SOLUTIONS FOR TRANSITIONING FAMILIES : (303) 543-0374

Why You Need to Seek Financial Advice Early

Many can agree that divorce is a major life transition that has far reaching implications—emotionally, legally, and financially. Yet, people often shy away from engaging the appropriate level of professional support to help them navigate the process. This is oftentimes due to concerns around the costliness of divorce. After all, quality professional expertise from attorneys, therapists, and financial advisors is rarely free. However, other times people simply don’t understand the role of certain professionals, or the value they add to the divorce process.  A financial advisor is a great example of a professional who can often be overlooked or misused when it comes to divorce. In this article, we’re going to explore the role of a financial advisor and the value they can bring as you navigate this important life change.

Financial advice comes in many different forms and can be acquired at varying price points. That’s why it’s important to ensure you’re engaging with a financial professional who offers the specific services you need and is also held to a fiduciary standard (i.e., they must act in your best interest). When it comes to divorce, a quality financial advisor will guide you through the financial intricacies of the process and help you understand how the decisions you make can impact your long-term financial wellness. Below are a few key areas of your financial health an advisor can help you focus on:

  1. Cash Flow: How might your living expenses change as a result of your divorce and what level of income will be necessary to support your desired lifestyle going forward?
  2. Financial Goals: How might your financial goals and future life milestones be impacted? It’s likely your savings and investment strategies will need to be adjusted. For example, how will the divorce impact your timeline or income needs for retirement? Will you be able to still accomplish goals such as paying for your child’s college education, purchasing that dream home by the lake, etc.?
  3. Risk Management: How might the divorce impact how you prepare for future unexpected events? For example, a divorce might change the amount of emergency savings you need to have on hand. It might also impact your insurance strategy (e.g., property and casualty, life, disability, long-term care, etc.). Last, but certainly not least, you’ll also need to think through the implications divorce will have on your estate plan and legacy goals. These are all essential topics that a quality financial advisor can assist with.

The timing of when you engage with a financial advisor is very important as well. A common mistake is to wait until the divorce is finalized before engaging a financial advisor. The issue is that you may have already agreed to a less-than-optimal financial position before fully understanding the implications. This is very common, especially when one party has more understanding of, or experience with, the household finances. A much better approach is to engage the financial advisor from the very beginning and utilize their expertise throughout the entire process.

One area of particular importance is the division of assets. Assets (e.g., real estate, investments, etc.) can have many different attributes such as liquidity, risk, appreciation potential, tax implications, etc. In other words, not all dollars are the same, and when it comes to divorce, certain assets are often more desirable than others. For example, a dollar of home equity may not be as desirable as a dollar sitting in an investment account. It all depends on your unique circumstances. A quality financial advisor will help you understand the pros and cons of each of the assets being distributed. In addition, they can utilize forecasting tools and projections to help you understand the long-term impact a particular asset will have on your overall financial health. How will keeping the home impact your cash flow? What if you get a bunch of 401(k) assets but end up in a higher tax bracket during your retirement?

Again, the impacts of divorce are far reaching—emotionally, legally and financially. Hopefully, this article has brought some clarity regarding why it’s so important to engage a qualified financial advisor, at the right time, when you’re faced with divorce. Financial health is foundational to so many aspects of life and serves as a cornerstone of ultimate wellbeing. A quality financial advisor will offer guidance, knowledge, and advocate for your best interest so that you can create the best future possible with the resources you have.