Whether you’re entering a divorce happily or not-so-happily, one thing is true: Divorce isn’t just about ending a romantic relationship, it’s about dismantling a financial partnership.
That means it can be an opportunity for a fresh financial start.
At Hendershott Wealth Management, we work with many people who are reorganizing their finances after major life events like divorce.
Half of marriages in the United States end in divorce, and for older Americans, that percentage has been steadily increasing.
Since 1990, the divorce rate for those over 55 has doubled–and for those over 65, it has tripled. Those are staggering statistics, and behind each number is an individual story; one that involves potential emotional upheaval and significant financial reorganization.
Despite never having been divorced myself, divorce has played a big role in my life. My parents got divorced three times from different people before I turned 16, so it’s fair to say I have some experience navigating the implications of the D word.
I’m not just here to throw divorce statistics at you, though…
At HWM, we help our clients learn how to embrace divorce as a positive force by teaching them how to understand and manage their finances, so they can plan for a prosperous and fulfilling future on their terms.
If you’re navigating the initial stages of a divorce, you’re in the right place. Below, we share some of the advice we give to our clients who may be facing–or are currently navigating–a complete reshaping of their financial world.
This article is based on combined excerpts from episodes 229 and 230 of the Love, your Money podcast, Financial Implications of Divorce (17 min), and How to Financially Navigate Your Divorce with Karen Sparks, CDFA® (20 min). There’s so much good in these conversations—we highly recommend giving them a listen. In the meantime, here’s some juice to sip on! 👇
THE FINANCIAL IMPLICATIONS OF DIVORCE
If you’re considering divorce or separation–or going through one as we speak–your plate is full enough. This article is here to help shine a light on exactly what you need to consider to handle your finances with care as you navigate a major life change.
We have a lot of experience navigating the dissolution of financial partnerships here at HWM. And, we know when it’s worth bringing in an expert. So for this conversation, we’ve included insights from Karen Sparks, a Certified Divorce Financial Analyst, Juris Doctor, and the founder of Divorce Financial Strategists.
But before getting too far in, we’d like to introduce you to a client of our firm, who we’ll call Erica. Her story is a testament to the ways a major life change like divorce can be a catalyst to something better, and we’re honored to share her transformation:
Erica and her husband had been separated for about six months when she reached out to us. They were working through the financial implications of divorce, which meant dividing assets that included everything from the family home and savings accounts to investments of company stock and shared debts.
For Erica (and many like her!), the emotional toll was significant. She was grieving the end of her marriage and a substantial change in her financial life. Erica and her ex had to split everything, and because her spouse was the primary earner, she had to reassess if she could actually afford her lifestyle at the time.
Luckily, Erica didn’t have to navigate the unknown on her own. We helped set her up for success post-divorce, and she walked away with the confidence that comes from knowing you’re in control of your financial future, and that you’re going to be just fine.
There is so much support available to people navigating mediation, family court, and division of family assets. The most important thing is that you have the right people in your corner.
Now, let’s talk about the big D: divorce.
TAKEAWAY #1
DON’T LET FEELINGS ABOUT YOUR RELATIONSHIP CLOUD YOUR JUDGMENT
Emotions can (and often do!) heavily influence financial decisions.
In Erica’s case there was a great deal of uncertainty and stress; she was concerned that her feelings might influence her judgment during such a critical time.
Rightly so–making decisions under stress can lead to regret. In fact, the first thing Karen recommends is to stop and breathe. (And we couldn’t agree more.)
If you’re considering divorce, or know you’re headed in that direction, it might be tempting to take on significant new debt. The simple answer: Don’t. Equally important is to resist the temptation to drain shared bank accounts or retirement accounts.
The pull can be strong, but financially vindictive actions taken when emotions are hot not only create distrust, anger, or resentment–they can have legal repercussions, and negatively impact the outcome of your settlement.
Hilary’s advice:
Don’t make any permanent decisions when you’re stressed out or caught up in your feelings. Get to a place where you have a (somewhat) level head before you put any permanent stakes in the ground… or through someone’s heart.
When Karen starts working with a couple who’s navigating a divorce, the first thing she analyzes is the personal situation between the soon-to-be exes because that dynamic can have huge implications on the divorce process.
