Divorce is painful and a time of emotional turmoil for individuals and their families. But it can bring financial upheaval as well. Comprehensive and thoughtful financial management is important for the benefit of both spouses. It should encompass the divorce process from the beginning, through the final settlement and beyond.
While the financial aspects of divorce can seem overwhelming, working with a CERTIFIED FINANCIAL PLANNER® (CFP®) can ease financial stress by providing a road map on how to move forward. In scenarios where one partner managed most of the family finances, a CFP® can bring valuable knowledge to the process.
They can be a valuable ally and provide a clear picture of the marital assets—retirement accounts, investment accounts, real estate and debt—to make certain the information is complete, consistent and understood by both spouses. With financial analysis, a CFP® can assess the long-term impact of various settlement options, helping their client understand the financial implications of dividing or retaining certain assets so that they may make an informed decision.
One example of this would be deciding whether a spouse should keep the family home. There is often a great emotional pull to keep the home, but in many cases it is not a good financial decision. The spouse who keeps the home may offset it by losing out on cash, investments or retirement funds— all needed to remain financially strong now and in the future.
When owning a home, property taxes and home maintenance need to be considered. Is there sufficient cash flow to support retaining the family home? And if the home needs to be sold post-divorce, there may be tax implications that disadvantage the spouse homeowner. An experienced CFP® will work in conjunction with a spouse’s family law attorney or mediator to make sure financial decisions are legally sound and beneficial for their client’s future.
Once the division of assets has been agreed upon and the financial settlement is in place, each spouse can move forward to establish their own financial identity. One of the most valuable roles a CFP® can play is helping clients adapt to their new financial reality. This should start by creating a realistic plan. Plan objectives may include achieving a predictable, sustainable income stream, addressing insurance needs, updating or initiating estate planning, furthering children’s education planning and tax considerations, among others.
Newly divorced individuals often need guidance in determining how much after-tax income they can sustain to avoid overspending and depleting their assets over time. An experienced CFP® can not only prepare a specific analysis to show how much after-tax income is attainable, but also manage assets prudently to align with the client’s goals for income and growth.
Educating newly divorced clients on all aspects of financial management is another valuable resource that a holistic CFP® can provide. Demystifying investments, how income is produced and the elements of a good estate plan, can give clients a greater sense of control, reduce anxiety and help them take ownership over their new financial reality.
A CFP® can also work with a newly divorced client on budgeting, establishing or determining a sufficient emergency cash reserve and making certain all their retirement accounts have updated beneficiaries. If a client has an updated living trust as part of their estate plan, it is important to make sure that their after-tax assets are placed in an account titled in the name of their newly created trust.
Divorce marks the end of one life chapter, but it begins another. Though a marriage may not have succeeded, a successful divorce is one where both partners remain financially viable and are able to move on with their lives. Working with a CFP® can ease financial stress and, with a little help, propel a newly divorced individual to financial empowerment.
