Lifestyle Read Time: 10 min

Financial Planning for Divorce

When a marriage breaks down and one or both parties realize there is no other way but to file for divorce, it often results in one of the most trying of life events. Given how divorce involves everyone in the couple’s immediate sphere and general circle of influence, it is no surprise that your financial advisor is one of the most important members you can tap to include as part of your “divorce team.”

Divorce is emotionally traumatic, and its financial impact is equally if not more devastating. It is one of the hardest financial events a person will endure and can have long-term consequences for the family well past the date the final documentation is signed and stamped. Due to the heightened emotional and financial stressors, the role of an experienced financial professional becomes an indispensable firewall against the potential for multiple, irreversible mistakes.

Understanding the Process

Divorce is overwhelming and your financial advisor’s counsel is key along with a counsel from a divorce attorney. Here are the steps your financial advisor can take to help you understand numerous aspects of the process:

  • Understanding the short-term and long-term effects of dividing property.
  • Understanding various tax-related issues specific to divorce.
  • Analyzing pension and retirement plans.
  • Calculating the present value of a pension.
  • Determining the cost basis and capital gains on the sale of different assets and properties.
  • Determining if the client can afford the marital home, and if not, what he or she can afford.
  • Evaluating the insurance needs of the client and determining if the client qualifies for COBRA.
  • Determining earning capabilities.
  • Establishing assumptions for projecting inflation and rates of return.
  • Determining child support and alimony.

Understanding the Key Topics

There are “wants”, “needs”, and what’s possible in the divorce process. The outcomes depend on agreement between spouses, state laws, thoroughness of information gathering, and strategic thinking.

Given that there are numerous topics that need to be considered, here are some examples you and your financial advisor should discuss:

  • Who gets custody of the children?
  • Child support. Who pays? What amount?
  • College savings. Who contributes and in what amounts?
  • Taxes. Who will claim the children on their tax return?
  • Spousal maintenance. How much and for how long?
  • Property. Who will live in the family home? How will the property be maintained and/or disposed of?
  • Assets. How will assets be divided? Who gets what? What are tax consequences?
  • Debts. How will debts be divided? Who pays what?
  • Retirement accounts. How will retirement assets be divided?
  • Business. How will business interests be divided?
  • Insurance. What kinds and amounts of insurance will protect the interests of the parties, and who pays for it?

Understanding the Documentation Involved

Before making any decisions, it is necessary to gather documents that will be helpful in the decision- making process. Consider the following examples as a starting point:

  • Employment information for each spouse.
  • Income sources for each spouse.
  • Job history and income potential for each spouse.
  • Employee benefits for each spouse.
  • Details of retirement plans for each spouse.
  • Joint assets, including real estate; stocks, bonds, and other securities; bank/savings accounts; IRAs.
  • Separate assets of each spouse (acquired before the marriage or by gift or inheritance during the marriage).
  • Joint debts, including mortgages, home equity loans, auto loans, and credit card loans.
  • Liabilities of each spouse, such as student loans and debts incurred prior to marriage.
  • Insurance policies.
  • Business records.
  • Tax returns for the last three years.
  • Prenuptial agreement (if any).

You can find a more extensive pre-divorce documentation checklist here

During such a trying time, it can be challenging and overwhelming to gather all the necessary financial details related to divorce. But it is worth the energy and effort because it will increase the likelihood of long-term success while also limiting any potential future regrets.

After the documents are collected, the next step should be to create a budget of the living expenses, using the information gathered

Understanding the Financial Affidavit

After all the data is collected and budgets are created, the key document to turn attention to is the “Financial Affidavit,” or in some states also known as “financial statement.” It includes the following information:

  • All income and deductions from income.
  • All living expenses.
  • All assets.
  • All liabilities.

Completing the financial affidavit can be a grueling exercise. Each party will be forced to examine their financial affairs in detail, and project income and living expenses for a post-divorce lifestyle yet to be determined. Accuracy is crucial for a fair settlement, yet many people estimate income and expenses off the top of their heads without thinking through how these items will change after the divorce.

For example, it is easy to underestimate spending on discretionary items or expenses that don’t come up very often, such as major home repairs or college tuition for kids. Your advisor should help you think through the questions on the financial affidavit to ensure you have a better chance of reaching a fair settlement.

Don’t Forget to Update the Estate

After the divorce is finalized, another very important step that remains is to update estate documents and beneficiary designations on accounts.

Divorce laws differ from state to state. Depending on the state of residence and the situation, some of the prevailing issues may be relatively simple, or some
may require thorough consideration and research. No matter if you hire an attorney or go through mediation process, your financial advisor can be an invaluable resource to help with the calculations that will ultimately help you make the right decisions.


"Cetera Financial Group” refers to the network of independent retail firms encompassing, among others, Cetera Advisors LLC, Cetera Advisor Networks LLC, Cetera Investment Services LLC (marketed as Cetera Financial Institutions or Cetera Investors), and Cetera Financial Specialists LLC. All firms are members FINRA / SIPC. Located at 655 W. Broadway, 11th Floor, San Diego, CA 92101."

Individuals affiliated with Cetera firms are either Registered Representatives who offer only brokerage services and receive transaction- based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.

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