Navigating a divorce is challenging not only emotionally, but also financially. Given the legal ramifications, emotional stress and psychological impact involved in the dissolution of a marriage, people in the midst of this difficult process may neglect to take essential steps to ensure their own financial well-being.
Financial advisors might be able to help, but they must know what they’re dealing with, and unfortunately, many of the finer details can go unnoticed during such a severe upheaval. While the consequences of ignoring vital considerations around finances might take some time to realize, they could be devastating in the end.
To help, members of Forbes Finance Council highlight 10 of the most critical financial concerns that individuals going through a divorce need to consider.
1. Document Everything
Having been there, I know firsthand how mentally and emotionally draining navigating a divorce can be. While it seems like a chore, document everything as best you can. Be concise, clear and honest. Don’t leave room for misunderstanding your words or open yourself up to further deliberation. – Lori Moes, DJM Design CAD & Coordination Services Inc
2. Create An Advisory Team
Divorce represents a significant life change and often requires rebuilding one’s financial strategy. Avoid doing it alone. Alternatively, create an advisory team to eliminate mistakes and support your important goals. Experts in taxes, law, banking, insurance, mortgages, budgeting and wealth management must work cohesively to develop a specific, manageable and sustainable plan to follow. – Sharon Olson, Sharon Olson, CFP
3. Be Aware Of Life Insurance Demands
The spouse responsible for paying alimony and child support is frequently required to provide life insurance to the receiving spouse. The life insurance is to replace alimony and/or child support in case the payor suffers a premature death. Most divorce attorneys ask for a flat amount of death benefit, which is usually woefully low. The present value of future payments should be calculated. – Michael Seltzer, Vérité Group, LLC
4. Consider Your Tax Status
Many states require a 90-day waiting period, which can be frustrating for couples who want a swift end; and if a couple is still legally married as of December 31st of that tax year, they will still be filing joint taxes. It’s best to have one spouse find a new tax practitioner to avoid any conflicts of interest. – Jackie Meyer, Meyer Tax, The Concierge CPA Coach
5. Consult An ERISA Specialist
Amicable divorce happens for some. Here’s a reality check: You may be kind and play fair, but they may not. When it comes to the 401(k), get a copy of your and your spouse’s 401(k) plan documents and have an ERISA (Employee Retirement Income Security Act) specialist weigh in. It’s common for non-ERISA attorneys to get involved or use common sense to push for something, but ERISA is its own world. You may be more protected (or entitled) than it might seem. – Faith Teope, Leverage Retirement
6. Update Your Estate Plan
Having an updated will and making sure beneficiaries are accurate are critically important steps. I have seen clients get divorced, forget to change the beneficiary on an insurance or retirement policy, and then pass away. That poses a massive problem from an estate perspective. Get your financial affairs in order after a divorce! – Michael S. Schwartz, Magnus Financial Group LLC
7. Consider Selling The Marital Home
One of the biggest money surprises in divorce can be the costs of keeping the marital home. Most cannot sustain or afford a home that was previously supported by two incomes or, at least, by one income and one person managing the upkeep of the house. In the moment, keeping the house might seem to be the right decision for emotional or nostalgic reasons, but it could become a financial burden. – Stacy Francis, Francis Financial, Inc.
8. Consult A Financial Advisor Before Making Hasty Decisions
You are going through one of the biggest losses in life; you are emotionally and financially vulnerable. As a result, you may make quick financial decisions to distance yourself from the pain of the split. You need not just an attorney on your side, but also a financial advisor who will act as your advocate and be a sounding board regarding all financial decisions to take that weight off of you. – Lance Drucker, Drucker Wealth Management
9. Don’t Burn Through Savings Paying Legal Fees
Do your best to keep things civil and make arrangements outside of court. A lot of people fall into the trap of hiring an attorney to protect their financial well-being, but end up burning through savings due to legal fees. In that scenario, only the attorneys win. Instead of negotiating through attorneys for a year, agree on a plan, then go to attorneys to file the paperwork. – Joe Camberato, National Business Capital & Services
10. Consider The Cost Of Future Time Constrictions
I think it’s important to consider that not only will your income or spendable cash become tighter, but your available time will become more limited as well. This is more of a concern for folks who have children, as they will not have a partner close by to help juggle emergencies or the unexpected. – Joseph DiSanto, Play Louder