Essential Insights Regarding Divorce Financial Planning
When you’re going through a divorce, hiring a divorce financial planner seems like one more expense you honestly don’t need. If you’re like most people, you probably assume that you have enough common sense to figure out your finances yourself. Or you assume your divorce lawyer knows enough to guide you through the financial end of your divorce without needing any other professionals on board. With your divorce expenses mounting, divorce financial planning seems like a luxury you can't afford.
But a divorce financial planner does way more than just help you balance your checkbook or figure out child support. S/he adds a depth of financial understanding and support that can make an enormous difference in your divorce.
A divorce financial professional can help you from making costly financial mistakes in your divorce. S/he can help you from overlooking the tax ramifications of your potential settlement, or overlooking an important financial issues. A divorce financial planner can start you on the road toward a sound financial future, right from the beginning of your divorce. (Yes! It’s possible!)
Unfortunately, most people don’t even think of hiring a divorce financial planner until well after their divorce is already over. By then, the die has already been cast.
Here are 8 reasons why hiring a divorce financial planner, can save you from making some serious financial mistakes.
How Divorce Financial Planning Can Help You Secure Your Financial Future
1. Divorce Financial Planners Can Help You Gather and Organize Your Important Financial Information.
Divorce is a document driven process. Yet, collecting irrelevant documents, or the wrong documents, will only make you drown in a pile of paperwork while STILL making huge financial mistakes.
The trouble is that, unless you have been through a divorce before, you probably have no idea which documents you need to collect. You’re also probably at a loss as to what to do with those documents once you have them.
A divorce financial planner can tell you which documents you will need in your divorce. S/he can save you hours of wasted effort collecting unnecessary or irrelevant information. More importantly, s/he can help you organize the documents and information you collect, so that you can easily use them in your divorce. (You can have all the information in the world, but if it’s not organized properly, it won’t help you much.)
2. Divorce Financial Planning Can Help You Make Realistic Financial Goals.
The biggest mistake most people make in divorce is not taking the time to make financial goals. If you want the best chance at financially surviving your divorce, you need to make financial goals as early in your divorce as possible. At the same time, your goals can't be “pie in the sky.” If you’ve been living on credit cards for years, having a goal to be debt free on the day of your divorce might not be realistic.
A divorce financial adviser can help you figure out your financial goals. S/he can help you set your financial targets right from the beginning of your divorce. That way, as you go through your divorce process, you will know what you need, and what are trying to achieve.
3. Divorce Financial Planners Can Help You Understand Your Current Situation.
If you were the spouse who took care of the money in your marriage, you may have a decent handle on the current state of your finances. But the devil is in the details.
It's not enough to have a “general idea” of what your assets (like your house, business or retirement assets) are worth. You need to get concrete, current information about every financial asset, debt, and account. Otherwise you risk making financial decisions based on inaccurate information - which generally leads to making bad financial decisions.
For example, you may know that you have a retirement plan, but can you identify which portion of that retirement plan is marital and which portion is not? If your spouse has a high-level job with a big company, do you know what all of his/her benefits are, and how the benefit plan really works? If you and/or your spouse own a company, how do you figure out what it’s worth? Going through your divorce without learning the answers to these questions can be disastrous.
(And if you weren't the spouse who handled the money, you need to know this information even more!)
4. Some Divorce Financial Planners Can Help You Find Hidden Assets.
While most divorce financial advisers are not forensic accountants, they have enough financial knowledge to know when something smells fishy. Most lawyers don't.
Although most people think that their attorney will be able to spot any financial irregularities in their divorce, that’s not always true. Unless your lawyer is a CPA or has special financial knowledge s/he could easily miss the signs that your spouse is hiding money. That's especially true if your spouse is very financially savvy, is purposely trying to hide money, or if you have a lot of money and your financial situation is complicated.
5. Divorce Financial Planners Can Help You Brainstorm Settlement Options.
You can’t create realistic settlement proposals if you don’t even know what’s possible. For example, it’s impossible to make a post-divorce budget if you can’t properly calculate how much child support or spousal support you are going to have to pay, or will receive. While compiling financial reports may be above your skill level, that is exactly why you need a divorce financial professional.
A qualified financial professional will have the knowledge and the tools to help you analyze your situation. S/he can help you crunch numbers and come up with creative settlement options that will be in your family’s best interest. Plus, an experienced professional can advise you about settlement options you didn't know were possible.
6. Divorce Financial Planners Can Help You Evaluate Your Spouse’s Settlement Proposal.
For most people getting a divorce is not as simple as saying, “I’ll keep the house and you keep the retirement account.” Every settlement proposal has different tax implications. Every proposal will have a different impact on your long-term financial security. If you want to make the smartest financial decisions in your divorce, you need to be able to completely evaluate every settlement proposal.
A good divorce financial planner will help you dig into your spouse’s settlement proposal. S/he can show you the long-term effect each proposal will have on your financial future. S/he will be able to help you understand the numbers so you know what's really being offered. You won’t be deciding whether to accept or reject a proposal based on your “gut feeling.” Instead, you will be analyzing each proposal from a base of data and sound financial knowledge.
7. Divorce Financial Planning Can Help You Save on Post-Divorce Taxes
Taxes can have a huge impact on how much money actually makes it into your pocket after your divorce. Income taxes, real estate taxes, and capital gains taxes can all affect your divorce settlement. You can’t properly evaluate any settlement options until you have figured out how all of those taxes will affect you.
Divorce financial planners can run projections to show you the amount of taxes you will have to pay in a variety of situations. They can help you understand which assets are pre-tax assets and which are post-tax assets. They can also help you understand whether selling your house, or any other asset, will affect your taxes as well.
8. Divorce Financial Planners Can Help you Make a Sound Post-Divorce Financial Plan for Yourself and Your Kids.
Very few people are in a fabulous financial position when they are going through a divorce. Yet, you won’t be going through a divorce forever. Once your divorce is behind you, you will probably want to know what you can do to improve your financial situation over time. A divorce financial planner can give you that kind of information.
Your divorce financial professional can run financial reports that will show you;
- How much money you have to earn and how much you'll be able to spend each month;
- How much money you have to save for your kids' college expenses or for your retirement each month;
- When you'll be able to retire, and what your lifestyle will be like when you do;
- ... and much more.
Having high quality financial reports can help you plan how to achieve your post-divorce financial goals. Seeing the reports before you make any financial settlement in your divorce can help you see the long-term effects that various settlement proposals may have on your financial future.
The Bottom Line When it Comes to Divorce Financial Planning
If you want to get through your divorce as effectively and efficiently as possible, it takes a team. A divorce financial planner should be a critical member of your divorce team. S/he can also provide enormous benefits in your divorce, and keep you from making mistakes that might take years to overcome.
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This post was originally published on March 30, 2017 and updated on September 27, 2024.
No matter whatsoever, Divorce is one of the most financially traumatic things you can go through. Money spent on getting mad or getting even is money wasted.
Agreed.