Navigating the complex world of finance is difficult enough on its own, but when you combine it with the emotional upheaval and legal proceedings of a divorce, it can become overwhelming. Financial planning at different stages of the divorce process is vital to minimize financial risks, ensure fair asset division and build a secure financial future post-divorce. Working with a financial planner is crucial to successfully steer through these difficult situations.
Exploring Financial Planning With a Divorce
Divorce financial planning is a specialized approach that addresses the financial aspects and goals of individuals before, during and after a divorce.
This type of planning can involve assessing assets, creating budgets, managing financial risks, facilitating asset division and examining potential tax implications.
Couples already involved in a divorce can benefit from this financial advice. But, recently divorced individuals could also obtain valuable guidance to rebuild their financial lives and plan for their future.
Navigating Financial Concerns Before and During a Divorce
There are plenty of financial concerns when dealing with a divorce. Some of the major financial issues that often arise include identifying and valuing assets, determining liabilities, managing expenses, addressing tax implications and planning for future financial obligations such as child support or alimony.
Failing to address these concerns can lead to financial instability and conflicts between the divorcing parties. Specifically, discovering hidden debts, tax implications and discrepancies in asset valuations during the divorce process can put your finances at risk by increasing tension, prolonging court battles and adding more expenses.
Dividing Assets in a Divorce
There is a lot to think about when you have to divide assets. Key considerations include determining the value of assets, figuring out each individual’s contribution to the marriage and the financial needs of both parties.
Many couples, however, ignore that assets are taxed upon division. This means you need to be aware of your tax implications.
Here are six common assets that can be divided during a divorce:
- Retirement accounts
- Real estate properties
- Business investments
- Artwork
- Collectibles
- Other tangible assets
Note that determining the value of these assets is an important step in the divorce process. You will need to do this to ensure a fair settlement and reduce the likelihood of potential financial disputes post-divorce.
Making Key Financial Planning Moves After a Divorce
Once the dust settles and the divorce is finalized, post-divorce financial planning is necessary to secure the financial future of both parties. Implementing specific financial moves, such as reevaluating emergency funds, updating estate plans and creating a new budget that reflects your go-forward income can help achieve stability.
Here are six common steps that you may want to consider taking after your divorce is finalized:
1. Establish a new budget: Your new life post-divorce will likely carry a different income than you had before. You’ll need to budget your new life accordingly.
2. Rebuild emergency funds: Any emergency funds you had were likely split in the divorce, so it’s important to replenish those as fast as you can.
3. Reassess investment portfolios: Now that your future plans look different, so should your investment portfolio.
4. Update insurance policies: You’ll want to make sure you update your coverage for your current situation.
5. Review tax planning strategies: Tax planning will look very different if you no longer have two incomes or dependents.
6. Update estate planning documents: You’ll probably want to take your ex-spouse off any insurance policies where they are the beneficiary and you may want to change your coverage.
What to Look for in a Financial Planner
When it comes to selecting a financial planner for divorce, it’s essential to identify both your specific needs, as well as the planner’s qualifications, experience and approach.
Key areas to consider include the advisor’s expertise in handling divorce-related issues, communication style and their ability to navigate legal and financial complexities.
Recommendations from friends, family or professionals can help find a knowledgeable and trustworthy financial planner.
Financial planners specializing in divorce issues may hold certifications or credentials such as Certified Divorce Financial Analyst (CDFA) or Certified Financial Planner (CFP) with a focus on divorce.
These certifications indicate a planner’s expertise in handling the unique financial challenges faced by divorcing individuals.
Once you find someone you might want to work with, then it’s important to communicate with the advisor and ask any questions you may have about them or the process.
Finding a divorce financial planner not only involves getting someone with relevant credentials but also connecting with them on a personal level so that you can feel comfortable to work together.
Bottom Line
Understanding and addressing significant divorce-related financial planning aspects are crucial to ensure the financial well-being of both parties involved. Working with a financial advisor during and after a divorce can help minimize financial risks, ensure fair asset division and set the foundation for a secure financial future.
Financial Tips for a Divorce
- A financial advisor can help you navigate through the financial pitfalls of a divorce. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A divorce can impact different aspects of your financial life, including your estate plan. Here’s what you need to know to protect your assets from a potential financial loss.
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