Some of the most difficult situations I’ve encountered over the past 20 years as a financial advisor are when clients make the choice to get divorced. It is often emotionally charged, not only for both spouses, but also for the friends and family around them. The challenging emotional aspects of a split can cause rational, thoughtful people to make impulsive, short-term decisions that are not always in their long-term best interests. Here are some key considerations to help ensure – from a financial planning perspective – the divorce process is orderly, cost effective and leads to an optimal outcome so that you can confidently move on with your life.
Some Basics:
From a financial standpoint, the divorce settlement typically addresses the equitable division of marital property (i.e. the fair, but not necessarily equal, distribution of assets and debts to each spouse), whether one spouse will pay child support to the other if unemancipated children are involved, and whether one spouse will receive spousal support payments (a.k.a. alimony) from the other.
Build Your Team:
A mediator can be a cost-effective resource to arrive at a settlement, particularly if both spouses are having amicable conversations. Using the more traditional approach of retaining a family law attorney will likely be more expensive, but may be the right approach to take for complicated situations, or if dialogue between spouses is not productive. You may also want to consider involving a financial expert, such as a Certified Divorce Financial Analyst (CDFA), who can help one or both spouses to organize financial data and craft an intelligent financial outcome that addresses specific post-marital financial objectives.
Think Carefully About Your Priorities:
Divorce is an opportunity to “reset” your life, and it may be prudent to consider whether sticking to your past priorities could put at risk your future independence. For example, staying in the marital home may not be practical from a financial standpoint if, post-divorce, you don’t have the liquidity or the income to support it.
Keep an Open Mind:
With the exception of child support (which is calculated based on relative incomes and custody arrangements), the equitable division of marital property and any spousal support can be more of a gray area, and would ideally be negotiated so that the priorities of both spouses are best accommodated.
Don’t Rush It, but Keep Moving Forward:
Snap decisions during divorce should be avoided (I’ve seen cases of one spouse not fighting for the spousal support they deserve, simply to be done with the marriage as quickly as possible). Once the family court signs off on the divorce terms, it will be difficult and costly to change it, so proceed cautiously as the terms of the agreement are hammered out. But it is also important to move on with your life. Be diligent in gathering data and responding to communications from your team.
There are so many additional aspects to the divorce process, far too many to cover in a short article. If you, or a friend, are confronted with a divorce, perhaps the best advice I can give is to ask for help. With the right team on your side, you can successfully navigate that emotionally fraught process with confidence. Please contact me at stu@bendwealth.com if you’d like to learn more about the financial aspects of divorce.
Stu Malakoff, CPFA, CDFA, CRPC, CFP, President, Bend Wealth Advisors, Certified Financial Planner. 541-306-4325, stu@bendwealth.com, 541-306-4324.
Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
