The Financial Side of Divorce: Planning Beyond the Settlement

Divorce can feel like being dropped into unfamiliar territory. There are new rules to understand, professionals playing different roles
and important decisions arriving one after another. The stakes can also be significant. Decisions made during a divorce can affect your finances for years to come, making it important to understand not only how assets may be divided, but what those decisions could mean for your financial life after the divorce.

Understanding the Different Financial Roles
Several professionals may be involved in a divorce, and each
serves a different purpose.

An attorney provides legal representation and helps navigate the legal process. A forensic accountant may help determine what a couple owns and owes. A mediator can help spouses work toward an agreement.

A Certified Divorce Financial Analyst, or CDFA, focuses specifically on the financial implications of divorce and can work alongside an attorney to evaluate potential strategies and settlement proposals. Understanding these different roles can help you build a team that addresses both the immediate divorce process and your longer-term financial needs.

Look Beyond the Value of an Asset Today
Dividing assets isn't necessarily as simple as splitting everything equally based on current values.

Different assets can carry different tax consequences, including potential capital gains liabilities. An asset that appears comparable to another on paper today may produce a very different financial result in the future.

Evaluating potential settlement options can therefore include considering what assets may be worth immediately following the divorce as well as five, 10 or even 20 years later.

That longer-term perspective can provide a clearer picture of how a proposed division of assets may affect your future.

Understand Your Post-Divorce Cash Flow
Knowing what you will own after a divorce is only one part of financial planning.

You also need to understand what your financial life may look like month to month. A cash-flow analysis can help evaluate how much income you may have available, what your ongoing expenses could be, and whether a proposed settlement supports your anticipated lifestyle.

This can be particularly important when comparing different settlement proposals. Two options may appear similar based on their total dollar value while creating very different cash-flow outcomes.

Financial Planning Continues After the Divorce
Reaching a settlement doesn't necessarily mean the financial work is finished.

A divorce can create a number of financial planning needs that should be addressed afterward. Depending on your circumstances, these could include:

• Updating your trust and estate plan
• Reviewing health insurance needs
• Deciding whether to keep or sell your home
• Refinancing a home you plan to keep
• Dividing investment accounts
• Dividing retirement accounts

Addressing these issues can help ensure that the financial decisions made during the divorce are properly carried through afterward.

Build a Plan for What Comes Next
The financial complexity of divorce can make it difficult to evaluate important decisions while also dealing with the personal and legal aspects of the process.

Looking beyond the immediate settlement can help. Understanding tax implications, comparing the long-term value of different assets, evaluating future cash flow, and identifying the financial steps that will need attention afterward can provide a more complete picture of your options.

The goal isn't simply to divide what you have today. It's to emerge from the divorce with a clearer understanding of your financial position and a plan for what comes next.

This article is based on the Paths Through Divorce podcast episode “Survivor-Style Divorce Financial Guidance,” from EP Wealth Advisors.

EP Wealth Insights Podcast Disclosure

The speakers featured in this podcast are employees and/or Investment Adviser Representatives of EP Wealth Advisors. The information discussed is provided for educational and informational purposes only and should not be considered personalized investment, financial, tax, or legal advice.

The views expressed are those of the speakers as of the recording date and are subject to change. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.

Before making financial decisions, consult your financial, tax, or legal professional. EP Wealth Advisors is a registered investment adviser. For additional information, including our Form ADV, please visit www.epwealth.com.