Divorce and Finances: How a Financial Advisor Can Help You Navigate Asset Division, Insurance, and Future Planning

Ben and April had shared 16 years of marriage, raising two kids and building a life together. Despite their best efforts, they decided to part ways. As they began the divorce process, both knew they needed to address their intertwined finances and insurance policies to ensure a fair and organized separation.

Here’s how they tackled their financial disentanglement:

1. Taking Inventory of Their Assets and Debts

Ben and April started by creating a complete list of all their financial accounts, assets, and liabilities:

• Bank Accounts: Joint checking and savings accounts, as well as their individual accounts.

• Investments: Retirement accounts (401(k)s, IRAs), brokerage accounts, and April’s small business fund.

• Property: Their family home, Ben’s car, April’s SUV, and a vacation cabin.

• Debts: Mortgage, credit card balances, and Ben’s student loans.

A financial advisor helped them categorize marital versus individual property, ensuring transparency in the process.

2. Deciding on the Family Home

The family home was a contentious issue. Their two kids, ages 14 and 11, wanted stability, so April decided to stay in the house. Ben agreed to let her buy out his share of the equity, which their lawyer calculated by determining the current market value minus the remaining mortgage.

3. Splitting Retirement Accounts

Both Ben and April had retirement savings. To ensure fairness:

• They consulted a financial advisor to assess the value of their accounts.

• A Qualified Domestic Relations Order (QDRO) was issued to split Ben’s 401(k) without triggering taxes or penalties.

4. Addressing Insurance Policies

Ben and April realized that their divorce would impact several types of insurance:

• Life Insurance: They reviewed their policies and decided to change the beneficiaries. Ben agreed to keep April as a beneficiary until their kids were grown to ensure financial security.

• Health Insurance: April had coverage through Ben’s employer, but she’d need her own policy post-divorce. She explored COBRA and Affordable Care Act plans.

• Home and Auto Insurance: Since April was keeping the family home, she transferred the homeowners' policy to her name. They also updated their auto insurance policies to reflect separate households.

5. Establishing Child and Spousal Support

Ben and April worked with a mediator to create a fair arrangement:

• Child Support: Ben agreed to pay monthly support to ensure the kids’ needs were met, based on state guidelines.

• Spousal Support: April had paused her career to raise their kids, so Ben agreed to temporary alimony while she transitioned back to work.

6. Crafting a Post-Divorce Budget

Both Ben and April knew they’d face new financial realities. With the help of their financial advisor, they:

• Created budgets based on their separate incomes and anticipated expenses.

• Discussed how to save for future expenses like the kids’ college tuition.

The Financial Process of Divorce

Here’s what they learned about the overall financial process:

1. Gather Documents: They collected tax returns, pay stubs, bank statements, and investment records.

2. Hire Professionals: They enlisted a divorce attorney, mediator, and financial advisor to guide them.

3. Negotiate Settlement Terms: They worked through property division, support arrangements, and custody plans.

4. Finalize the Agreement: After agreeing on terms, their attorney drafted a settlement agreement to submit to the court.

5. Update Accounts: Once the divorce was finalized, Ben and April updated account ownership and beneficiary designations.

Divorce is never easy, but Ben and April’s commitment to handling their finances with care helped them navigate the transition. By focusing on fairness and involving professionals, they ensured a stable foundation for themselves and their kids as they moved into their new lives.

Would you like additional details or advice included, such as tax implications or emotional support considerations?

Sources:

https://www.nerdwallet.com/article/finance/7-ways-to-prepare-your-finances-for-divorce

Disclosure:

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.