to cash in bonds, CDs or mutual funds before their maturity dates thus resulting in substantial penalties
If you have the insight to plan ahead you may find you can sell your investments while the market is still stable enough for you to obtain a good price for them. Unfortunately most people do not see an impending divorce, and if they do they fail to see the affects of divorce on those assets. They rely on their divorce lawyer to obtain a good settlement but do not often count on having to share those assets with their spouses. They instead depend on the fact that they told the lawyer they wish to retain possession of those assets.

While bonds are more stable than stocks, you will not receive the face value of the bonds if you have to sell them before they mature. Depending on how much of your portfolio is in bonds, you may see a substantial loss on your return of those bonds since you will not receive the dividends periodically or when the bonds mature. CDs on the other hand, have penalties if you cash them in early, so it may be in your best interest to hold onto those and share the proceeds with your spouse when they mature.

While no one can possibly predict an upcoming divorce and its aftermath, a good divorce lawyer can provide you with the advice you need for making decisions that have the least effects on your credit and returns on your investments. The main thing you want to consider is the effect it may have on your business; make plans to ensure that no bad publicity results in order to decrease your profitability.

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