Before a Divorce
What is a financial advisor? A financial advisor is a professional who looks at a client’s entire financial picture - cash flow, estate planning, taxes, investments, and insurance - and advises them on how to achieve their short- and long-term financial goals. If you are already engaged with an advisor and you are contemplating a divorce, the advisor already has access to all your financial data and can help provide this information to your attorney or mediator.
Outline All Possible Financial Scenarios
The advisor can also estimate the impact the divorce will have on your finances so you can make an informed decision on your next steps. Some recommendations may include a reduction in spending, returning to work, selling, or downsizing your home, or even solutions to minimize your taxes. All of these are life-changing events that you want to fully understand before you take the first step in a divorce.
Clear, Objective Advice for Moving Forward
However, if you are not working with a financial advisor, it would be prudent to engage one who can help you organize your finances, outline any potential legal fees, give you an understanding of your investments, and be there as a resource should you go through a divorce. Many times, I work with new clients who have no idea of their family spending, where their income is derived, and where their assets are located. The client’s focus may have been on the children or their career, and their spouse was the one who managed the family finances.
The advisor’s role is to help you get a clear picture of your spending, assets, liabilities, and income. Risk management is another area of importance to ensure there is enough insurance in place that could cover the death or disability of one of the spouses. Should you go through a divorce, you may need to retain these policies on both spouses to ensure continuity of income, especially if alimony or child support is involved. While one would think a policy on the main breadwinner is the most important, having a policy on the spouse who is at home with the children is equally imperative. Should that spouse pass away or become unable to care for the children, you would have to hire a caregiver for those kids.
During a Divorce
If the divorce is moving forward and negotiations have begun, the financial advisor can help you plan for your financial future post-divorce, including budgeting, saving, and investing. They can also help you create a plan for any retirement accounts or other investments that may be divided during the divorce, including running several cash-flow and asset scenarios to map out potential future outcomes and explore which one may be the best solution.
Assistance with Property and Asset Division
A client may want to keep the house, especially if they want to provide continuity for their children. However, doing so means they may receive less in liquid assets which can provide income or liquidity to cover future family expenses. Or there could be unrealized capital gains on the house or their investments that would be realized and potentially taxed upon sale in the future. A financial advisor can help you understand the true value of your assets, including real estate, investments, and retirement accounts. They can help you negotiate a fair settlement based on the true value of your assets.
Certified Divorce Financial Analyst®
A financial planner becomes a partner and advocates for their client as they proceed through the divorce process and can be the link between the attorney to help educate the client on the steps being taken. A divorce often takes a year or more to finalize. The financial advisor can be engaged throughout and can coordinate with the client’s other professional advisors, such as an estate planning attorney, CPA, mortgage broker, or banker. A financial professional should have knowledge in all of these areas, so they are in a good position to understand how these areas can cross over and impact the other.
If the advisor is also a Certified Divorce Financial Analyst® (CDFA® Professional), then they have additional training to understand some of the nuances and laws that apply during the divorce process. Mission Wealth has a few CDFA® Professionals, including myself, with the experience and expertise to guide clients through one of the most difficult times in their lives.
After a Divorce
Divorce is just the beginning of a new financial journey. A financial advisor can provide ongoing guidance and support as you navigate your new norm. If you used a financial planner before or during the divorce, the planner already has a working knowledge of your finances and can easily guide you to the next steps as you face your financial future. The advisor is also instrumental in helping the client transfer their portion of the marital settlement assets to new accounts, re-titling them if there is a name change back to a maiden name, and updating the balance sheet and cash flow analysis to reflect the client roadmap for the years to come.
Establishing a New Advisory Team
Many times, a couple uses the same investment advisor, CPA, or estate planning attorney. After a divorce, it may make sense to build out a new team of advisors to support your ongoing needs, separately from your ex-spouse. The advisor should be well-connected with other professionals in the area and can make recommendations that meet the client’s needs.
Divorce Planning at Mission Wealth
Overall, divorce can have a significant impact on your finances. It is important to work with a financial advisor to understand the financial implications of your decisions and develop a plan to protect your financial future. Engaging with a financial partner early on in your divorce journey can mitigate some of the stress and give you comfort that someone is there to advocate for your best interest.
Mission Wealth prides itself in assisting our clients through all financial journeys, including divorce. Should you find yourself in a situation where divorce or separation is imminent, please consider contacting an experienced financial advisor for additional support and resources.