One of the side effects of the coronavirus pandemic has been a big increase in the divorce rate in the United States. The number of people seeking divorces was 34 percent higher from March through June 2020, compared to the same period in 2019, according to Legal Templates, a company that sells legal documents. The Canterbury Law Group reports that 42 to 45 percent of first marriages will end in divorce, as will 60 percent of second marriages.

Planning Is Critical in Protecting Your Retirement Assets in a Divorce

According to the National Institute for Retirement Security (NIRS), divorced people have less money in their individual retirement accounts than the married do. The mean value of independently owned defined contribution accounts is $84,874 for married men and $50,126 for married women in 2020. Those numbers drop to $58,951 for a divorced man and $38,613 for a divorced woman.

Married people also, unsurprisingly, have more retirement money for their households. For example, the mean value of household defined contribution accounts is $136,055 for married men, while it’s the same $58,951 for the divorced. NIRS reports that the elderly poor are more likely to be divorced than married elderly Americans or seniors as a whole.

Divorce can be especially disastrous to women’s finances. The NIRS says women who divorce tend to do worse than men in terms of their retirement savings — especially if they divorce later in life, when their careers are ending.

Planning can help you minimize the negative impact a divorce can cause to your financial situation. In particular, to avoid at least some of the emotional and financial devastation that divorce can cause, avoid these five big divorce mistakes:

Mistake #1: Failing to understand you might be responsible for your ex’s debt

You might still be responsible for your ex-spouse’s debt, even if your name is not on it. In general, both parties are responsible for any debts incurred during the marriage. It doesn’t really matter who spent the money. When the property is divided during the divorce, the spouse who receives the asset is generally also responsible for any loans secured by that asset.

Here’s what that looks like in practical terms. Paul and Tracy were married for eight years. During that time, Tracy ran their credit card to the limit with her compulsive spending. The court held Tracy solely responsible for paying the $12,000 in credit card debt. After the divorce, however, Tracy did not change her ways and was unable to pay off her debt. The credit card companies came after Paul, who ended up paying them off. One solution would have been for Tracy to pay off the credit cards with assets she received when the divorce was finalized or for Paul to have received additional property in the divorce settlement to offset this debt.

Mistake #2: Not considering the value of career assets

Some couples are invested in their careers and earning capabilities instead of building their savings accounts. They might see their careers as being more valuable than tangible assets. As a result, one spouse might have significant assets tied to his or her career. These career assets include the following:

• Life, health and disability insurance
• Banked vacation and sick days
• Social Security benefits
• Unemployment benefits
• Stock options and restricted stock units, or RSUs, a form of stock-based employee compensation
• Pension and retirement savings plans
• Job experience and seniority
• Professional contacts
• Education and training

For example, let’s look at a family in which one spouse is the sole wage earner. Many times, one spouse will put the other through school or help him or her become established in a career. Together, they have made the decision to spend the time and energy to build one career with the expectation that they will share in the fruits of their investment through the enhanced earning power of the second spouse as he or she builds a career.

It is important for you to have your financial advisor conduct a complete financial analysis for you and review your career assets when your attorney and your spouse’s attorney are about to decide on an equitable settlement. Your attorney can advise you about how the court in your state will consider career assets as part of the property settlement.

Mistake #3: Overlooking the tax consequences associated with various assets

There is a tax consequence for just about every move you make with your money. Some assets have a bigger impact on your tax burden than others.

If you and your spouse agree to split assets equally, and some are pre-tax and some are post-tax, the split will not be equal. For example, let’s say you and your spouse have a bank account with $50,000 in it, and your spouse’s 401(k) account at work is worth $50,000. You agree that your spouse will keep the 401(k) and you will get the bank account. Because your spouse will have to pay tax on the $50,000 401(k) account, this is not an equal split. At the time of the divorce, maybe your spouse said, “Let’s just split everything fifty-fifty. You take this half of the assets, and I will take that half. Is that OK?”

Unfortunately, there was something your spouse neither knew nor understood; neither did your spouse’s lawyer, and neither did the judge. They didn’t realize that your spouse would have to pay taxes on his or her half of the assets when trying to access them, while you could access your half of the assets tax-free. The 50/50 split ends up costing your spouse an additional $15,000 in taxes. Had you met with a financial professional before the divorce was finalized, both of you would have been in a better position to come to a more equitable settlement.

This scenario has an unfortunate ending. Pre-divorce financial counseling can help people going through a divorce arrive at a settlement that is fully understood by, and equitable to, everyone involved.

