8 Important Financial Considerations Regarding Divorce
Updated: Sep 14
Couples going through a divorce face many difficult and emotional issues as they navigate a new reality for themselves. Many of those issues, especially for high-net-worth individuals, revolve around finances.
Being prepared for the financial decisions that need to be made and what the impact is on your income, retirement and long-term financial standing is critical. Having a trusted wealth management advisor to help you navigate these rough waters leads to better outcomes.
Here are some of the most critical financial considerations that you should address when in the midst of a divorce.
Determine Marital Assets
All of your financial assets that were obtained or grew during the marriage need to be accounted for. That means cash, savings accounts, mutual funds, retirement accounts, stocks and bonds. Real estate also needs to be considered, including your marital home, any other houses or property, vacation homes, timeshares, rental properties and business properties.
Update Your Tax Status
If you’re still married on December 31 of a given year, you will still be filing a joint tax return if you did so previously. It may be wise to have one of you find a new tax preparer to avoid conflicts. Going forward, you will need to file under a new tax status, too. Other tax questions at play include who will claim tax exemptions for dependents, who can claim Head of Household status, and what fees, payments and support are tax-deductible.
Protect Retirement Assets
You will need to exchange documents related to any investment funds you may share or hold in your own names. Consulting with an ERISA (Employee Retirement Income Security Act) advisor can help make sure your assets are fairly and equitably distributed.
Discuss Life Insurance
In some cases, the spouse responsible for alimony and child support payments is also required to provide life insurance to the ex-spouse. The life insurance is designed to cover alimony or child support payments if the paying spouse dies. This amount may be a flat payment or based on the present value of future payments.
Update Estate Plans
If you and your spouse have created an estate plan, it’s time to update it. Be sure that your will and your beneficiaries are properly revised to account for the new reality. If you forget to change these beneficiaries and were to die, it can create a very complicated estate issue for those left behind.
Decide on the Marital Home
Your marital home is likely a highly valuable asset. It also comes with a lot of emotional context. The costs of keeping up with a home often rely on two incomes and managing the maintenance, repairs and regular upkeep can become an undue burden on the spouse who remains in the marital home.
Keeping the home may be the right move, especially if there are children involved. But often it becomes an emotional burden and a stressor post-divorce.
Manage Your Debts
Who is responsible for the debts that you and your spouse have accumulated during the marriage? You should expect to provide documentation about all of your debts and consider running credit reports on both you and your spouse to ensure transparency.
You have several options available. If possible, you can pay off all the debts before the divorce is finalized. You can agree to share responsibility for the debt but may leave you legally responsible if your ex-spouse fails to pay their portion of the debt. You can also consider, if debt is in only one name, of keeping the debts with the named debtor.
Build an Advisory Team
When filing for a divorce, you want a strong team at your side. Hiring professionals who know the issues related to law, taxes and wealth management is a critical part of the process. At Solas Wealth, we provide wealth management services to high-net-worth individuals. If you need advice on managing assets and the complex financial matters related to a divorce, contact us today.