Navigating Divorce Financially: From a Financial Advisor

Divorce can be a challenging journey—emotionally taxing, confusing, and overwhelming at times. It’s normal to feel unsure about where to start or how to navigate the process, especially in the early stages. To help, here are some essential tips on what to do (and avoid) when facing divorce.

9 Things to Do During Divorce

1. Have Clear Conversations About Details

Find out about the divorce laws in your state. Focus on rules about dividing assets and support payments, like alimony or child support.

Start planning how you’ll manage your finances both during and after the divorce. Enlisting a financial advisor or accountant to work alongside your lawyer or mediator can be invaluable. They can help you create a divorce settlement that fits your retirement goals. They will also assist in setting a realistic budget and investment plan for your new chapter.

2. Organize Important Documents

Collect important financial and legal documents. These include tax returns, loan applications, financial statements, credit card bills, and property deeds. Don’t forget pay stubs, recent real estate appraisals, and any documents proving separate property ownership, like inheritance records.

Business owners should also prepare year-end profit and loss statements. Aim to collect at least three years’ worth of records for the legal process.

3. Understand Your Debts

Debt surprises are all too common in divorce. Check your full credit report to find any hidden debts. Talk to a divorce attorney to understand your responsibilities, even for debts you didn’t create. Consider closing joint accounts and switching to individual accounts to safeguard your credit score.

4. Take Inventory of Valuables

Photograph your household assets—jewelry, art, antiques, or sentimental items that hold significant value. This ensures transparency and prevents potential disputes over hidden or missing assets.

5. Advocate for Your Fair Share

Know your rights regarding asset division. Depending on state laws, you might be entitled to half of the marital assets. Even if you’re not interested in certain assets, they can be bargaining tools for items you do want. If you helped your spouse with their education or career, you may deserve compensation for that support.

6. Monitor Legal Expenses

Track the time and work your lawyer spends on your case, as these professionals bill hourly. Preparing documents and organizing information beforehand can save both time and money.

7. Check Social Security Options

At retirement age, you may be eligible for Social Security benefits based on your ex-spouse’s earnings record. Compare those benefits to your own to determine the better option.

8. Update Joint Accounts

Ensure the ownership and registration of financial accounts are adjusted post-divorce. This process often requires specific documentation, so consult a financial or tax professional to handle these changes properly.

9. Revise Your Estate Plan

Review your will, estate documents, and beneficiary designations for insurance policies and retirement accounts to reflect your new circumstances.

6 Things to Avoid During Divorce

1. Don’t Cling to the House Without Considering Costs

While your home may hold sentimental value, keeping it might not be financially wise. Consider maintenance costs, property taxes, and potential market fluctuations. Adjust your budget if you decide to stay.

2. Don’t Overlook Tax Implications

Divorce-related decisions, like selling assets or dividing retirement accounts, can trigger significant tax consequences. Consult a tax advisor to avoid unexpected bills.

3. Don’t Neglect Health Insurance

If you were covered under your spouse’s health plan, explore alternatives. COBRA can provide temporary coverage, and your state’s health insurance exchange might offer other options.

4. Don’t Mishandle Retirement Accounts

If you split accounts like 401(k)s or IRAs without the right paperwork, you could face high taxes or penalties. Use a Qualified Domestic Relations Order (QDRO) to allocate retirement assets appropriately.

5. Don’t Make Rash Financial Moves

If your divorce settlement includes access to retirement funds, consider your needs carefully before rolling them into an IRA. Certain withdrawals under a QDRO may avoid penalties, but this requires planning. Always seek advice from a financial professional.

6. Don’t Overspend Out of Spite

Excessive spending during divorce can backfire, potentially reducing your share of the marital assets. Keep emotions in check and prioritize sound financial decisions.

Bottom Line

Divorce is a complex process with significant financial implications. By taking proactive steps and knowing your rights, you can get through this tough time.

Seek help from qualified professionals, like financial advisors and attorneys. This will help you feel more confident and come out stronger in the end. Remember to prioritize your financial well-being and create a solid foundation for your future.

Sources:

https://www.fidelity.com/learning-center/life-events/divorce-tips

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.