How to Address and Overcome Common Financial Fears of Running Out of Money During a Divorce

Alongside the death of a loved one and moving, divorce is among the top three most stressful life events people face. A divorce takes an emotional and financial toll on the involved parties that varies greatly, influenced by each client’s unique circumstances. Shared businesses, real estate, children, single-income households, and other factors add additional considerations and concerns. 

At Monarch Wealth Strategies, we often work with clients at every juncture of the divorce process, addressing objectives such as managing finances for the first time, ensuring the well-being of children, and optimizing settlements. Through our expertise, we aim to alleviate common concerns associated with divorce, offering practical solutions that empower clients to navigate this significant life transition with greater confidence. In this blog post, we’ll explore these concerns and share insights to help you navigate the complexities of divorce more effectively.

How Will I Survive Financially After a Divorce?

One of the primary concerns for clients going through a divorce is the question of financial survival. Whether maintaining their lifestyle, supporting children, affording their home, or something else, these worries can weigh heavily on breadwinners and low or non-income-earning spouses. 

Does a divorce always lead to financial hardship? 

Fortunately, not every divorce leads to financial hardship, especially with a strategy in place and the trusted guidance of a professional team advocating and supporting you. However, financial survival amid divorce often requires you to reevaluate and significantly adjust spending and savings habits, so knowing how much post-divorce income and after-tax assets you will have is an initial step in determining necessary changes. While every client’s situation is different, there are certain components all clients should be aware of before and after a divorce settlement to maximize income, prepare for adjusted cash flow, and continue reaching toward their personal goals. 

Connect your professional team

In every case, we recommend assembling a professional team, such as a financial planner, CPA, business appraiser, attorney, pension valuator, or others. This team will work together to outline your options and evaluate the proposed settlement’s impact on your financial well-being. Divorce specialists can also help bring clarity to a challenging time, helping you steer clear of emotional decisions that may further affect your finances.

Your team should proactively address your concerns, answer questions, and develop strategies to enhance your financial standing. For example:

• Can you afford your house and regular expenses post-divorce?
• Should you finalize your divorce in the following year to allow you to file jointly one last time and gain additional tax and income benefits?
• Are you still on track for retirement?

Be sure to maintain open and frequent communication with your team before, during, and after your divorce to ensure everyone’s aligned and able to provide you with comprehensive support.

How are Assets Divided in a Divorce?

The division of assets is a pivotal component of divorce settlement negotiations. We’ve witnessed how settlements are often underestimated, for example, when a spouse is awarded a house they can’t afford, assets are overlooked, or a pension is undervalued. To begin, you should know if you live in an “equitable distribution” or “community property” state and how that affects the division of your marital assets, including your home and retirement plans. 

What is equitable distribution in a divorce?

Equitable distribution is a legal process at a judge’s discretion in which assets and liabilities are fairly divided among the couple rather than equally. For example, the process may consider each party’s income, treatment in the marriage, future financial circumstances, and other relevant factors. The goal is a fair distribution considering the dynamics of each case.

What is community property in a divorce?

Community property equally divides assets and liabilities that were accrued during the marriage. Anything acquired before the marriage or specifically held separately is typically excluded from the division. This approach provides a more straightforward, clear framework for dividing assets.

Do I have to go to court to divide assets in a divorce?

Going to trial has been the traditional route for many complex divorce cases. However, instead of court or to keep court involvement to a minimum, many couples now opt for alternative dispute resolutions such as arbitration, mediation, and collaborative divorce to reach agreements without a trial. These can be beneficial and provide a streamlined, amicable resolution, for example, in an uncontested divorce in which couples agree about aspects such as the custody of children and division of assets.

We encourage you to consult your attorney about your state’s laws, the nuances of asset division, and alternative methods you may consider.

How Will I Live on One Income After Divorce?

Before divorce proceedings, you should work with your financial planner to determine your current and future finances. If you’re transitioning to a single income post-divorce, a bird’s eye view of your assets, expenses, and new financial obligations, if any, can help you build a plan to make informed decisions and adjustments accordingly.

With a clear understanding of your future financial standing, you can create a personalized plan to adapt. For example, you may explore employment opportunities, sell or refinance real estate, or temporarily adjust your spending. 

How Will I Support Children During a Divorce?

Supporting children before and after a divorce requires proactive, careful, and strategic planning that focuses on the well-being of your child(ren). 

