Financial planning during divorce

Financial planning during divorce: Securing your financial future

By Lance Hiesinger, Senior Financial Advisor, CFP, CIM, FCSI CFDS, CFDA 27 February 2024 3 min read

Going through a divorce is a life-altering event that requires careful planning to protect your interests and ensure a prosperous future. This is what you’ll need to consider to safeguard your finances through a divorce.

Build new financial plans as quickly as possible

The impact of a divorce on your finances is so significant that anyone going through one will need two new financial plans—an interim one that can be quickly assembled during the divorce and a second, more detailed one for the long-term. Both should incorporate:

Your current income and expenses.
Child support payments, if applicable.
Your future financial needs and obligations.
A convenient way of keeping close track of your expenses, which will be useful both during and after the divorce.

During your divorce, your financial plan should also include a few key elements connected with your spouse.

The first is a way to maintain the financial situation of your family. That means reaching an agreement with your spouse on how joint household expenses will be covered during the divorce. It’s also a good idea to stick to essential spending during the divorce.

The second is a way to track the expenses of your children, if applicable. These records will be needed to accurately calculate child support payments and to make sure your children’s financial needs are met. Creating a dedicated credit card for your children's expenses is a convenient way to track this.

Protect your information and your assets

The nature of divorce means you need to take steps to protect your information and your assets. The six tips described in Safeguarding Your Interests will help you protect your financial interest and well-being.

Disentangle your finances

Separating the finances of two legally married parties can be one of the most complex and contentious parts of divorce. You’ll need to consider:

The tax implications. Joint filing makes both parties liable for accuracy and taxes owed, including any penalties. Speaking with a tax professional will help you make informed decisions based on potential tax benefits and the impact on your overall financial situation.
Options for the marital home. The marital home is often a significant asset, but it can also become a burden. A qualified appraiser can help you determine its value, including in court if necessary. Selling, arranging a buyout, or joint ownership of the home are all viable options with their own financial implications.
Spousal support. Lump-sum versus periodic payments both offer distinct advantages and drawbacks to the recipient and the payor of spousal support. Your financial advisor and your attorney can help you determine which suits you best. Spousal support should also be insured to protect both parties.
Dividing investment portfolios. An in-kind split or cash allocation are the two major options for this. The right one will depend on many factors including cash flow generated by investments, capital gains or losses, and registered investments. An actuary will be needed to value and split any defined benefit pension plans.
Negotiating debts. You and your spouse will need a clear understanding of shared debts to avoid future complications. You should also define your responsibilities for any new debts incurred after the separation date. Aim to eliminate as much shared debt as possible during the divorce process.

Think of the children (if applicable)

If you have children, your divorce will be a major change for them too—and in more ways than you might suppose. You will need to consider:

Child support. The tracked expense records mentioned above are essential here. Try to forecast any future expenses for your children like therapy, driver’s education, medical care, sports, clothing, and education savings.
Parenting plan. This should address not only custody arrangements but also protect the financial wellbeing of the children. Your insurance advisor and attorney can provide important input here.
Insurance. Any child support payments should be insured. Clearly designate beneficiaries and avoid lapses in coverage to protect the financial security of your children.

You don’t need to do this alone.

Taking in everything you need to track and thinking through connected with a divorce might feel daunting or even overwhelming. There is a lot to take in and a lot to do. But you don’t have to do it alone.

A strong divorce team can take a huge portion of the worry and uncertainty out of the divorce process. You’ll know you’ve found the right team when you feel they are making your life easier, less complicated, and more predictable. I would love the opportunity to demonstrate how I can help if you are going through a divorce right now.

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