Don’t get divorced from financial reality when ending your marriage

On Nov 15, 2021

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A lawyer may be your first call when you decide you want a divorce, but a financial advisor should be your second.

In many cases, a divorce has more impact on a person’s current and future financial well-being than any other event in their lives. Sound financial planning may be the last thing on your mind when your marriage ends — particularly if it ends in conflict — but it may never be more valuable.

“Divorce happens in an emotionally charged environment and you’re making financial decisions in a few months that will affect you for the rest of your life,” said certified financial planner and certified divorce financial advisor Michael Ruger, partner and chief investment officer at Greenbush Financial Group in Albany, New York. “People often don’t look far enough ahead.”

The first thing to understand is that for everyone but the very wealthy, divorce will hurt your standard of living. Two households are more expensive to maintain than one, and if one person in the marriage has been a stay-at-home parent, there is less income and assets to go around.

A settlement, whether mediated or litigated, will almost certainly reduce your quality of life.

Secondly, unless your marriage was short-lived and is ending amicably, you have no children and little marital assets and income, you should consult both a lawyer and financial advisor.

Online divorces are dirt cheap but a good idea only for very simple circumstances with mutually acceptable terms. The mistakes made in a divorce settlement have long-lasting financial effects.

“People make mistakes in the divorce process that leave them vulnerable,” said Stacy Francis, a CFP and CDFA and president and CEO of Francis Financial in New York. “We can’t make everything alright but having a financial plan that shows you what a settlement looks like three years out and 30 years out helps a lot.”

Five key issues to consider in divorce

1. Mediation versus litigation: A divorce settlement mediated with a collaborative approach has some major advantages over litigation. It typically costs less and has higher compliance rates than with litigated settlements.

More importantly, it can save you the emotional fear and loathing that comes with litigation in divorce court. The biggest potential downside is that if the mediation doesn’t work, you’ll end up in court anyway prolonging the ordeal.

“There are amicable splits but it’s not usually the case,” said Francis. “There can be a lot of conflict about what a settlement will look like.

“Just as there were conflicts in marriage, they often remain in divorce.”

2. Budget for the long-term: A clear understanding of your long-term living expenses is crucial to negotiating support payments and a settlement you can live with. That’s particularly so for parents who…