There are numbers and facts to consider, but Karen is the most interested in finding out what the pain points, priorities, and what emotions at play are so they can guide the discussions. There are certain things she’s on the lookout for, like addiction, potential power imbalances, the energy related to the money, and how it’s been handled so far.
As she works through the finances in the marital bucket, Karen needs to know what’s going on outside of the bucket. Knowing how to work around potential obstacles can prevent future speed bumps, and keep the experience beneficial for all parties involved.
In Erica’s case, while her initial stress didn’t immediately dissipate once we started working together, the more empowered she felt during the divorce process, the less uncertainty and anxiety she expressed during our conversations. She was able to show up to conversations without letting emotions take the reins…and even started smiling when she talked about the future!
Erica was making decisions powerfully, and was clear about the direction she was heading in over time.
230 | How to Financially Navigate Your Divorce with Karen Sparks, CDFA®
In our conversation, Karen Sparks talks abou why it's critical to locate and gather necessary documentation immediately, where important assets are he
TAKEAWAY #2
LEGAL OWNERSHIP MATTERS AFTER DIVORCE
Regardless of the feelings that influence divorce proceedings, legal ownership of joint assets and debts is what matters most.
Whether it’s a credit card, car loan, or line of credit, the person whose name is on the account is legally responsible for repaying the debt.
Even if your spouse takes out debt in your name–say, putting a large expense on your credit card–you are responsible for it, and your credit score will be the one that suffers if the debt is unpaid. If the debt was taken out jointly, both parties are responsible.
Again, legal ownership dictates who is responsible for paying off the debt after you divorce.
Hilary’s advice:
Don’t wait until divorce is on the table to understand the legal ownership of your assets and debts in your partnership. Take the time now, and it’ll (literally) pay off later, whether or not you find yourself separating.
The more aware you are of the financial rules and expectations around legal ownership of assets and debts–and handle them prudently–the smoother your path will be in getting through the divorce process and setting the stage for a more secure, and thriving financial future.
TAKEAWAY #3
DIVIDING MARITAL ASSETS: UNDERSTAND WHAT’S AT STAKE
For most people navigating mediation and the divorce process, there are a lot of questions–and not a lot of education or understanding.
In the case of our client Erica, the most challenging part of the mediation process was her limited understanding of the financial terms and the questions being asked of her.
The laws are different in every state, but when you go through divorce proceedings, most states will ask you to voluntarily go through a process of mediation. This minimizes legal fees and helps you work together with your spouse to split financial assets.
The alternative to mediation is having lawyers represent you, and ultimately if you cannot agree, a judge might have to determine the split of your assets.
As Erica and her soon-to-be ex went through the process of mediation, she realized she didn’t fully understand the implications of selling the marital home and splitting the investment accounts.
The goal in mediation is to come to a mutual agreement, however, Erica was being asked to make decisions she really didn’t understand the ins and outs of.
If you find yourself in a similar situation, consider hiring a CDFA, like Karen. Certified divorce financial analysts specialize in the nuts and bolts of the financial side of divorce, and in Karen’s case, she brings a whole career in legal to the table, too.
Some things you might have to navigate in a divorce are extremely complex. For example: dividing an annuity, what to do with life insurance, how to value privately held businesses, calculating equitable alimony, and child support. These are all things that a good financial advisor or a CDFA can help with.
Hilary’s advice: You can get through this.
If you’re navigating the mediation process and untangling a financial partnership, it’s critical that you understand your legal entitlement before claiming stake of the assets involved. With the right information and the right team in your corner, you can get the education you need–and you will come out the other side with more confidence, security, and happiness. (Trust me.)
TAKEAWAY #4
ACHIEVE AN EQUITABLE DIVISION OF ASSETS + LIABILITIES
You've spent years or decades building joint savings and retirement accounts, and establishing a family... what now?
How to split financial accounts like retirement & savings
There are some things that are simpler to divide than others. You can split a savings, brokerage, or retirement account in half, but you cannot split a family home in half. You have to either sell your home, or one spouse has to buy the other one out.
Note: To split a retirement account, you need a court order called a QDRO. With a QDRO, the money can be moved from one ex-spouse’s retirement account to the other ex-spouse’s retirement accoun without being taxable.
Determining alimony and child support is a crucial step in the divorce process.
