Preparing for Divorce Part 5: The Role of a Financial Advisor
In Part 4 of our series, we turned our focus to finances, discussing the importance of creating a pre and post-divorce budget. Budgeting can be a tedious task, and many people feel like it puts too many constraints on what they are allowed to do financially. In reality, a budget puts you in much greater control of your finances, and it is one of the best tools for helping people get through tough financial times, like what many divorcing spouses go through. Today, we are going to stay on the topic of finances and talk about the role of a financial advisor in the divorce process.
Aside from your attorney, a financial advisor (also known as a financial analyst or financial planner) may be among the most important members of your divorce team. In recent decades, a growing number of financial professionals have specialized in counseling clients that are either in the process of divorce, or their divorce was recently finalized. These advisors have specific expertise helping divorcing spouses, and they often partner with divorce attorneys to help those facing this process get better organized financially, divide the marital assets more fairly and equitably, and create a financial roadmap for their post-divorce future.
How a Financial Adviser can Help Divorcing Spouses
Divorce is a turbulent and emotionally draining process, and during seasons like this, it can be difficult to maintain a clear head. Budgeting will help you keep better track of your income and expenses, so you know what you can afford to spend, how much you should save, etc. and a financial advisor can help you set up your pre and post-divorce budgets. But your advisor can assist you in several other ways as well. Some of the most important include:
Better Overall Recordkeeping
In addition to setting your budget, a financial advisor will help you organize your entire financial picture, so you will know exactly where you stand going into the divorce process. They will help you identify areas that have financial implications, such as your bank accounts, retirement accounts, your home and any other real estate properties, stock investments, life insurance policies, health insurance policies, automobiles, and many others. Having full details will help prepare you to make the most informed decisions during upcoming settlement negotiations, and for spouses who have not previously been in charge of the finances, this exercise can often be a real eye opener.
Expert Advice on Asset Division
A financial advisor will work closely with your attorney to help you make better financial sense of all of the assets and property in the marital estate, and how to better protect your interests during the division of assets. For example, a spouse who will be receiving primary custody of the children may want to keep the marital home because the children have an emotional attachment to it. However, your financial advisor will look at whether or not you can maintain the mortgage payments on the home with the income you will have after the divorce. If you cannot, then you might need to sell the home, or this could open up a conversation about the need for a higher child support and/or alimony payment to help you stay in the home and stay as close as possible to your children’s established standard of living when you were married.
Another thing to keep in mind is that not all assets are created equal. Using the same example of the marital home, let’s assume that the couple has $300,000 in equity in the home as well as $300,000 in stocks. If one spouse keeps the home and the other gets the stocks, that seems like a fair trade, right? Except that the home requires upkeep costs, even if the mortgage is paid off (which is rare). There are still property taxes, insurance, maintenance, utilities, and other expenses. Stocks, on the other hand, can be held without any of these costs, and on top of that, they will likely pay dividends and their value may appreciate faster than the value of the home. Your financial advisor will help you better understand these types of situations and their financial implications.
Understanding the “Big Picture”
Of course, after your divorce is finalized, there will be a period of adjustment. And while it will probably take some time for the emotional scars to heal, you can take proactive steps right away to minimize the financial pain. A financial advisor can help you now to understand what your financial needs will be in the future, which can help you set appropriate goals for alimony or other support during your case. With the help of your attorney and financial advisor, you will be able to keep your eyes on the big picture, so you can emerge from your divorce in the best possible financial position.
Should I Keep Using our Current Financial Advisor?
If you have a financial advisor who has worked with you and your spouse during your marriage, you may decide you’d feel more comfortable getting your own advisor when you enter the divorce process. You also want to choose a financial advisor who specializes in working with individuals who are going through a divorce. Look for someone who is a member of either the Institute for Divorce Financial Analysts or the Association of Divorce Financial Planners. You can also ask your divorce attorney to refer you to a reputable and highly qualified professional.