Mistake #4: Being unprepared for the possibility of a post-divorce audit

Just because the divorce settlement is final does not mean the parties are exempt from possible future tax liability. For three years after the divorce, the IRS can perform a random audit of joint tax returns. In addition, the IRS can audit a joint return, if it has good cause to do so, for seven years. It can also audit a return whenever its agents believe fraud is involved.

To help you avoid potential tax liability, make sure your divorce agreement provides for what happens if any additional interest, penalties or taxes are assessed. Also make sure it specifies where the money will come from to pay for costs incurred to hire professionals if there is an audit.

Mistake #5: Not meeting with a CERTIFIED FINANCIAL PLANNER™ or Certified Financial Divorce Analyst^® before starting negotiations

A qualified financial advisor can help you reach a more equitable and profitable settlement, avoid unforeseen tax or issues, and support you and your attorney. What good is fighting for the house, only to find out after mediation that you will not be able to afford it or that you haven’t considered all assets? A qualified financial advisor may hold the CERTIFIED FINANCIAL PLANNER™ (CFP®) or Certified Financial Divorce Analyst® (CDFA®) designation. They can provide you and your attorney with data analysis that shows the financial effect of any given settlement. This expert becomes part of your divorce team and provides support on financial issues such as these:

• Understanding the short- and long-term effects of dividing property
• Analyzing pensions and retirement plans
• Determining if you can afford the marital home, and if not, what you can afford
• Recognizing the tax consequences of different settlement proposals
• Deciding on the amount of alimony and/or child support to be paid, if applicable

Divorce is hard enough without getting blindsided by unexpected tax consequences, incurring debt obligations or receiving less than what is fair. Selecting an attorney whom you trust and feel comfortable with and working with a qualified financial advisor can simplify a difficult process. Taking this important step can help everyone reach a more equitable settlement, minimize legal expense by expediting the process, and avoid surprises years after the divorce.

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Randy Carver is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Having been in business for over 30 years, Carver Financial Services, Inc. is one of the largest independent financial services offices in the country, managing $1.94 billion in assets for clients globally, as of January 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You can reach Randy at randy.carver@raymondjames.com.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of 01/05/2021 and are subject to change without notice. Past performance may not be indicative of future results. No specific tax or legal advice is given or intended. Raymond James and Carver Financial are not affiliated with National Institute for Retirement Security (NIRS), Legal Templates, and Canterbury Law Group.

We are surrounded by unknowns.

The coronavirus is still very much with us, as is much of the economic dislocation caused by the resulting lockdowns. Granted, we are evidently closing in rapidly on a vaccine—indeed, a number of vaccines. While encouraging, though, it may be some time before most of us will get access to a vaccine, and there is still a question of efficacy.

Also, we are going through a hyper-partisan presidential election and a contentious Supreme Court confirmation hearing. Plus, protests, rioting and social unrest are still causing chaos nationwide.

Before we become further engulfed by these multiple unknowns, I want to take a moment to review what we, as investors, should have learned—or relearned—since the onset of the great market panic that began in February/March and ended in August, when the S&P 500 Index regained its pre-crisis highs.

I also want to make a larger point that we may be missing some of the great things that are happening because of all the negativity we’re encountering. 

A Few Thoughts and Observations

History continues to show us that what goes down must come up. Here are some examples of this market phenomenon:

• No amount of study, economic commentary, or market forecasting ever prepares us for really dramatic events, which always seem to come at us out of deep left field. Thus, trying to make an investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. Instead, having a long-term plan, and working that plan through all the fears (and fads) of an investing lifetime, helps us avoid sudden emotional decisions and achieve lifetime goals.
• In March 2020, the equity market went down 34 percent in 33 days. Analysts dubbed it the “coronavirus crash.” None of us have ever seen that precipitous a decline before— yet, with respect to its depth, it was just about average. That is, the S&P Index has declined by about a third on an average of every five years or so since the end of WWII. Once again, the media helped create panic.
• Almost as suddenly as the market crashed, it completely recovered, surmounting its February 19^th all-time high on August 18^th. The news concerning the virus and the economy continued to be dreadful, even as the market came all the way back. Two lessons here:
  1. The speed and trajectory of a major market recovery very often mirror the speed and depth of the preceding decline.
  2. The equity market most often resumes its advance, and may even go into new high ground, considerably before the economic picture clears. If we wait to invest before we see unambiguously favorable economic trends, history tells us that we may have missed a significant part of the market advance.
• The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed. The long-term, goal-focused equity investor is best advised to just ride it out.

“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”

—Peter Lynch

• Often, negative news creates positive economic action—for example, the monetary and fiscal policy that has helped fuel the market movement as the Fed has held interest rates at zero and the government has spent more than $2.8 trillion.

