Our bi-monthly newsletter, as featured in Family Lawyer Magazine:
For many, just saying the word “divorce” creates feelings of extreme anxiety and distress.
Not many believe it will happen to them when entering a marriage. But unfortunately, statistics show that roughly half of first marriages don’t last—and this ratio worsens for those who choose to remarry.1
Going through a separation and/or a divorce is an emotionally draining process, leaving one feeling isolated and overwhelmed.
So, how to get through this difficult process?
Collaborating with a financial advisor who specializes in divorce issues is a great first step. Many of us are convinced we have the ability to get through our issues on our own. But divorce creates difficult (at best!) discussions, brings up highly uncomfortable issues, and is fraught with raw emotions.
Having an advocate by your side can really ease some of the stress and allow you to put your best foot forward financially. It can be critically important for you and your attorney to collaborate with a trusted advisor prior to any settlement being finalized to build out your support system and allow for specific, tailored advice throughout the process regarding your financial needs.
Once that team is in place, though, what are some initial steps to take? Below, are my top four considerations for your team of financial professionals to prioritize while creating your own financial future:
1) Back to basics: Create a checklist – There are several steps that should be taken during every divorce to begin creating a path toward financial freedom. Some of these can begin prior to settlement, while other items may have to wait until proceedings have officially concluded. These include:
- Update key estate-planning documents including your will, power of attorney, medical directives, and any trusts where provisions and terms need to be modified.
- Review beneficiary designations and assignments for various accounts and assets including life insurance, retirement accounts, etc.
- Open new individual bank accounts if previous accounts were held jointly and seek to establish credit if your previous credit profile was reliant on your former spouse.
- With the help of your team, begin developing a foundational budget to understand the expected inflows and outflows, and how these figures are anticipated to change. Will there be new expenses or inflows (child support/alimony)?
2) Look ahead – Financial projections are just that—best estimates, or forecasts, based on a series of underlying assumptions. When advisors put together your financial projections and investment strategy options, it is crucial that these are built on reasonable future expectations, and not on what has been the case in the past. Far too often, we see financial forecasts made for clients relying on historical figures, which can lead to key decisions improperly made based on the past.
While the past can provide some helpful context, relying solely on it does not account for dynamic and evolving environments. Creating a plan that assumes stocks will continue to yield similar returns as they did in 2023, or conversely that holding excess levels of cash is prudent for long-term investors would be a misstep. A sound plan incorporates future expectations as well as adjustments in projections for things like living expenses or college payments to account for inflation or rising future costs. Establishing a plan with a goals-based approach, considering both near- and long-term objectives—while allowing for errors and safety—will help keep a plan on track.
3) Plan for the “unplanned” – Even the most thoughtful, diligent plans will not be able to account for everything. Every now and then there are singular shocks to the system—which are known as black swan events—which immediately and sharply impact markets. When creating a financial forecast, it is important to ensure returns are not static, allowing for volatility and a series of unexpected paths. The right advisor team, using sophisticated planning software, can help provide a better understanding for a range of outcomes. These can also provide insight into the anticipated level of risk via a variety of statistical measures and stress tests.
An important component of any plan is to account for comfort with volatility. The “gut-check” test will allow someone to determine whether changes to goals and lifestyle may be necessary to avoid taking on intolerable risk. Planning is an ongoing process, as the right plan today will almost certainly not always be the case. Using the right tools can provide reassurance during turbulent times that goals remain on track, and can help highlight the need to consider newer, more appropriate strategies as circumstances change.
4) See the whole picture – The right team will look to embrace collaboration by complementing existing trusted advisors, as opposed to operating silos of unconnected, possibly contradictory financial assumptions from your broader financial plan. Working with a dedicated financial advisory team specializing in divorce early in the process can tailor a plan around your unique goals and objectives.
All of these checklist items are designed to help make a stressful and uncomfortable period of life less traumatic. There will undoubtedly be more challenges to face but having that trusted team in place is a good place to start.
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