Establishing Post-Divorce Financial Health

Karen Sparks

By Karen Sparks | Dec 10th, 2018

Divorce can create an environment of financial panic. Why? Because there is so much mental action/reaction to a myriad of life-changing decisions. In this setting, it can be tempting to consider short-circuiting the pain of divorce by treating your financial assets like a game of Monopoly- throwing the dice and then randomly moving (your marital finances) around the board to see where you eventually land as a destination.

However, this mindset can generate negative consequences for post-divorce income planning and it can also result in decisions that cannot be undone.

Let’s take a look at more focused approaches to common processes that happen during divorce settlement negotiations that can have a meaningful impact on post-divorce finances and budgeting.

Liquidating assets before there is a clear plan

Before targeting accumulated assets and investments in an attempt to level the playing field and/or provide capital for divorce allocations, take a step back. Ask yourself, what is the ultimate objective we are trying to achieve? Is timing an issue? Are there restrictions and/or regulations that require consideration?

The examples below will illustrate how real estate and investment decisions are two key areas where the lack of thorough investigation can have a big impact.

Consider this scenario:

There are two parcels of real estate – the marital residence and a marital rental property. The parties decide to sell the rental property to create proceeds for the divorce financial discussion. On the surface, this does not appear to be a negative decision. However, this action was taken before seeking the services of a professional such as a certified divorce financial analyst to provide strategies that are based on identifiable goals and how those goals would be affected by capital gains treatment, federal and state taxation, depreciation recapture etc. Therefore, the net amounts resulting from this transaction may or may not be sufficient to provide resources for settlement.

Additionally, be careful when you are exchanging one group of investment assets for another in order to create equitable monetary transactions in divorce. These are usually not dollar for dollar matches.

Consider this scenario:

One party has significant RSU (restricted stock units) accounts. The decision is made by the spouse who is the account holder to sell a large portion of this stock to create proceeds for the divorce financial discussion. Similar to the example above, this action was taken without professional consultation. Thus, the rules and regulations surrounding vesting, account value, timing, tax treatment, income brackets etc. were not taken into consideration in the analysis to determine if the exchange is a good value and makes sense. The takeaway here is to look before you jump into any financial decision that could potentially land you on shaky ground.

Timing of actions during divorce

Sometimes things reach a point where you are seriously contemplating an emotional action or reaction. For divorce, the buzzwords are timing is everything. Before you jump ship, think about your current life circumstances which may include some of the following issues:

  1. Are there bonuses or other non-wage compensation for either you and/or your spouse that are coming due in the near future?
  2. Are you close to the number of years (10) of marriage to qualify for participation in your spouse’s’ social security payments?
  3. What does your credit profile look like? Are you able to qualify for major transactions on your own?
  4. Are there upcoming medical, dental or psychological treatments that are more economically handled under the current family medical coverage?
  5. Can costs for the education and academic support services for minor children be maintained?
  6. Depending on the alimony/spousal and child support guidelines and laws in your jurisdiction, how long and how much support will you be receiving?

Working with a certified divorce financial analyst professional to help you sort through key points prior to taking the next step will equip you with the confidence to move forward.

Estate Planning

Unfortunately, taking the time to make sure that the important items in life are organized and set up for success after your death or during your disability is usually a task that most individuals either ignore or procrastinate in fulfilling. Once divorce is a reality, attention should be given to the realignment of bequests of tangible items, insurance proceeds, real property, bank accounts, and investment accounts etc.

It is a good idea to work with an estate planning professional alongside your other divorce professionals so that as decisions are made regarding the marital assets, debts, investments etc. These decisions can be incorporated into the estate planning as required. These changes to the estate plan should be made so that they are in compliance with divorce laws and estate planning statutes.

In any situation, it is not enough for those that are close to you to have a sense of what you would want to be done in the event of death or disability. These provisions need to be in writing. And now that divorce is changing the family landscape, you will want to be clear on who will make health and financial decisions for you. Thought should be given to the welfare of minor children and who will have responsibility for making sure that someone who shares your values and vision will be available to lead those children to adulthood should something happen to you by death or disability.

Giving the gift of planning and organization is the best way to love and honor those that are dear to you.

It is important to be intentional about seeking the proper professional financial guidance and strategies to ensure that your participation in all of the community assets is what it should be. The future is important so stay proactive and focused for success.

Karen Sparks

Karen Sparks

Karen D. Sparks, CDFA®, J.D. is the principal and owner of Divorce Financial Strategists™. She provides clients with focused divorce analysis and strategies for marital assets.


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