Nine Thoughts on Divorce and Finance

Transcript of Podcast Episode 302

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, some thoughts on divorce and finance.

Is divorce an easy process? Rarely, if ever. But here are nine things to keep in mind if you’re ever faced with such a daunting task.

1. The children come first. Divorce with children is understandably much more complicated. Alimony and child support are usually the two main financial issues. But legal custody (who’s responsible for decisions affecting the children) and physical custody (where the children will spend their time) are equally important. The finances may have to take a back seat when children are involved.
2. Mind your business. If you’re a business owner, it might be a good idea to try and take a “business as usual” approach. This doesn’t mean unnecessarily hiding anything from your customers, but doing everything you can to reassure them. Dirty laundry smells bad.
3. You need to review beneficiary designations. We talked about this at length in episode 283. IRA’s, 401(k)s and life insurance normally have a listed beneficiary. A divorce decree might not change this. You need to look at your beneficiary designations to make sure that you don’t inadvertently leave a big pile of cash to your ex, even after the assets have been split through the divorce proceeding.
4. Gray divorce is more common than it used to be. According to a notable divorce attorney, the end of a long marriage, sometimes referred to as “gray divorce,” may be more stressful than a typical divorce.[1] But at the same time, the financial issues might be more clear-cut.
5. Build an advisory team. There’s no need to go it alone. You probably need help with insurance, taxes, investments, banking, budgeting and divorce law. It’s going to take more than one person.
6. Life insurance can be especially important in a divorce. Divorcing spouses often agree as part of the divorce that the spouse who pays the alimony and child support must maintain life insurance coverage, which is payable to the receiving spouse.
7. Do you really want to keep the house? People are often surprised by how much it costs to keep the home you lived in when you were married.[2] This is often because you go from a dual income household to a single income household.
8. Civility has its advantages. Prolonged argument can often result in additional legal fees, which can add up very quickly. Sometimes you end up losing even when you win.
9. Document everything you can. It’s best not to leave things open to misunderstanding. Failing to record the details could prolong the process and make everything more expensive later on.

Divorce can be an expensive and emotionally draining process. Careful planning can at least make it a little bit less of a burden.

[1] Manganaro, John. “7 Insights on Advising Wealthy Clients in a Divorce.” ThinkAdvisor.com. https://www.thinkadvisor.com/2024/07/18/7-insights-on-advising-wealthy-clients-in-a-divorce/?printer-friendly (accessed Oct. 1, 2024)

[2] Forbes Expert Panel®. “10 Important Financial Factors To Consider During A Divorce.” Forbes.com. https://www.forbes.com/councils/forbesfinancecouncil/2021/02/08/10-important-financial-factors-to-consider-during-a-divorce/ (accessed Oct. 1, 2024)

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