Divorce is an emotionally charged affair replete with draining procedures and whatnot. Making appropriate financial decisions at the time can be essential, and a divorce financial planner can help you weather the storm.
Divorce and Financial Planning
According to data from the Centers for Disease Control and Prevention (CDC) and National Center for Health Statistics, about 2 million people from 45 states get married each year, and 750,000 eventually get divorced. Hence, divorce is more common than you might have assumed. And One of the reasons why most couples dread divorce is the devastating financial consequences associated with the procedure.
When divorce happens, couples must unravel their assets and finances while considering retirement savings, taxes, and income. Having to deal with this alone can take a toll on your mental and emotional well-being. But not to worry, an excellent divorce-focused financial planner can help you navigate this daunting process without stress or anxiety. Effective divorce financial planning helps pave the road to financial independence in the wake of your divorce.
What it Means
Divorce financial planning targets personal and business development strategies that help individuals achieve the best divorce settlement beneficial to their circumstances. While a family law attorney focuses on legal issues and therapists provide emotional support, a trained financial specialist will help you sort out money issues. The primary objective of divorce financial planning is to shed light on the actual value of your assets, your options, and how decision-making can impact the outcome of your finances.
Given that divorce proceedings are emotionally draining, you may lack the clarity to make the right decisions, which can spell disaster for your future financial standing. But when you enlist the services of a seasoned financial professional, they will help you devise a strategic plan that will help protect your finances and keep colossal financial mistakes or risks at bay.
Who is the Best Professional for the Job?
You will need the services of a financial professional with an intensive understanding and interpretation of divorce-associated financial, tax, and investment portfolios. The complexity of your finances and assets will determine the financial professional you should hire for the job. However, a divorce financial advisor is best suited to handle the process.
A qualified divorce-oriented financial advisor will help you evaluate and understand your current financial position, offer valuable advice, proposition the best divorce settlement, and assess the long-term impacts of your financial decisions. Generally, a Certified Divorce Financial Analyst (CDFA) or a Certified Financial Planner (CFP) is considered the most qualified for this position.
A CFP has in-depth knowledge and expertise in all aspects of financial planning, while a CDFA has specialized training in divorce’s financial and tax facets. Other professionals that can assist with divorce financial planning include a Chartered Business Valuator (CBV), a Certified Valuation Analyst (CVA), and a Certified Fraud Examiner (CFE).
In some cases, you may also need the services of a divorce mortgage advisor and a forensic accountant to help with divorce-centered underwriting guidelines and identify a spouse’s true income and assets, respectively.
Top Financial Concerns that Warrant Divorce Financial Planning
Property Division — Often the first point of concern, property division can be emotionally hectic. Arguments about who gets what will likely ensue. You may be sentimentally attached to certain items and wouldn’t want to give them up without a fight. Some properties may appear impossible to split.
Debt Division — is another challenging area where conflict of interest abounds. The warring couples must decide who will offset any debt incurred during the marriage. You can’t do this without knowing the full details of how much is owed or to whom. You need a financial professional to guide you through this tumultuous process.
Tax Concerns — Most couples focus on obvious problems like property division and child custody while neglecting the tax implications of divorce. Unfortunately, this common oversight can drive one into a financial quagmire. But a CFP or CDFA can save the day.
Retirement Plan Issues — In cases where a spouse has retirement savings, their partner is entitled to half by law. You can invest this money into your retirement income, pay a down payment on a house or use it to relocate elsewhere. Division of retirement assets is a tricky affair that requires the wise counsel of a financial professional. Asides from the division, you must also map out a sustainability plan to secure your financial future.
The Top Elements of Divorce Financial Planning
Collecting Financial Information — First, you must provide accurate information about your finances and assets, so the professional can accurately evaluate the data and work out an effective plan. You must commit to full disclosure without withholding vital information.
Budgeting and Cash Flow Analysis — The next step is to make a budgeting and cash flow analysis to set the foundation for a stable financial future. Your cash flow and net worth will predict your post-divorce lifestyle.
Possible Settlement Analysis Options — Assets are typically divided in compliance with state laws, which can be on a 50-50 basis or not. Sometimes a spouse may give up a greater share of an asset to gain a larger share in another. This is common with homes, retirement accounts, and business ownership interests.
Risk Management and Asset Protection — One of the critical considerations of divorce financial planning is ensuring that you are protected against unforeseen circumstances. Instances like losing child support or alimony when your ex-spouse passes away or becomes disabled are taken into consideration. Your financial specialist will ensure that the existing life insurance coverage is cost-effective and will stand against inevitable events.
Estate Planning — Your CFP or CDFA will update your will, trusts, and all financial elements to complement your post-divorce needs and goals. This includes changing the beneficiaries of your estate and transferring your wealth to heirs or charity supports, among other plans and processes.
Strategy Development — At the end of the financial review and interpretation, you will have discussions with the professional about your financial desires, wishes, and needs. Afterward, they will highlight the consequences of your financial decisions before you make them and create a sustainable plan that aligns with your objectives.
Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate.
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