These payments need to be determined in a way that reflects the financial circumstances of both parties, considering things like income disparity, the length of the marriage, and the needs of the children involved.
Planning for their education might be a top priority, and that may involve setting up or revising education savings plans. Ownership of these accounts may be dictated by the divorce agreement, which is called a marital settlement agreement or MSA.
And all of these financial decisions during mediation may have tax consequences.
This is where our team was able to offer a ton of support to Erica. We helped ensure she didn’t lose the primary residence tax exclusion for the year the marital home was sold, and that the taxes owed on the sale of company stock would be the same to her as it was to her ex. This is something Erica hadn’t even thought of before!
Hilary’s advice:
Assets and debts aren’t the only thing that should be split equitably… the tax liability needs to be considered, as well. If the team giving you financial advice and counsel doesn’t understand the tax implications of your divorce, find an advisor who does.
TAKEAWAY #5
FINANCIAL PREPARATION FOR DIVORCE PROCEEDINGS
Collect your financial documents before you consider filing the legal paperwork.
It’s a well-known statistic that approximately half of marriages end in divorce. What’s less known is how long most people think about divorce before taking action: two years.
That’s a lot of time to plan and prepare–but it isn’t the same timeline for everyone.
Whether you’re years out from making a decision or facing a divorce in the very near future, there is a balance between keeping the peace (because we know vindictive actions aren’t helpful!) and taking care of yourself.
As we shared before, first thing’s first: Stop and breathe.
Then, especially if you haven’t been handling the finances to date, start gathering the information you’ll be asked for:
- What are the financial documents you need?
- Where are those documents housed?
- Do you have visibility of key accounts and paperwork?
- Do you have passwords for and access to those accounts?
Hilary’s advice:
If you work with a CDFA like Karen, a financial advisor like the ones here at HWM, or another form of professional counsel, you will be asked for statements, documents, and tax returns dating back 3 to 5 years.
Make sure you take some time when you are alone in the house to get all of the information that you need to bring to your support team.
During the process of solidifying what the permanent alimony or spousal support amount is going to be for the receiving spouse, it’s common for professionals to use a Marital Standard of Living, or an MSOL.
This report is usually done when there has been previous discussion about what’s going to be paid, and both parties come to the table with calculations to support their position. The purpose of this analysis is to take those numbers into consideration–even if each spouse has arrived at a different number–and find an end result that is fair.
TAKEAWAY #6
WHO SHOULD YOU HIRE: A CERTIFIED DIVORCE FINANCIAL ANALYST OR A FINANCIAL PLANNER?
Complex financial portfolios or significant assets–especially businesses–call for bringing in a Certified Divorce Financial Analyst.
When you’re navigating the financial implications of divorce, your team is everything.
– Karen Sparks, CDFA and founder of Divorce Financial Strategists
Your situation is your journey, and too many uninformed voices just become noise.
Hilary’s advice:
Stop taking advice from strangers, neighbors, family, and friends. While they are coming from a place of love and care, that’s very different than coming from an informed and experienced place.
The people you have on your team matter. Choose people who have your best interests at heart and the ability to help you build a safe and secure future.
In some cases, deconstructing the financial partnership during a divorce is relatively straight forward. If there aren’t children involved, spousal support to determine, significant assets to sell, or complex investments to decide, most county courthouses have facilities for self-help that will take couples through the divorce process.
When navigating more complex stock portfolios, high-value assets like real estate, or business ownership, don’t leave things up to chance. Karen helps her clients focus on what matters by connecting to what they need in the moment. Whether that’s a better understanding of money or help assembling a support team, professionals like a CDFA help you find clarity and give direction–so you can take your next step with confidence.
For more about when you should hire a Certified Divorce Financial Analyst and how to build the support system you need, listen to Hilary and Karen’s full conversation on the Love, your Money podcast:
230 | How to Financially Navigate Your Divorce with Karen Sparks, CDFA®
In our conversation, Karen Sparks talks abou why it's critical to locate and gather necessary documentation immediately, where important assets are he
TAKEAWAY #7
MANAGING YOUR FINANCES POST-DIVORCE
Learn how to view (and embrace!) divorce as a catalyst for building a stronger, more independent financial future.