• Many worry about the outcome of the election and what might happen. American businesses adapt. Moreover, if the policies of the President, House or Senate are too radical we have another election in November 2022. The entire House and about a third of the Senate will have to face voters. Policy will change or the players will change, and politicians don’t like to lose their jobs!

Never Try to Time the Market

Each time there is an election, and especially now, people ask if they should get out of their investments and wait to see what the outcome is.

No! That is trying to time the market. Market timing is not possible.

Kevin O’Leary is a wildly successful businessman, author, politician, and television personality who appears on Shark Tank. He mentioned in our interview on October 7^th, the biggest mistake he has made, which has cost him millions, is trying to time the markets.

“The stock market is a device to transfer money from the impatient to the patient.”

—Warren Buffett

Poor Decisions Are a Bigger Threat than Market Volatility

I have worked in the financial services industry for 34 years and continue to see that those who develop a good plan and then stick with it succeed. In contrast, those who make emotional decisions because “this time It’s different” or “I am too old to see my portfolio drop significantly” often deplete funds. The biggest risk most people face is making poor decisions — not the markets or the economy.

Despite all the unknowns, this is one of the best times in history to be alive. We have amazing resources that were only science fiction a few short years ago. We should not lose sight of everything we have to be grateful for because of persistent negativity from the media, and sometimes family or friends.

Do we have food and shelter? Can we go to a store or shop online for whatever we need? If we can, then things aren’t really so bad after all.

So, take a deep breath, turn off the TV and radio, log off the computer and enjoy your family, friends and all you have to grateful for. Review your financial plan with your advisor. If you don’t have an advisor or a plan, this is a great time to consider both. Your vision — whatever it may be — is our guiding star. It drives our relationship with you and defines our success. Most importantly, it influences the plan we build together through our four-step Personal Vision Planning^® process.

There will always be uncertainty, which creates an opportunity for those with good planning — and risk for those without.

A Time for Thanksgiving — Anyway

Let’s not let the negativity we’re encountering steer our sight away from the great things that are happening. This holiday season let’s pause for a moment to count our blessings. Take a moment to think about what you have to be thankful for.

Our team is thankful for the friendship and the confidence our clients and friends have shown in us. We are thankful for the opportunity for achievement among those with the courage to see beyond short-term issues.

As always, my team and I are here to discuss any questions or concerns you have, whether you are a client or not. We appreciate the chance to help navigate the madness. In a time filled with challenges and continued uncertainty, we are here for you and appreciate the trust you place in our team. Your vision is our priority. We are deeply thankful and extend to you our best wishes for a happy and healthy holiday season!

Randy Carver is the president and founder of Carver Financial Services, Inc., and also a registered principal with Raymond James Financial Services, Inc. Having been in business 30 years, Carver Financial Services, Inc. is one of the largest independent financial services offices in the country, managing $1.6 billion in assets for clients globally, as of October 2020. You can reach Randy at randy.carver@raymondjames.com.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results..

The record voter turnout and record early voting in 2020 have been just one indication of how high emotions are running during this election. Our team continues to be asked what this election means for markets and individuals’ portfolios. Our answer is, “Possibly less than you might think.”

People have had extremely strong opinions about Trump and Biden. As a nation, most of us care deeply about the outcome. While there are important policy ramifications that will impact all of us, history has shown that the broader markets don’t care which party is elected, yet people are still concerned about the outcome.

Nick Murray, a financial advisory professional for more than 50 years, says his network of thousands of financial advisors reported more election-related anxiety among investors before the 2020 election than ever before. In his October 2020 Client’s Corner newsletter, Murray advised, “Take your political convictions completely out of your investment decision making…The mistake a lot of investors seem hell bent on making these days is thinking that the person and policies of the president are importantly correlated to the stock market. There is zero basis, in fact, for this conviction.”

What has been the difference when different parties controlled different branches of the government? YCharts analyzed stock returns going back to 1930 under three separate scenarios. When one party controls the White House and both houses of Congress, the Dow averages 10.7 percent annual returns. When there’s a split Congress, stocks average 9.1 percent returns. But when the president is in the party opposite of both the House and Senate, stocks have delivered 7 percent average annual return.

We Can’t Predict the Future

As the world learned in 2016, what looks certain to happen doesn’t always materialize.

On the night of the 2016 election, as more states began reporting and a Trump victory became increasingly likely, stock market futures sank rapidly. Everyone was sure that Hillary Clinton had clinched the election. The S&P 500 fell more than 5 percent in premarket trading, and trading was halted.

But by the time the market closed the day after the election, the index was up more than 1 percent. Before November 8^th, 2016, pundits predicted an instant recession, markets tanking and stocks sinking. However, between 2017 and 2019, the average annual price return for the index was more than 14 percent.

