If you are considering divorce, which is not just a deeply emotional decision, but also one of the largest financial decisions you will make in your life, you may feel like you want as much information as possible to help you discern if divorce is the best option for you. Before you file papers, I recommend that you work with a CDFA to check in with your finances and hone your expectations for potential settlements in divorce. In this article, we will explore some of the ways that you can work with a CDFA to help understand your potential post-divorce finances, so that you can face the options you are facing today with more clarity.

Post-Divorce Budget

If you are not someone who has ever created a budget, this is an important part of the divorce process that often creates stress. Once the divorce papers have been filed, you will have 60 days to disclose your assets, liabilities, income and expenses. When you are under a timeline to provide the information and you don’t know where to start, this can be an uncomfortable feeling. The earlier you can begin to gather information around the amount of money you expect to need for your lifestyle post-divorce, the better.

To create a budget, look at 6-12 months of past expenses on credit card statements, bank statements, bills, etc. to see what you are paying currently and then follow-up with those providers to get a quote for a single person. Think about the potential need for additional child care, different clothing if you are going back to work – imagine your post-divorce life, and include items in your budget accordingly. By working with a CDFA, they will first help ensure that your budget is accurate, and then help determine if your desired budget is realistic or not based on income and support estimates.

Sometimes paying for more people creates a discount – you bundle your phone bill, car and home and health insurance, streaming services, utilities, etc., but post-divorce as a single person, the cost for one may not just equal half the cost of two. Not to mention that other things do double or cost much more, like a mortgage for two homes instead of one. Because of this, it is so important to understand that the income that supported your family’s lifestyle may not be sufficient to cover two separate lifestyles at the same level.

Marital Vs Separate Property

If you or your spouse came into the marriage with assets, do not expect that your entire current net worth will be split 50/50. In the state of CA, assets owned prior to marriage and the appreciation of those assets continues to be separate. Even if you paid down a significant part of your mortgage during marriage, if your spouse used separate funds to pay for the down payment on the home, they will likely have more than a 50% ownership of the equity in that home. If assets were purchased from inheritance or gifts, that is also separate. If you or your spouse received an inheritance that was used to pay down your mortgage, guess what, they now likely have a much larger ownership claim to the equity in the home. On the flip side, any assets acquired during the marriage from income earned during the marriage will be split 50/50.

If you or your spouse have assets or accounts that were owned prior to marriage or partially acquired with separate funds and you would like to understand your portion of ownership, consult with a CDFA to perform a tracing. Remember, providing evidence to support a claim to separate property is the responsibility of the person claiming the property. If the claim is not supported or agreed upon, the asset will likely be split 50/50.

After-Tax Value

It’s imperative to understand the after-tax value of your assets to ensure a fair and equitable division during divorce proceedings. Some assets may have tax implications upon sale or transfer, significantly impacting their true value. Cash is not equivalent to home equity or a pre-tax retirement account. Understanding the after-tax value of each of your different assets is crucial and is one area that a spouse who is less familiar with finances can be taken advantage of.

Consulting with a financial advisor or CDFA can help you navigate these complexities and make informed decisions regarding asset division. They may also help you discern which assets would be most beneficial to try to keep, and which you should be more willing to negotiate.

Financial Impact on Post-Divorce Lifestyle

When you decide to divorce, it is likely that your friends or family members who have been divorced will give you advice, whether you asked for it or not. Take any personal experience about settlement deals or child/spousal support with a grain of salt. Everyone’s situation is unique and there are no black and white rules about spousal support. Do not decide to divorce based on information from a friend who has been divorced – you will not know if you will be “fine” until your entire financial situation has been reviewed by a professional.

If you choose to work with a CDFA who is also a Certified Financial Planner professional, you can hire them to create a post-divorce financial plan to ensure that you will be able to afford your short and long-term goals – or adjust your expectations accordingly prior to beginning the divorce process.

Conclusion

Imagine how much for comfortable and confident you would feel making the decision to divorce if you had been coached through what the process would look like and what you may be able to expect financially on the back-end. Or, after careful consideration, you may decide that more effort in therapy is your next right step. Wherever it leads, I believe that information is power.

I also would like to point out that discernment counseling – therapy designed to help you gain clarity on whether to stay or go from an emotional standpoint– is a real thing. If you would like a referral to a discernment counselor, please reach out to my office. I wish that everyone had the opportunity to explore discernment both emotionally and financially prior to entering into the divorce process.

***The information in this article should not be misconstrued as legal advice.