Financial life events require personalized financial advice. If you are considering consulting a financial advisor for your divorce, you are making a wise decision. If you are currently navigating the trials and tribulations of a divorce, know that you are not alone. A Federal Reserve study showed that as of 2022, 14% of the US population was divorced or separated, and other studies estimate that between 30% and 50% of first marriages end in divorce.

Dissolving your marriage involves a host of issues, including financial concerns like how to split assets fairly and how to live on one income. Ignoring financial issues or making poor financial decisions during your divorce can have a lasting impact on your financial well-being. However, with careful planning and preparation, you can avoid the most common financial pitfalls of divorce. 

How Divorce Changes Your Finances

Going through a divorce has a huge impact on your finances, from managing daily expenses to achieving long-term financial goals. Income is one of the biggest factors. A Federal Reserve study shows that income for recently divorced people (within the last 12 months) plummets. 

And income is just one of the financial issues that arise during divorce. You also have to consider matters like

• Insurance

• Retirement savings

• Budgeting

• Childcare costs

• Taxes

• Shared debt

• Estate planning

Divorce changes your whole life, so it makes sense that your finances will change as well. Try to be patient, cautious, and sensible when managing your finances both during and after your divorce.

Tips for Avoiding Common Financial Mistakes Made During Divorce

Focusing on finances can be challenging when your life is being turned upside down, but financial mistakes made now can have long-reaching impacts. Below are eight tips to help you navigate your divorce without compromising your financial well-being. 

Don’t Rush the Process

Depending on how long you’ve been struggling with the issues in your marriage, you may be more than ready to cut ties and just get everything over with. Unfortunately, divorce proceedings can take time. 

According to a 2019 survey of divorcees, the average divorce took eight months to resolve. That’s for an uncontested divorce, with contested divorces taking up to two years or more to complete.

Knowing that you are facing months and perhaps years battling it out with your soon-to-be ex-spouse, you may be tempted to rush the process – don’t. Trying to force a quicker settlement can result in costly mistakes. 

Taking more time now will help ensure your divorce is done right, and help you avoid the unnecessary and costly hassle of fixing mistakes later. 

List Out All Assets with Fair Valuations

You may have a rough idea about your assets and their values, but you need concrete data. Investment statements, art appraisals, business valuations, and home appraisals are needed to determine each asset’s value. And don’t forget about expenses, debt, and fees; these also impact the value of an asset. If you are considering consulting a financial advisor for your divorce, you are making a wise decision.

You can start by listing out all of your assets and separating them into pre-marital and marital, and then work towards gathering the documents you need to prove valuation. Try to avoid ballpark estimates and instead do research or hire professionals to determine fair market value for all of your assets. Doing this work now can help you avoid unfair asset splits during the divorce proceedings. 

Make Logical Decisions, Not Emotional Ones

Emotions can run high during a divorce, but keeping a level head and making practical decisions is crucial. 

One common divorce mistake is holding onto the family home. While doing so might bring you comfort, there are costs to consider, like 

• Home maintenance and repairs

• Property taxes 

• Mortgage refinance

• Home appreciation/depreciation 

Letting your heart guide you can cost you in other ways, such as being too angry to negotiate, feeling bad for your ex-spouse and letting them keep an unfair split of assets, or making mistakes because you were impatient and rushed through the process. 

Try to avoid hasty, emotionally driven decisions during your divorce and instead focus on what is financially feasible. 

Budget for Your New Life

During the divorce process, you’ll want to keep a particularly tight rein on your budget. You’ll have legal expenses you need to budget for, and you may find yourself footing the bill for two households until the divorce is finalized and a settlement reached.

You also need to start planning for what your expenses will be in the future. This helps during divorce negotiations and allows you to start your post-divorce life on sound financial footing. Don’t forget to factor in things like health insurance, household bills that your spouse paid, and potential support (child and spousal). 

Do not put off this budgeting step till later – doing so can leave you in financial freefall once your divorce is complete. 

Plan Ahead for Your Tax Bill

Divorce changes quite a bit about your taxes, including how you file, which credits and deductions you qualify for, and how much your tax bill will be. 

