divorce planning Archives - Blakely Financial

Divorce is one of life’s most challenging transitions, affecting many aspects of your life, including your emotional well-being and your financial future. As difficult as the process can be, having a clear financial strategy can help you regain control, protect your assets, and plan for the next chapter of your life with confidence. At Blakely Financial, we’re committed to helping clients navigate these pivotal moments with clarity and purpose. In this blog, we’re sharing ways you can approach the financial side of divorce with confidence and care.

Understand Your Financial Picture

Before you can make informed decisions, it’s essential to know exactly where you stand financially. Start by gathering important financial documents, including:

Bank and investment account statements
Tax returns from the past several years
Retirement plans
Debt records, including mortgages, credit cards, and loans
Property titles
Insurance policies

You will also want to create a comprehensive list of your assets and liabilities, noting which are jointly owned and which belong to you individually. Understanding your current household budget and anticipating how it will change post-divorce is key to protecting your financial well-being.

Prioritize Immediate Financial Needs

While the long-term strategy is important, addressing immediate financial needs ensures your day-to-day security. Make sure you have access to your personal bank accounts and an emergency fund to cover essentials like housing, childcare, and legal expenses. If necessary, consider freezing joint accounts or credit lines to prevent any unauthorized activity. Also, review your insurance coverage, including health, life, and disability insurance, to make sure you are adequately protected during and after the divorce process.

Work with Financial & Legal Professionals

Divorce involves legal complexities and financial decisions that can have lasting effects, so we recommend assembling a trusted team to guide you through the process. This team should include a divorce attorney, a financial advisor, and, when appropriate, a Certified Divorce Financial Analyst® (CDFA®).

At Blakely Financial, our advisors help clients model different settlement options, analyze the long-term impact of asset division, and develop a comprehensive plan for their new financial reality. Collaborative financial planning during a divorce can help prevent costly mistakes, preserve long-term financial health, and provide reassurance during this uncertain time.

Divide Assets Strategically

When it comes to dividing assets during a divorce, it may seem obvious to just split everything down the middle, but in reality, it is important to instead understand how each asset serves your future. Think about the tax implications, growth potential, and liquidity of each asset. For example:

Retirement accounts may be subject to taxes and penalties if withdrawn early.
Real estate may come with ongoing maintenance costs and property taxes.
Investment accounts can offer growth opportunities but may fluctuate in value.

Work with your financial advisor to negotiate an asset division that supports your personal goals and financial stability. It’s also important to update estate planning documents, including wills, powers of attorney, and beneficiary designations, to reflect your new circumstances.

Plan for Your New Financial Future

As your life changes, so should your financial plan. Once the divorce is finalized, it’s time to set new, realistic short-term and long-term financial goals for yourself. To do this, revisit your retirement plan contributions, insurance coverage, and estate planning documents to ensure they align with your updated financial picture. Additionally, adjust your investment strategy to reflect your new circumstances, risk tolerance, and retirement timeline. Working with a financial advisor throughout this process can help you create a clear, realistic roadmap for your future.

Maintain Financial Confidence Moving Forward

Your financial journey doesn’t end when the divorce papers are signed. Periodic financial check-ins are essential to track progress toward your goals, adjust plans as needed, and manage risk as life continues to evolve. With the right support and planning, financial independence and long-term security are within reach.

Divorce is never easy, but having a dedicated financial partner can make a meaningful difference. At Blakely Financial, we’re here to help you navigate life’s transitions with clarity, compassion, and confidence. If you’re going through a divorce or planning for one, our team is ready to provide personalized financial guidance tailored to your needs. Contact us today to learn more about how we can support you through this important chapter!

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

The truth is, after a divorce, women tend to be hit harder financially than men. And, given that women experienced the highest rates of job losses in 2020, divorce in the current environment is even more likely to disrupt their financial stability. For women who find themselves experiencing the increasingly common “gray” or late-life divorce, the financial consequences may be even more acute. The decision to end a marriage after age 50 could mean unraveling assets and finances that have been shared for decades.

If you’re facing financial challenges or decisions after divorce, how can you better understand and take control of your financial future? To start, consider seeking guidance on some of the planning issues discussed below.

Splitting Marital Assets

This topic can become highly complicated. Assets acquired during the marriage are split according to your state’s law. Generally speaking, most states follow equitable distribution rules that will consider all marital assets, and a court will determine their distribution between you and your former spouse. There are nine states that have community property laws, which means each spouse owns 50 percent of the assets acquired during their marriage (with certain exceptions). When it comes to debts, in community property states the same approach holds. Debts acquired during the marriage are generally attributable to both spouses. In noncommunity property states, however, debts usually stay with the spouse who incurred the debt, unless the other spouse cosigned or otherwise guaranteed it.

Retirement savings

The contributions you or your former spouse make to employer-sponsored retirement plans and IRAs during the marriage are generally considered marital property, with some exceptions. Contributions made outside of the marriage, for example, can be considered separate property. Pay particular attention to any qualified plans you may have, such as pensions or 401(k)s, as these should be divided according to a qualified domestic relations order (QDRO).

