Financial Planning for Divorce

Divorce financial planning — like all financial planning — exists to assess and build a sound strategy for someone’s finances but has a specific focus on a future or existing divorce settlement. A primary goal of most client and planner teams focusing on divorce is achieving the best possible settlement. This often involves taking account of the present and liquidation values of a client’s assets and evaluating options for distribution and future impact on their financial situation.

Normally, a financial planner will partner closely with their client’s legal representation so there is a common understanding of the divorce proceedings and the strategy for settlement. Keeping in close contact with both parties can make preparing for and finalizing any divorce settlement easier. Using an advisor with expertise in helping divorcing clients will minimize mistakes and emotional stress.

Any qualified and experienced financial advisor will be able to assist with the financial implications and planning needed for the transitions during a divorce. The Certified Financial Planner™ or CFP® professional represents the standard of excellence in the financial advice profession.

However, there are specialized professionals that focus their practice on divorcing clients who will be able to assist in more complex situations. If you are looking for an advisor with this specialty, search for an advisor with the Certified Divorce Financial Analyst® (CDFA®) designation who will offer experience with many of the questions, concerns and challenges that divorcing individuals experience.

When searching for a financial advisor of any kind, it’s important to make sure they will be a good fit for your needs by interviewing them about their experience and approach. During your divorce, it is no different. Choose someone that you can work confidently with to build and maintain a solid financial plan during — and after — your divorce.

In addition to experience as a financial planner, most divorce financial planners, including those with the CDFA® designation, will have experience with family law and a strong grasp of the tax code, real estate and financial therapy.

There are many niches within the financial advisory industry and each practice may focus on different specialties. Larger practices may funnel clients toward their most experienced members while independent advisors may only work with certain types of clients. Experience and fit matter most when choosing who will provide advice.

Your financial situation and the circumstances of your divorce will dictate how much specialized help you may need. The more complex your financials are, the higher the likelihood that you will need to employ someone with specific expertise in divorce planning or financial analysis.

Some of the most used specialties during divorce are as follows. Most often clients will employ one (or multiple) during their divorce proceedings.

In short: Yes.

If you haven’t worked with a financial advisor before, taking stock of your current financial situation and building a plan that incorporates a potential divorce can be both enlightening and sobering. Divorce is a major emotional and financial decision that has significant impacts on your life. Before divorcing, it is important to understand how your finances will be impacted and how best to prepare for that event.

If you have already spoken to an attorney about divorce, they likely have names of planners they have worked with before. Exploring the services of someone your attorney trusts and has a good working relationship with could make the process easier.

If you are only just beginning the process, searching through the Institute for Divorce Financial Analysts (IDFA) database will provide results in your area. You can search by name or location and adjust for distance.

For additional due diligence, it is important to verify the licenses of any advisor you speak with. This can be done using FINRA’s BrokerCheck system.

Preparation for any engagement with a financial advisor is vital. The more detail you can provide, the more helpful they can be in assessing your situation and providing actionable recommendations. Whether during a divorce or in preparation for filing, compiling all the information about your assets, income, expenses, debt and taxes will be the baseline information necessary.

Divorce proceedings will precipitate additional specifics for determining ownership and division of assets and financial responsibility. Obtaining an accounting of separately owned property, individual accounts, individual debts or spending will also inform a plan. Historical documentation of assets brought into the marriage and documentation to prove separate vs. joint ownership will also be important.

Prior to meeting with an advisor, ask them for a complete list of information they will need to make your meetings worthwhile. The more prepared you can be upfront the more fruitful the time spent with your advisor will be.

Divorce can impact every part of your life and establishing a strategy should address your unique personal and financial situation. Your employment, income, residence, family size and many other factors can all impact how you’ll approach a successful settlement.

State laws can vary, so it is important to speak to a knowledgeable attorney or counselor who can explain your state’s specific property and divorce laws.

Location can impact everything from property ownership to employer benefits rules. For instance, nine states have community property rules, which means both spouses are entitled to or responsible for assets or debt created during the marriage even if only one party is named. The remaining states use common property laws meaning that unless both parties are listed on a loan or account, it remains the sole property of the named individual.

Divorce is a qualifying reason for special enrollment in health insurance. If you were covered by your spouse’s employer, you can enroll in your own employer’s insurance off-cycle, apply for COBRA coverage on your spouse’s plan or apply for an independent plan yourself. This is a situation where planning ahead with a trusted advisor will be important, so you are not left with a gap in your coverage.

Per the Social Security Administration (SSA), “If you are divorced, your ex-spouse can receive benefits based on your record (even if you have remarried).”

Speaking to a representative of the SSA will give you the best opportunity to explain your unique situation and get support with any required applications. For specific questions please visit: Information You Need to Apply for Spouse’s or Divorced Spouse’s Benefits.

It’s important to emphasize here that the SSA cannot give advice. They can only inform you of your benefits.

The IRS has suggestions and guidelines for those who may be separating or divorcing. Speaking with an accountant to help with filing taxes or assessing your new tax liability will mitigate any surprises from your new filing status. Changes that could be required may include updating new tax withholding, accounting for alimony or child support, and property sales or transfers.