The IRS offers quite a few tax incentives to married couples that just aren’t available or as worthwhile when you file single or head of household. For instance, if you are a high-income earner, you may suddenly find yourself in a higher tax bracket after your divorce. 

It's not just filing status and credits/deductions that can impact your tax bill either; dividing assets can also generate a substantial tax bill. For instance, selling off investments or property may generate significant capital gains tax. Plan ahead for paying your tax bill as much as you can and get a head start on updating your future tax withholdings. 

Balance Short-Term and Long-Term Needs

It can be difficult to consider both your short-term and long-term financial stability during a divorce, but overlooking this factor can leave you on shaky financial footing. 

Key areas to focus on include:

• Liquidity - aim for an even split of liquid and illiquid assets. You don’t want to be forced to sell real estate and other assets quickly just to pay unexpected bills. 

• Childcare - address custody arrangements, routine childcare expenses, and contribution to college savings.

• Budget - divorce changes your expenses, so your budget needs to be updated.

• Retirement - if you were awarded a share of your spouse’s retirement account during the divorce, consider whether you should take disbursements now or roll the funds over.

• Health - consider any long-term health issues and don’t forget to address insurance coverage and HSAs.

Consideration of these issues isn’t just limited to the negotiation table; these are concerns that you will need to continue to visit well into the future as your finances, lifestyle, and long-term goals change.

Get Expert Guidance

If you are considering consulting a financial advisor for your divorce, you are making a wise decision. While DIY divorces are possible, they are not recommended. Having an expert by your side can offer you legal and financial protection while ensuring the divorce process is efficient, fair, and accurate.

Consider enlisting the following professionals: 

• Family Law Attorney - guides you through asset division, custody arrangements, and mediation. 

• Certified Public Accountant - a CPA assists with tax issues originating from your divorce. 

• Certified Financial Planner - your CFP helps you manage your evolving financial situation. 

• Certified Divorce Financial Analyst - a CDFA is a type of financial advisor specializing in the financial issues surrounding divorce, like asset valuation and distribution.  

• Financial Investigator or Forensic Accountant - helps when there are concerns about one spouse hiding assets. 

• Certified Divorce Real Estate Expert - licensed realtors specializing in selling jointly-held real estate, like the family home. 

• Business Valuation Expert - creates detailed business valuations and can testify in divorce court. 

• Appraiser - for determining the value of high-value assets such as collectibles, jewelry, and art. 

• Divorce Coach - supports you as you navigate the emotional rollercoaster of divorce and mediation.

• Counselor or Therapist - to assist you with your long-term mental health

• Child Specialist - advocates for children during the divorce process

Each divorce has its own unique challenges, and choosing the right team of experts can alleviate many disputes and complications.

Revisit Your Finances Once The Divorce is Complete

After the divorce decree is signed and assets are divided, you might feel relieved, but there's still work to do. 

The average divorcee is estimated to need 30% more income to maintain their pre-divorce lifestyle. Women are particularly at risk, with 1 in 5 facing poverty post-divorce. If you’ve recently divorced, it’s time to reassess your budget, expenses, and financial goals. Even if your finances are stable and you have solid plans for the future, it's crucial that you keep a close eye on your finances 

You should save every document, court order, etc. related to the dissolution of your marriage and the division of assets. It’s better to be prepared if issues arise rather than face problems with no paperwork or concrete evidence. 

The Aligned Perspective: Navigating Divorce Finances

Whether a divorce is on the horizon or you are already wrapping up your divorce proceedings, avoiding costly financial mistakes is crucial. From cataloging your assets well before your first court date to planning for your life after divorce, navigating the financial challenges of this process can be complicated. 
It's important to keep a level head during the divorce process and make financial choices that serve both your short-term needs and long-term goals. Divorce can be a life-altering event, and if you need help – whether emotional or financial – don’t hesitate to seek guidance from an expert.

Ultimately, if you are considering consulting a financial advisor for your divorce, you are making a wise decision. Datalign Advisory can help you connect with a financial expert to support you throughout the divorce process.