What Happens to My Financial Plan After a Divorce?

August 22 2

Shane Stuart, Financial Advisor

If you and your spouse have come to the conclusion that divorce is your only path forward there are some practical steps that you can take to make sure that the assets that are now held together are legally retained by the right individuals.  

Build a Team of Professionals 

Divorce is an emotional topic, there is no way to avoid the feelings of hurt and betrayal that will accompany the process. Because of this, it is important to surround yourself with professionals who will provide an objective understanding of what may appear to be subjective topics. Be sure to include a trusted attorney and financial professional on your team. These professionals will act with your best interest in mind and can advise you on matters that may be too emotionally charged to tackle alone. As you build your team of professionals, also consider a therapist or a trusted confidant to round out the group. This will ensure that you are taken care of for all things legal, financial, and emotional throughout the difficult process.  

 Make It Legal and Binding 

A lot of divorces begin with a trial separation of six months or more. In these instances, the income earned, or assets attained during the separation can be available to be shared. Note that this includes debts also. If your partner accumulates debt or becomes delinquent on a payment during a time of separation without a legal filing, you may still be responsible for that debt. After a formal legal process, assets are not legally bound together.  If you’ve made the difficult decision, make it formal as soon as possible.  

 Identify What is Yours 

Following a formal legal process, identify which assets are yours. Get access to all financial statements in order to get the full picture of your current financial situation. Make a list of what will be yours going forward and what you should not be responsible for. It’s important to list these assets out in order to avoid liability. If you have life insurance policies or estate plans, now is the time to update your beneficiaries accordingly. 

 Understand Your New Cash Flow Needs 

After you’ve taken stock of your assets and liabilities, it is important to understand your new cash flow needs. Will this change mean a reduction in your monthly income? Will you need to supplement your income to maintain your current lifestyle or will a change in lifestyle be required? Another consideration is that you may find yourself free of debts that were part of the marriage. In that instance, how will you reallocate assets?  

A financial advisor can be an important ally through this difficult process. As part of your team of professionals, an attorney will look to minimize immediate impact for clients whereas a financial advisor will take a more holistic, long-term approach. For example, in a settlement, an attorney may recommend a specific dollar amount paid to each party. A financial advisor may recommend that assets be divided as percentages. If the asset grows in value in the time that it takes to complete the process, you will benefit from the growth as opposed to just being awarded a specified amount.  

Despite numerous warnings not to do so, you will make decisions in an emotional state. It is important to set a rhythm with your financial advisor in order to regularly evaluate the impact of those decisions as the dust settles on this difficult time. As the image of what life can start to look like, a financial advisor will be able to help you map the financial journey that follows this unexpected detour.