Divorce Financial Planning
DIVORCE + FINANCIAL DECISION-MAKING
The Financial Side of Divorce
Divorce can require a series of major financial decisions, often at the same time. Understanding what you own, what you need, and how different choices may affect your future can make the process more manageable.
This guide covers some of the financial issues worth considering before, during, and after a divorce.
Start with the complete financial picture
Before making decisions about individual assets, it helps to understand how all of the pieces fit together.
That can include:
- Investment and retirement accounts
- Real estate
- Cash and short-term reserves
- Business interests
- Stock compensation
- Debt and liabilities
- Insurance
- Social Security and pension benefits
- Ongoing income
- Current and future spending
- Taxes associated with different assets
Two assets with the same dollar value may have very different economic value once taxes, liquidity, and future growth are considered.
Five financial questions worth examining
A settlement should be evaluated in the context of the life it needs to support. That means looking beyond today’s expenses and considering housing, healthcare, travel, education, family support, taxes and longer-term goals.
A forward-looking cash-flow analysis can help determine whether the resources available are likely to support those priorities over time.
Keeping the family home can feel like the safest or least disruptive option, but it is ultimately a financial decision as well as a personal one. Consider:
- Mortgage and property taxes
- Insurance and maintenance
- Liquidity
- Capital-gains implications
- How much of your net worth would remain concentrated in the property
- Whether the home fits your longer-term cash flow
The right question is not simply whether you can keep the house. It is whether keeping it supports the rest of your financial plan.
A dollar in a checking account is not necessarily equivalent to a dollar in a traditional IRA, a highly appreciated brokerage account, or interest in a private business. Taxes, liquidity, cost basis, investment risk, and restrictions can materially affect the value of what you ultimately receive.
Understanding those differences before assets are divided can help avoid unintended consequences later.
An investment portfolio that made sense for a married household may not make sense after divorce. Your appropriate allocation may change based on:
- New spending requirements
- Changes in income
- Short-term liquidity needs
- Retirement timeline
- Concentration in particular investments
- Your individual tolerance for investment risk
The goal is not simply to divide the existing portfolio. It is to determine what portfolio makes sense for you going forward.
The financial work does not necessarily end when the divorce is finalized. There may still be accounts to transfer, beneficiaries to update, investments to reposition, cash-flow decisions to make, estate documents to revise, and tax issues to coordinate.
Creating a post-divorce financial plan can turn a collection of newly divided assets into a coherent strategy.
A good financial settlement is not just about what you receive. It is about what those assets can support over the years ahead.
Before agreeing to major financial decisions
- What will I own after the divorce?
- What taxes are embedded in those assets?
- What will my annual lifestyle cost?
- How much liquidity will I need?
- What income will I have going forward?
- What does my retirement picture look like?
- How should my investments be structured?
- What financial risks am I taking by keeping certain assets?
- What needs to happen once the divorce is complete?
Financial guidance through a major transition
VITA Wealth Advisors works with individuals and families facing significant financial decisions, including those surrounding divorce.
Our role is to help clients understand their financial picture, evaluate alternatives, and develop a long-term strategy around their investments, cash flow, and financial goals.
Jessie Hale, CFP®, CDFA®
Founder, VITA Wealth Advisors
Have a question? Contact us.
