6 Steps to Navigating Financial Considerations During Divorce
Divorce can be an overwhelming and emotionally charged time, and the financial aspects can often add to the stress. However, making informed financial decisions is consequential to securing your future. By understanding and addressing key financial considerations, you can navigate the process more confidently and emerge in a stronger financial position. Here are some of the most important financial aspects to consider during a divorce:
- Understanding Your Finances
Before making any decisions, gather all financial documents, including bank statements, tax returns, mortgage documents, investment accounts, and debts. This comprehensive understanding will serve as the foundation for all financial decisions moving forward.
- Creating a Post-Divorce Budget
Nobody enjoys budgets; however, your financial landscape will change post-divorce. It's crucial to create a new budget that reflects your current and future financial realities. Consider all sources of income, including potential alimony or child support, and account for all expenses, from housing and utilities to groceries and transportation. This budget will serve as your financial roadmap, helping you adjust and plan for the future with confidence.
- Dividing Assets and Debts
The division of assets and debts can be one of the most contentious parts of a divorce. Identify all marital assets and liabilities and work with professionals to ensure a fair division. This can include the family home, retirement accounts, vehicles, and any other jointly held assets. Understanding the value and implications of these assets is key to making informed decisions. This is also an area where an experienced professional can provide value. Based on your own goals post-divorce, some assets may be more advantageous to you than others.
- Tax Implications
Divorce can significantly impact your tax situation. Alimony payments, child support, and the division of retirement accounts can all have different tax consequences. This may not necessarily be an area of strength for your attorney. It's important to consult with a financial advisor and tax professional to understand these implications and plan accordingly. This can help you avoid unexpected tax liabilities and optimize your financial outcomes.
- Updating Legal Documents
After a divorce, you need to update various legal documents to reflect your new situation. This includes your will, power of attorney, and beneficiary designations on insurance policies and retirement accounts. Ensuring these documents are up to date is important to protecting your interests and ensuring your wishes are honored.
- Seeking Professional Help
Divorce is a complex process that often requires professional support. You may need a team including attorneys, therapists, financial advisors, and CPAs to navigate this challenging time.
Your family law attorney will be your primary guide, providing specific legal advice and navigating the legal aspects of your divorce.
A financial advisor helps you understand your finances, plan for the future, and manage the financial complexities of divorce. Specifically, a Certified Divorce Financial Analyst® (CDFA) is trained to address the financial issues related to divorce, such as asset division, tax implications, retirement accounts, and post-divorce budgeting. This specialized guidance helps you make informed decisions and feel more confident about your financial future.
Including a CPA on your team is also valuable. They focus on the tax changes related to divorce and provide specific tax advice. If needed, your financial advisor can recommend an experienced CPA.
Lastly, a therapist can be crucial in helping you manage the emotional challenges of divorce, offering support and guidance through this difficult period.
Navigating a divorce is never easy, but understanding these financial considerations can make the process more manageable. If you are going through a divorce or think you may be in the future and have questions about your finances, reach out to us. We are here to help you make more confident financial decisions during this challenging time.
Tyler G. Morris, CDFA®, CFP®
Financial Advisor
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tyler G. Morris and not necessarily those of Raymond James.
