Updated: Apr 6, 2022
Divorce is an enormous life event. It is sad, it is stressful, and it is a time in which both parties are not operating at 100 percent of their skills and abilities. Your time, attention, and focus are, understandably, reduced.
The difference that I’ve seen is that many times, men have their professional and financial relationships preestablished, while women are often collecting those resources while under enormous stress.
During a divorce, it’s more important than ever for you to find a team that you trust because you are going to need people to lean on. One of these people, of course, is your attorney. Another is your financial planner. While you may be planning to seek out a CFP after your divorce, I want to talk about the enormous advantages to you of finding a trustworthy one before the papers are drawn up.
Advantages of finding a CFP pre-divorce
You are likely going to be negotiating for assets that will have varying values and importance depending on the future holders’ financial goals. The decisions that you are being asked to make will have significant short-term and long-term consequences. What I’ve found in my practice is that the attorneys and the judge only care that the number is equal. But all assets are not equal.
First, you may have more immediate liquidity needs, therefore having assets outside of a retirement account might be more important to you. If the assets are outside of a retirement account and you receive them in-kind — and they have a large gain in them — you will also get that large tax bill if you have to liquidate them.
Unfortunately, the other party’s advisors may choose to purposely give very high-valued, high-tax gain stocks to you and you might not realize what’s happened until you are left holding the proverbial bag.
So what can you do?
First, you can immediately get all your statements and go find someone who can help you understand what assets you have. This advisor will help you negotiate, along with your attorney, what’s in your best interest based on your future unique long-term goals.
In my role, I will do the financial prep work prior and during the negotiation and mediation. I help you determine what you want, and why you want it and then arm both you and your attorney with the data. When you show up and start talking about moving assets around in a way that’s more equal, it’s empowering. Suddenly the extra time, expense, and discomfort of getting a financial advisor really pay offs.
Often, whatever Financial Plan was in place was for the family’s long-term goals was likely dominated by one partner — and that partner is likely going to continue that relationship with their financial advisor. You want the person who is looking out for you first.
Your financial advisor should recognize that you are going through an adjustment in your personal life, in your professional life, and you’re going to need the space and time to make some decisions. There needs to be compassion and understanding of the difficulties and the complexities of all the things going on in your life — and an awareness that how you’re showing up today is not likely how you’re going to show up in a year or two years from now.
He, or she, should give you the space and encouragement to find your investment style and your risk preference. The plan that was good for your family when you were married may not be the right plan now. This is about you now and figuring out your new long-term goals with the tools you need to become a more savvy investor.
Finding your own investment style takes time
What you need to be looking for in a financial advisor is someone who is going to help you make the adjustments that you need, at the pace and scale that you are ready to make them. My general rule of thumb is no major financial decisions should be made within the first 6 to twelve months after a divorce.
A CFP will also bring a cadre of trusted partners to your team, like an accountant, a bookkeeper, and an estate planner. There are obviously going to be a lot of significant changes with your money.
Once we get the certified divorce decree from a judge, we’ll be ready. Ideally, we had some say, or at least some prior knowledge of what was going to be in it. Next,
we’re opening accounts, we’re moving assets, and there’s got to be a place for them to go. If we’ve done the pre-work, and have a good understanding of your assets ahead of time, this process goes a lot more smoothly.
Knowing what you have also allows me to give you a good idea of when you will be able to access those assets. Sometimes pension funds don’t move things for every quarter, or it could be three months or six months—each plan administrator is going to have their own timeline and their own rules and procedures of getting things done.
By now, we’ll have at least a general idea of what your near-term goals are, and your cash flow needs over the next six to 12 months. In my experience, there are a lot of bills to be paid at first, things like attorneys fees and moving expenses which were on a credit card come due.
Building a budget takes into account a number of factors. Are you reentering the workforce? Are you receiving alimony or child support? What kind of lifestyle are you going to be able to maintain based on this new level of income? That’s everything from daycare and schools, to trips and holidays.
We’ll really drill down your priorities. You’ll have your needs, your wants, and your wishes. Once the cash flow needs of the first year are covered, we move into more of a formal financial planning process. I find that once my clients come out the other side of divorce, it takes a couple of years for them to fully reintegrate back into their lives and have the bandwidth for deeper engagement about finances.
When I’m talking to clients, I take their lead on what level of financial engagement and education they want. If they need online tools, I can share our resources and technology. The goal after building that savings back up is to show you the value of what you own and all the different options you have. This is congruent with me taking time with you to understand your values and beliefs and long-term plans.
In this job, I’ve had the privilege of supporting a number of clients through the valley of divorce and helping them come out the other side. It builds an enormous amount of trust. I really enjoy helping people build their set of skills and watching them emerge as this very informed, very empowered person.