Before a divorce settlement: If necessary, you may ask your attorney if you qualify for a temporary order for spousal and child support. This order can help you meet immediate needs such as mortgage payments, insurance premiums, and everyday expenses until a formal settlement is reached. Distinct from alimony, the couple’s income and ability to meet basic needs will determine the granting of temporary financial support. Each party should understand its impact as it presents a significant financial obligation or an interim financial lifeline based on each partner’s circumstances.

After a divorce: If alimony, or spousal support, is outlined in your divorce decree, you should consider it and all your income and expenses in your new financial plan. A financial planner can offer insights and outline a plan aligned with your goals, such as funding college or simply maintaining your lifestyle. A financial planner can help you identify necessary adjustments and develop strategies to reach your objectives, such as reallocating resources or optimizing your investment portfolio.

How Does Divorce Affect My Retirement Accounts?

Every divorce case differs and may vary based on specific circumstances and state regulations. The division of retirement assets may consider who the higher earner is, what was accumulated during the marriage, and other factors that may require transferring funds into a spouse’s account. In some cases, assets of equal value, such as real estate or investments, may be acceptable in lieu of retirement funds. 

Additionally, when negotiating a settlement, it is crucial to understand each employer’s defined contribution and benefit plans, distribution options, and tax implications. Your attorney should explain your options and state your requests in the written qualified domestic relation order (QDRO). This document outlines the division of retirement assets and each party’s responsibilities.

Following a settlement, we recommend working with a financial advisor to understand if your target allocations and goals are still on track, reassess your retirement goals in the context of the divorce, and help develop a plan considering any changes.

What Happens If I Get Divorced After Retirement?

Divorce presents unique challenges post-retirement, as these benefits are often the couple’s most significant assets. Retirement benefits and pensions accumulated during a marriage can be highly valuable, especially for couples who have been married for a long time. 

Drafting a QDRO and dividing investment accounts can be complex and should be discussed with professionals specializing in post-retirement divorces. They can help answer questions such as:

• Will I need to transfer funds to my spouse’s retirement accounts?
• If I receive a transfer of retirement assets, how will it affect my taxes?
• Do I qualify for an early account distribution to meet immediate financial needs? What are the consequences?
• Am I eligible to apply for monthly Social Security benefits from my spouse?
• If I am to pay, can I provide other equally valuable assets instead of retirement funds?

Beyond asset division, discussing and updating legal documents such as inheritances, estate plans, powers of attorney, and beneficiary information is critical.

How Monarch Can Help

Our team of professionals has worked with clients at every stage of divorce and understands each phase brings unique challenges. Whether you are considering divorce, are amid proceedings, or have finalized your settlement, our comprehensive support covers various critical areas to assist you as the new head of household.

• Personalized Assistance: Whether you want supplementary support or to delegate most of your financial responsibilities, we provide tailored assistance in various areas, such as income projections, investment management, transferring property titles, and estate planning.
• Collaboration with Your Professional Team: We actively work with your professional team to understand and explain how your decisions will shape your financial future and long-term goals.
• Comprehensive Finances Review and Refresh: We’ll conduct a current and future-state analysis of your portfolio and finances and recommend adjustments as necessary to enhance your financial position. We’ll also review your proposed settlement, income, and after-tax assets to provide an updated household budget, update beneficiary designations, and establish a financial plan that meets your new cash flow and needs.
• Retirement Support: If you’re receiving retirement assets, we guide you through determining the most tax-effective method to open a retirement account and roll over those assets to maximize your benefits.
• Preliminary and Ongoing Education: You may be managing your finances for the first time, have limited market and investment knowledge, or need guidance in organizing a more complex financial situation. Our team is available as a resource so you can become more informed and make wise financial decisions.
• Specialized Training in Divorce Financial Planning: As a Certified Divorce Financial Analyst® (CDFA®) professional, Wealth Advisor, Irene Timmons specializes in advising clients through the separation and distribution of assets, tax implications, spousal and child support, and other financial areas in the divorce arena.

In addition to your financial needs, our team is here to provide advocacy and emotional support during this often difficult transition. We understand becoming a single parent or reentering the workforce after being a stay-at-home spouse, among other changes, can be overwhelming. We’re here to offer resources, guidance, and referrals to make your new chapter smoother. Please contact our team if you’d like to discuss your thoughts about a divorce or address any of these topics in-depth. Let us help you design a wealth strategy that’s uniquely yours and yours alone.