It’s futile to try to predict the future, and with a proper plan, you don’t have to! Looking at historical trends about stock market performance before, during and after presidential elections can help us set our expectations (with a healthy dose of salt).

What History Tells Us About How Elections Affect the Markets

One steady trend is that, historically, volatility in the stock market increases in the months leading up to an election.

Researcher Dan Clifton notes these additional market trends during elections:

• If the S&P 500’s performance in the three months leading up to Election Day is positive from the three-month mark through the close of Election Day, the incumbent party historically wins. Since 1928, this indicator has predicted 87 percent of election outcomes and every election since 1984.
• When looking at the four-year presidential cycle since 1928, the year before the election has the strongest average returns, at 12.8 percent.
• Since 1936, open presidential election years have historically returned just 2.5 percent on average, while presidential re-election years have returned 10.3 percent. 
• In election years when the incumbent party won, the S&P 500 averaged 10 percent returns versus 2.8 percent in years when the incumbent party lost.

These are interesting trends to watch, but again, they do not predict the future. Flukes are always possible, as we saw in 2016!

Do U.S. Stock Returns Fare Better with Democratic or Republican Presidents?

Bespoke Research shows that since 1900, the Dow Jones Industrial Average has gained 4.8 percent annually, regardless of which party is in the White House. However, stocks do better in the lead-up to elections when America is signaling a Republican presidential win.

Peter Lazaroff, author of Making Money Simple, says U.S. stock returns have been much better when a Democrat was the president. His conclusion is based on his review of total returns for the S&P 500 during presidencies since 1929. However, he says it would be a mistake to conclude that stock returns were higher because a Democrat held the presidency.

Lazaroff says there is no conclusive evidence suggesting the U.S. president’s party has any statistically significant impact on U.S. equity market returns. Stock returns are influenced by myriad factors, including valuations, corporate profits, business cycles and monetary policy. Plus, the S&P 500 generates more than half of revenues outside the United States. The increasingly global economy reduces the overall impact of the actions of a single government.

Don’t Mix Your Portfolio with Politics

As always, we recommend looking to the long term when assessing your portfolio’s performance. Making knee-jerk decisions about your finances while feeling strong emotions of any kind never ends well.

According to a new report from SunTrust Advisory Services, people who have sold U.S. stocks to protest any winner of past presidential races, whether Democrat or Republican, has meant losing out on skyrocketing returns during the new president’s first year in office. Keith Lerner, chief market strategist for SunTrust, wrote in a report in October 2020 that for most years from 1933 to 2019, markets “have done well under a range of political scenarios,” regardless of which party occupied the White House. He adds that over the past 15 years, despite U.S. politics becoming increasingly acrimonious, the S&P 500 still outshined, with a 20 percent-plus return, during the first year of any president following an election. on Monday. “We strongly caution against mixing portfolios and politics.”

It Doesn’t Really Matter Who Wins

Resist the temptation to exit the market during tumultuous times. Nick Murray says, “When you radically alter your long-term portfolio because of current events—even when you tell yourself it’s ‘just this once, and just briefly’—you’re not investing anymore. You’re gambling. Too many people find to their regret that once they’ve crossed that line, they’re never able to get back.”

It doesn’t really matter who wins our elections. Those who are voted into office won’t be in office forever anyway. In November 2022, the entire House of Representatives and a third of the Senate will have to face the voters again. If any party moves too far with policies the general public dislikes, they will most likely be voted out.

So go ahead and celebrate or complain about the outcome of the 2020 election. Just don’t make any changes to your investment strategy based on how you feel about it. The key is to work with a trusted advisor to develop a plan based on your needs today and in the future. The plan must be dynamic and updated as circumstances change in your life, tax rules change or your portfolio becomes overweighted in any single asset or sector.

Regardless of who is president, and regardless of any turmoil in the markets, we strongly advise that you stick to your long-term plan. What happens week to week, month to month or even year to year is not important. Your long-term ability to maintain and enhance your standard of living is what matters most. Trying to time the markets simply doesn’t work ,whether there is concern about an election or any other event. We expect new challenges for investors as inflation increases, volatility continues and tax laws evolve. These challenges also present an opportunity for those who are prepared both financially and psychologically. We have been told that the 2020 election has been the most important in our lifetime—but so will the elections in2022, 2024 and every two years after.

Our team is here for you and your family. We have developed and refined our Personal Vision Planning Process® over the past 30 years for times like today. Please reach out to me personally, at (440) 974-0808 or randy.carver@raymondjames.com, or to any of our team, with questions or if we can otherwise be of service. Your vision is our priority.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss.