Post-Divorce Financial Planning: Why Revisiting Your Investments Matters

Navigating the divorce process can often feel like a turbulent, confusing, and uncertain storm. Amid the whirlwind of emotions, it's easy to overlook a critical lifeline that can guide you towards calmer waters - financial stability. Financial stability, specifically taking control of your investments, can often anchor us in these challenging times. It empowers you to set a firm foundation for your new life, one where you can rebuild, grow, and flourish.

A firm financial foundation begins with financial planning tips, such as redefining your financial goals to suit your new life. From there, we'll discuss understanding the implications of dividing assets, explore how changes in tax status can impact your financial plan, adjust your retirement strategy to reflect your new reality (including how your retirement accounts may be affected), and finally, update your insurance policies and estate plans to ensure they are in tune with your unique needs.

To bring all these points to life, we'll share Sarah's (name changed for privacy) journey - her challenges, her triumphs, and how she found confidence in managing her finances post-divorce with our help. (You don't have to try to do this without a financial advisor!)

Why Revisiting Your Investments is an Important Aspect of Post-Divorce Financial Planning

1. New Financial Goals

While married, you and your partner probably had a joint vision for your financial future. Whether purchasing your dream home, preparing for your children's college tuition, or planning a vacation, these goals were crafted with shared dreams in mind. Post-divorce, however, your goals might have shifted. It's completely normal for your financial targets to change, and your investment strategy should evolve to reflect your new aspirations. For example, you may now be responsible for managing child support payments, either receiving or paying them, which can significantly impact your monthly budget and long-term savings plans.

2. Dividing Marital Assets Can Throw Portfolios Out of Balance

Dividing marital assets, such as bank accounts, investments, and retirement accounts during divorce, can lead to an imbalance in your investment portfolio. This shift may result in investments that no longer align with your post-divorce financial objectives or risk tolerance. Collaborating with a certified divorce financial analyst or other financial advisor to review and realign your portfolio can help ensure that your investments align with your evolving financial situation and future goals.

3. Differing Tolerance for Risk and Involvement with Investments

One often overlooked aspect of the post-divorce financial transition is the recognition that you and your former spouse may not have shared the same tolerance for risk or the same level of interest in actively managing investments. During your marriage, you might have taken a more hands-off approach, trusting your spouse to handle financial matters, or perhaps you were the more financially engaged partner while your spouse took a more passive role.

Now, in the aftermath of divorce, these differences in financial attitudes and approaches can become pronounced. It's not uncommon for one spouse to discover a newfound interest in investment strategies or a willingness to take on more risk. At the same time, the other may prefer a more conservative or cautious approach. As a result, a new investment strategy may need to be employed. 

4. New Tax Status

Another side-effect of divorce is the potential change in your tax bracket. Being a single taxpayer might affect how your investments are taxed, and adjusting your strategy to factor in these tax implications is important. This could mean prioritizing tax-efficient investments or rethinking tax-advantaged options to maximize your return.

Child support can also affect your overall financial picture. While child support is not considered taxable income for the recipient or a tax deduction for the payer, it still plays a major role in cash flow planning. Whether you’re providing or receiving support, your investment and savings strategies should account for these regular payments to ensure financial stability.

5. Retirement Strategy May Need to Be Revised

Regarding retirement savings, a divorce could significantly impact your nest egg. Perhaps your shared retirement accounts were divided as part of the divorce settlement, leaving you with less than you had planned. This change might require you to increase your contributions or change the allocation of your investments to meet your new retirement objectives. A certified divorce financial analyst can assist you in creating a post-divorce financial plan to reach your retirement goals.

6. Insurance Policies and Your Estate Plan Need to be Updated

Divorce necessitates a thorough review of all your documents, including insurance policies and other estate planning documents. It's essential to check the beneficiaries listed on your life insurance policy and any other policies and make changes as needed. (It's common for your former spouse to be listed as the primary beneficiary if you haven't changed it.) You might also need to adjust coverage amounts to reflect your new life circumstances. Consult with an estate planning attorney to determine how best to update the necessary documents.

Finding Financial Confidence: Sarah's Post-Divorce Journey

Our client, Sarah, shared how our post-divorce financial planning work together has given her greater clarity, making financial decisions easier,

"My husband had a lot of different accounts. He would open new accounts all the time, and I never knew where anything was. With Leah's help, I've been consolidating everything into one place. It's just simpler for me to understand. She's great about leading me through things and has helped me do transactions, and each time, it gets a little less scary."

Sarah's story underscores the value of engaging a financial advisor who understands the complexities of financial planning after a divorce. They can provide empathetic, personalized advice based on your unique circumstances.

Creating a New Investment Strategy that Suits You

Now that you know why it's so important to revisit your investment portfolio, let's discuss how to create a new investment strategy that aligns with your post-divorce financial situation. Begin by clearly identifying your goals, whether saving for your children's education, building a retirement nest egg, or simply achieving financial stability. Next, evaluate your risk tolerance, understanding your comfort level with potential fluctuations in your investments. Simultaneously, assess your capacity for risk, considering your financial situation, income, and expenses.

Based on these factors, determine a suitable investment strategy that balances your goals and risk profile, which could involve diversifying your portfolio or opting for more conservative investments. Regularly review and adjust your strategy as needed to adapt to changes in your financial circumstances or market conditions, ensuring that your investments continue to align with your evolving post-divorce goals.

We Can Help With Your Post-Divorce Financial Planning

At our sister company, Intentional Wealth Partners, our compassionate team is prepared to help you navigate your post-divorce financial planning needs wherever you are in the U.S. We invite you to learn more about the firm at www.intentionalwealthpartners.co. While you're there, schedule a no-pressure chat to explore how we can support you as you start this new chapter.

Remember, it's okay for your financial plan to change as your life evolves. As you step into this new chapter, know that a secure financial future is absolutely achievable.

Frequently Asked Questions About Post-Divorce Financial Planning

1. Do I have to split my retirement accounts in a divorce?

Not always. How retirement accounts are divided depends on your divorce settlement and state laws. Some couples choose to offset retirement savings with other assets like the family home or brokerage accounts. A certified divorce financial analyst (CDFA) can help you understand the long-term impact of different asset division scenarios and whether a Qualified Domestic Relations Order (QDRO) is needed.

2. How does divorce affect my credit report?

Divorce itself doesn’t directly impact your credit report, but the financial fallout can. Missed payments, high credit utilization, or accounts left open in both names can hurt your score. It’s important to check your credit report regularly during and after divorce to monitor for errors, close joint accounts, and protect your credit.

3. What should I do with investments after divorce?

After a divorce, your financial goals, risk tolerance, and income may change significantly. Your investment strategy should reflect those changes in post divorce income. A financial advisor or CDFA can help you reallocate your portfolio, consider tax implications, and align your investments with your new goals—especially if you now rely on child support or spousal support as part of your income.

4. Why should I work with a certified divorce financial analyst instead of a regular financial advisor?

A certified divorce financial analyst (CDFA) specializes in the unique financial complexities of divorce. They understand how to evaluate asset division, forecast the long-term impact of settlement proposals, and help you make informed decisions about things like retirement accounts, taxes, insurance, and setting up an emergency fund. They can work alongside your attorney or mediator to help you secure a more stable financial future.

Additional Blog Posts Related to Post-Divorce Financial Planning:

Post-Divorce Financial Stability: Your Comprehensive After Divorce Checklist

Starting Over Financially After Divorce

10 Effective Strategies to Make Your Divorce Settlement Last

Expert Money Management Tips for Recently Divorced Women