As our conversations with Erica started to shift to planning for life post-divorce, there was an observable change in her willingness to participate in the process. The stress and anxiety she initially came in with was gone. She smiled more. She bought furniture that she herself selected alone for the first time. She picked the house that she walked into and felt like, “I belong here. I know my ex would never have bought this house and I can now afford to pay for it.”
Once we had finished getting through the division of assets, our team was able to help Erica create a new spending plan.
This wasn’t just crunching numbers, it was about Erica authoring her life and priorities as a single person, with her new job and spousal support from her ex as ongoing income sources.
This is what it looked like:
1. Cash Flow Automation
This is a system that’s an alternative to budgeting. It works really well to rein in spending and reverse engineer savings. This exercise wasn’t just about making sure she could pay her bills. It’s also about empowering her to have a sense of control over her financial future.
If you'd like to know more about automation, check out Episode 84 of the podcast:
Automate Your Financial Freedom
.
2. Building Net Worth
If you come out of the marriage with credit card debt and a lack of secure savings, it’s important to have a plan to pay off the debt, build savings, and walk away with a high credit score.
Once Erica’s cash flow automation plan was completed, we had a ton of clarity about her overhead and spending habits. By process of elimination, we determined exactly how much she could save every month because if it’s coming in and you’re not spending it, we know you can save—and invest—it.
3. Saving for Retirement
Retirement planning demands special attention after a divorce because within the structure of many (but not all!) American households, there is a primary breadwinner with retirement savings or a workplace pension, and a household CEO who is relying on that financial plan for future security.
This was Erica’s case. She had been relying on her ex to save for their retirement together, but because of the divorce, she had to take care of herself.
We set her up to start saving in her company 401(k) plan, which is something she didn’t think she could do on her own. Before long, Erica was able to walk away with a strategy she’s confident in–and a support team she trusts.
After going through a divorce, you might need to adjust your savings and investment strategies to reflect your current financial situation.
Check in with your financial advisor and get your plan restructured as needed so you can have confidence that you’re still on track for success.
Hilary’s advice:
Post-divorce goals probably look different from what they were before. Take the time to reassess your priorities and align your money trajectory with what's important to you.
After divorce, you have a rare opportunity to start with a clean slate and redefine your relationship with money. Start that journey on the right foot–and if you aren’t sure where to start, the best place is with a financial professional. If you’re not set up with one you trust yet, we’d love to chat.
Learning how to understand and manage your finances post-divorce provides you with practical skills, and can play a significant role in your emotional recovery.
For Erica, the process helped her discover an inner strength and a financial acumen she didn’t know she had. It was empowering to see herself not just as a divorcee, but as an independent, financially savvy woman–and that’s where she’s at today.
Separation and divorce can be a really traumatic disruption, and can come with some potentially devastating effects. It can also have a significant impact on the financial stability of both parties.
Our role at Hendershott Wealth Management is to positively impact and bolster that financial stability for our clients.
It’s not easy to build up the strength it takes to keep moving forward, and people (like Erica!) who see the opportunity to redefine their personal narrative and emerge from this process stronger and more empowered deserve a lot of respect. That strength really can give you the opportunity to move forward and define your future–on your terms!
Erica has shown our team that divorce can be a time to shift from viewing money as a source of stress to seeing it as a tool for empowerment if you’re able to cultivate a positive money mindset along the way.
You have control over your financial decisions and your future. If you take consistent positive actions, you’re likely to find yourself naturally moving from a mindset of scarcity or fear of what’s coming, to one of potential abundance–and more importantly–pride and confidence.
For those looking to rebuild and strengthen your financial independence post-divorce, consider seeking out resources like financial workshops, supportive communities, and of course, professional financial advice.
Success stories abound for individuals who have turned the challenge of a post-divorce financial reset into an opportunity for growth and empowerment.
Whether it’s learning how to manage savings, rebuilding your credit, or investing in your future, each step you take is a testament to your resilience and commitment to your financial well-being.
This article was based on two episodes of the Love, your Money podcast. if you’re ready to turn the page on a brand new financial story and future, check out the full conversations: The Financial Implications of Divorce, and How to Financially Navigate Your Divorce with Karen Sparks, CDFA®. You can learn more about Karen and her work at www.DivorceFinancialStrategists.com, or find her on LinkedIn. And you can always get in touch with our team at HWM right here.
