Navigating Divorce: Financial Considerations

What’s in this article:

• The marital home: going from one to two households
• Spousal maintenance
• Child support and childcare expenses
• Retirement accounts and other investment assets
• Taxes matter
• Advisors: building your team
• Looking forward

The decision to divorce doesn’t come lightly.

Considering divorce may feel like sailing across the open ocean in a storm with only a compass for guidance. The future feels uncertain, emotions run high, and every decision seems significant.

I’ve worked alongside clients navigating divorce for more than 25 years, and I’ve experienced a contentious divorce myself.

Every separation is different, with different needs and different solutions. One person may want to move closer to parents for support. Another may want to stay so the children can remain in the same school district. Someone else might hope to return to school or start a new career.

The challenge is that all along the way, every financial decision is connected. Keeping the house affects retirement and retirement assets have different tax consequences than investment accounts. Spousal maintenance influences cash flow, which in turn affects housing decisions and long-term financial security.

The goal isn’t simply to divide assets. It’s to create two financially sustainable futures.

While there are rarely perfect solutions, thoughtful planning often creates more options and opens the door to more possibilities than many divorcing couples in the midst of the stormy process may initially realize.

Here are some of the major financial considerations while navigating divorce:

The Marital Home – Going From One to Two Households

For many couples, the marital home is both a large and non-liquid financial asset and the most emotional one.

• Does one person want to remain in the home?
• Is there a mortgage on it?
• Is there enough liquidity for one to buy out the other spouse? Would refinancing be necessary?
• What is the cost of moving or renting?

Maintaining two households almost always costs more than maintaining one. Looking beyond today’s emotions to what will be affordable five or ten years from now can help you make a decision you’ll feel good about long after the divorce is finalized.

Spousal Maintenance

Spousal maintenance is intended to help the lower-earning spouse maintain financial stability after divorce.

• Temporary: while the divorce is pending
• Rehabilitative: to provide time for education or career development
• Long-term: particularly after lengthy marriages or when age or health limits earning capacity

Child Support and Childcare Expenses

Child support is intended to allow children to continue sharing in both parents’ financial resources.

Many parents choose to divide expenses such as childcare, medical costs, extracurricular activities, and education according to their relative incomes,

Retirement Accounts and Other Investment Assets

In settlement negotiations, parties divide jointly held investment and bank accounts. Spouses also split liabilities such as mortgages and credit card debts accrued during the marriage. How the assets and liabilities are divided is negotiable and varies with each situation.

Settlement negotiations include retirement accounts like 401(k)s, 403(b)s, pensions, SIMPLEs, SEP IRAs, IRAs, and Roth IRAs accumulated during the marriage as joint assets.

Restricted stock units or stock options earned during the marriage are often considered marital property. They may be titled to one spouse but still be subject to division if earned during the marriage.

Taxes Matter

Settlement negotiations often overlook taxes, but they can significantly affect the true value of what each person receives. Don’t forget:

• The cost basis of investments in non-retirement accounts
• Which parent will claim child-related tax benefits, such as the Child Tax Credit
• Capital loss carryforwards from prior years that may provide future tax savings
• Whether assets will generate taxable income in retirement
• The timing of certain payments or asset transfers

Advisors – Building Your Team

I sometimes run across clients who hesitate to hire advisors or to leave an unhappy marriage because they fear the cost of attorneys or other advisors. I wonder if on occasion, this is actually a fear of taking the first step in divorce. In fact, good advisors will bring knowledge and experience that can help point you toward solutions, smooth the process, and help you navigate toward better long-term outcomes.

An experienced attorney helps protect your legal rights and negotiate the settlement. Clear legal documents can avoid confusion and unnecessary legal costs later on.

A CFP® professional can model long-term scenarios, evaluate tradeoffs, and help you understand how today’s decisions may affect your financial future.

I suggest starting with a 15-minute conversation with an attorney or a CFP® professional. You can use this article as a starting point for questions to ask.

Having professionals you trust can make an overwhelming process feel far more manageable.

Looking Forward

Ultimately, although painful, my divorce was a relief. I was finally aligning my life with my values. At last, my family had room to grow and thrive in ways I couldn’t have put on a spreadsheet. Looking back now, I can see the financial cost of navigating that ocean was right for me.

If you’re standing at the edge of that same shore, know that you don’t have to read the compass alone.

Our team is here to help.

Additional Resources

• Navigating Divorce – A Women & Wealth podcast
• Divorce checklist
• Divorce myths

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP® and CERTIFIED FINANCIAL PLANNER® in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.

This article is for informational and educational purposes only and does not constitute legal, tax, or financial advice. Readers should consult with qualified professionals regarding their specific circumstances.