A QDRO allows for a tax and penalty-free transfer to a nonowner ex-spouse. Neither the original owner nor the divorcing nonowner should be taxed or penalized if the nonowner rolls the assets directly into a qualified plan or an IRA. Keep in mind, if the nonowner spouse receiving the distribution uses the funds in any other fashion, a tax will be imposed on that distribution—but only to that spouse.

We can discuss the QDRO with you in greater detail, as options can vary from plan to plan. Pensions, for example, will generally not pay a lump sum but will make payments to the ex-spouse the same way they would be made to the employee-owner. The sooner a QDRO is presented to a plan administrator, the clearer the understanding you’ll have about your options.

Creditor protection is another consideration. Keep in mind that 401(k) plans are covered by the Employee Retirement Income Security Act (ERISA), so they have creditor protection. If the 401(k) is rolled into an IRA, it will continue to be protected from bankruptcy creditors, but it will only receive general creditor protection as provided by state law.

Dividing an IRA is different, though. ERISA does not cover IRAs, and the division of an IRA does not require a QDRO. For federal tax purposes, if the division follows a court-issued divorce decree and is made as a trustee-to-trustee transfer as opposed to an outright distribution, an IRA owner can avoid tax and penalties. Once the asset is transferred, each spouse becomes solely responsible for tax and penalties of any future distributions.

Family Home

If you or your ex-spouse want to hold on to the home, the marital estate can be equalized from other assets, if necessary. Current circumstances related to the pandemic may complicate the equalization, though. Because inventories and interest rates remain low, demand exceeds the supply of homes for sale. In this seller’s market, we’re seeing homes sold immediately after the Coming Soon sign is posted. Plus, the rise in home values across the U.S. increases the likelihood that the equalization may involve the exchange of additional liquid assets to keep the house.

If you’re interested in keeping the family home, we can help you factor ongoing mortgage payments, property taxes, and maintenance expenses into your current cash flow and long-term financial plan to see whether it’s feasible. If not, there are other alternatives we can look at, including refinancing or downsizing.

Life insurance.

The accumulated cash value of a life insurance policy is subject to division—much like any other marital asset. If it’s necessary to divide the cash value, transferring a policy’s ownership can be included as part of your divorce decree. If you are transferring a policy, be sure to update beneficiary designations before doing so.

Considering Income and Cash Flow

If you or your spouse was the breadwinner, income may need to be equalized in the division of assets. State family laws determine any alimony amounts. Whether you’re paying or receiving alimony payments, we can help factor the effect into your monthly or annual cash flow plan.

Alimony

Under the Tax Cuts and Jobs Act of 2017, alimony payments are no longer deductible by the payer, and, consequently, the payee can’t include the money as taxable income. This change applies to divorce settlements made after December 31, 2018. It can also apply to existing agreements that are modified after that date, but only if the modification explicitly states that the new rule applies.

Social security

You may be able to collect social security income on your ex-spouse’s working record (even if your ex-spouse remarries) as long as you have not remarried, your marriage lasted more than 10 years, and you have been divorced for more than two years. To qualify, you and your former spouse must be 62 or older. If you were born before December 31, 1953, you can file a restricted application allowing you to receive up to 50 percent of your ex-spouse’s full retirement age benefit amount, and your own benefit can grow with delayed retirement credits. Your ex-spouse will not be aware of or involved in your claim.

If you’re caring for a child younger than 16 and you’re not remarried, children’s social security benefits may be available to you, regardless of your age.

Child support

Based on their sensitive nature, child support issues, including financial support and physical care, are usually resolved in court. The divorce decree should specify the amounts, if any, of child support paid from one spouse to the other, as well as who will be entitled to claim the children as dependents for tax purposes. Although the pandemic’s impact on women has been largely disproportionate, one positive outgrowth is a growing consensus that childcare is, in fact, infrastructure. This focus may ease the childcare burden if you are the custodial parent.

Estate Planning

Following your divorce, it’s important to update your estate plan to accommodate any adjustments. Although most state laws nullify a beneficiary or fiduciary designation of an ex-spouse, you may need to amend or get new trusts, wills, and powers of attorney, as well as change beneficiary designations. If you named your former spouse as your trusted person or beneficiary in documents or on accounts, these designations should be changed as soon as possible. And, if you retain custody—even partial custody— of a minor, your estate planning documents should address the issue of guardianship for your child and the child’s estate.

Taking the Long-Term View

If you feel financially unprepared for the breakup of your marriage, you’re not alone. Only about one-third of divorcées have a comprehensive plan in place (see chart below), according to a 2017 Fidelity Investments survey. That’s one reason it’s critical to get the guidance you need to help you navigate the financial challenges of a divorce.

Need Additional Information?

As a Certified Divorce Financial Analyst (CDFA®) I am able to guide women through all of the financial implications of a divorce. Join me on Wednesday, August 31st at 12pm for a Live Webinar: Financial Independence: A Divorced Woman’s Guide. REGISTER TODAY!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Tag: divorce planning

Navigating Divorce with Financial Confidence