You planned your wedding with care—every detail, every contingency. You probably even had a backup plan in case of rain. But what about your divorce?
No one walks down the aisle expecting to end up in a lawyer’s office years later, but if you’ve reached that point, you owe it to yourself to approach it with the same level of preparation. Divorce isn’t just an emotional unraveling; it’s a financial turning point. And yet, many people step into it without truly understanding what’s at stake—only to realize too late that they’ve made costly mistakes.
Having gone through my own divorce in 2022, I know firsthand how emotional the process can be—whether the split is desired or not. Major, life-changing decisions must be made at a time when clear thinking can feel nearly impossible. Surrounding myself with a team that included a therapist, attorney, financial advisor, and supportive family and friends helped me create a plan and move forward. One piece of advice I received early on was to stand up for myself and advocate for what I deserved and needed—but not to fight simply for the sake of winning every last detail.
Let’s walk through some of the most important financial questions to ask as you begin the divorce process.
What Does My Financial Picture Look Like?
Before making any decisions, you need to get a clear, comprehensive view of your finances. This means gathering all relevant financial documents, including:
- Bank and investment account statements
- Retirement account and pension details
- Mortgage statements and property deeds
- Credit card balances and loan statements
- Recent tax returns
- Insurance policies
- Any shared business interests
If you and your spouse have joint accounts, now is the time to ensure you have copies of all records. It’s also important to check your credit report to understand any outstanding debts in your name. Financial transparency is key—without it, you may not be negotiating from a position of strength.
This process can feel overwhelming for those who haven’t actively managed their household’s finances. Seeking guidance from a financial advisor can help you organize and assess what you have so you can make informed choices.
How Will Divorce Impact My Cash Flow?
Divorce alters not only your long-term financial picture but also your day-to-day cash flow. The shift from a two-income household to a single-income one can be a significant adjustment. Consider the following:
- Income Changes: Will you receive or pay spousal support? Will your income alone cover all necessary expenses?
- Housing Costs: Can you afford to stay in your current home, or will it be necessary to downsize?
- Daily Expenses: Will your lifestyle need to change to reflect your new financial reality?
- Health Insurance: If you were on your spouse’s insurance, what will coverage look like post-divorce?
Creating a realistic post-divorce budget is essential. Look at your projected income, living expenses, and potential changes in employment. Many people underestimate the financial impact of divorce, making it crucial to plan ahead and avoid unnecessary financial strain.
Am I Aware of All Assets and Liabilities?
One of the biggest mistakes in divorce settlements is overlooking assets or liabilities that can have a lasting impact. If you weren’t actively involved in managing finances during your marriage, now is the time to take a deep dive.
Some assets that may be easy to overlook include:
- Stock options or restricted stock units (RSUs) that haven’t yet vested
- Deferred compensation plans
- Cryptocurrency or digital assets
- Frequent flyer miles or reward points
- Life insurance policies with cash value
- Future inheritances or trusts
Liabilities are just as important. If your name is on any loans, credit cards, or business debts, you may still be responsible for them even after divorce. Ensuring all assets and liabilities are accounted for will help prevent surprises down the road.
How Will Divorce Affect My Retirement?
Divorce often results in the division of retirement assets, but splitting these funds isn’t as simple as transferring money from one account to another. There are legal, tax, and long-term implications to consider.
Key questions to ask:
- Will your retirement accounts be split, and if so, how?
- Do you need a Qualified Domestic Relations Order (QDRO) for pension or 401(k) division?
- How will early withdrawal penalties or taxes impact the division of funds?
- Will you still be eligible for Social Security spousal benefits?
If you’re nearing retirement, assessing how asset division will impact your financial security is especially important. Working with a financial advisor can help ensure you make informed decisions that protect your future.
What Are the Tax Implications?
Taxes are critical in divorce settlements, yet they’re sometimes overlooked amid negotiations. Failing to consider the tax consequences of asset division can result in unexpected liabilities.
Some key tax considerations include:
- Capital gains taxes on the sale of property or investments
- Taxability of alimony (rules have changed in recent years)
- Dependency exemptions for children
- Tax-advantaged retirement account withdrawals
For example, if you receive the family home as part of the divorce settlement, you may also inherit the associated tax obligations. Understanding these factors before finalizing your agreement can help you avoid costly mistakes.
What’s My Plan for a Fresh Start?
Divorce isn’t just about dividing assets but building a new financial foundation. As you move forward, consider:
- How will you rebuild your savings?
- Do you need to adjust your investment strategy?
- Are you adequately insured (health, life, disability)?
- How will your estate plan need to be updated?
This is a time to take control of your financial independence. By establishing a clear financial plan, you can confidently transition into your next chapter.
Navigating Divorce with Confidence
Divorce is difficult, but financial uncertainty shouldn’t add to the stress. At Abeona, we help clients take control of their financial future, ensuring they have the knowledge and support to make informed decisions. With the proper guidance, you can move forward not just with clarity, but with confidence.
If you’re facing a divorce, let’s talk about protecting your financial well-being—now and for the road ahead. Please feel free to reach out.