Best Financial Advice for Divorce

You're already feeling the stress of divorce. But imagine a scenario where, instead of being in control of your finances, you're drowning in unexpected costs, legal fees, and emotional strain. Sounds terrifying, right? Divorce can easily turn into a financial minefield, draining your bank account and leaving you in a worse position than you ever expected. But here's the thing: it doesn’t have to be that way.

The financial stakes are high, but smart decisions early on can save you thousands of dollars, and more importantly, your peace of mind. In fact, some people even come out of a divorce financially stronger by adopting the right strategies. So, how do you make sure you’re one of them?

Protect Yourself First: Know What You Own and Owe

You need to know your assets and debts like the back of your hand. This is where many fail—they go into a divorce without a clear picture of their financial situation, only to discover hidden debts or overlooked assets later. Start by gathering all your bank statements, investment accounts, tax returns, and property titles. Create a detailed list of all assets and liabilities. This should include:

• Bank accounts (checking, savings, joint, and individual)
• Investment accounts (stocks, bonds, retirement plans)
• Real estate properties (homes, rental properties)
• Debt (credit card debt, mortgages, personal loans)

Missing any of these could cost you dearly.

Hire a Financial Advisor, Not Just a Lawyer

While most people immediately think about hiring a lawyer, they overlook the importance of consulting a financial advisor who specializes in divorce. A financial advisor can help you make sense of complicated assets like retirement accounts, stock options, and property investments. They'll assist in structuring settlements in a way that benefits you in both the short and long term.

A key piece of advice? Don't assume the house is the best asset to fight for. In many cases, keeping the house could leave you with massive debt and maintenance costs that can drain your resources. A financial advisor will guide you to assets that offer greater liquidity and long-term financial health.

Understand the Tax Implications

Divorce isn't just about dividing assets—it’s also about the tax implications of those assets. Did you know that receiving a large payout from a retirement fund can incur hefty taxes? Or that keeping the family home could come with unforeseen tax burdens? Working with a tax professional during your divorce is non-negotiable.

They can help you understand key tax issues like:

• Alimony and taxes: Since 2019, alimony payments are no longer tax-deductible for the payer, nor are they considered taxable income for the recipient. However, you may still need to negotiate payments carefully, taking into account how they affect your overall tax situation.
• Capital gains taxes: Selling joint properties like your home can result in capital gains taxes, depending on how long you've owned it and how much it has appreciated in value. Your divorce attorney may overlook this, but it’s crucial to have the help of a financial expert to mitigate these risks.

Budgeting for the New Normal

Post-divorce life usually means living on one income instead of two, which can be a major adjustment. Establish a budget right away, factoring in new living arrangements, legal costs, and any alimony or child support payments. People often forget how expensive a single life can be after years of sharing expenses, so preparing now will help cushion the financial blow.

When setting up your budget, consider long-term goals. Will you need to go back to school for additional education to increase your earning power? How will you rebuild your retirement savings if they've been drained by the divorce?

Here’s a simple budgeting guide to help you manage post-divorce finances:

Expense Category	Suggested Budget Allocation
Housing	30%
Debt Repayment	20%
Savings/Retirement	15%
Living Expenses	20%
Discretionary	15%

This framework allows you to maintain control over your finances while you adjust to your new life.

Focus on Retirement Accounts

One of the most critical—and overlooked—aspects of divorce finances is retirement accounts. These often hold a significant portion of a couple’s wealth, and mishandling their division can have severe consequences. You may be entitled to a portion of your spouse's 401(k), pension, or IRA. However, dividing these assets isn’t as simple as cutting them in half.

Get a QDRO (Qualified Domestic Relations Order) for dividing retirement assets. Without this legal document, any retirement payouts you receive could be hit with early withdrawal penalties and taxes.

Additionally, reassess your own retirement plan. If your retirement savings have been split, you’ll need to contribute more to make up for the loss. Consider revising your investment strategies or looking for ways to increase contributions in your remaining working years.

Emotional Spending and Divorce: A Dangerous Mix

Divorce is an emotional rollercoaster, and it can be tempting to engage in emotional spending to cope with the stress. Many people fall into the trap of treating themselves to big purchases—vacations, new cars, or even luxury items—as a way to reclaim control during the chaos. But this can be incredibly dangerous for your financial health.

Instead, focus on building an emergency fund. Set aside at least 3-6 months' worth of living expenses to act as a cushion for any unexpected costs that may arise post-divorce. This fund will give you peace of mind and help you avoid the stress of additional debt.

Life Insurance and Divorce: Don't Forget

Most people forget about life insurance during divorce proceedings, but it plays a critical role in protecting your financial future, especially if you have children. If your ex-spouse is paying alimony or child support, consider requiring them to have a life insurance policy with you as the beneficiary. This ensures that those payments continue even if something happens to them.

Review your own life insurance policies as well. Make sure to update beneficiaries to reflect your new situation, ensuring your assets go to the right people when the time comes.

Build Your Support Network

One of the hardest parts of divorce is the sense of isolation it can bring. Having a strong support network—emotionally and financially—is key to staying on track. This might mean working closely with a financial planner, surrounding yourself with friends or family, or even seeking out divorce support groups.

Don’t be afraid to ask for help. Building a reliable team can provide both emotional and financial stability during one of the most challenging times of your life.

Start Fresh, But Smart

Divorce is the end of one chapter, but it's also the beginning of a new one. As hard as it may be, take time to think about your future financial goals. This is your chance to start fresh and set yourself up for long-term success. Whether it’s pursuing a new career, investing in your passions, or simply securing your retirement, the right financial moves now can set the tone for the next phase of your life.

In conclusion, divorce can be financially daunting, but with the right strategies, you can emerge not just unscathed, but potentially stronger than ever. Knowledge is power, and by taking control of your financial future now, you can build the life you want post-divorce—on your own terms.