Post-Divorce Transition Management: The Complicated Mechanics of Getting a Newly Single Person Financial Independence
By Edward M. Goldberg, CFP, ChFC, CDFA
As holistic financial advisors, we look at the full breadth and width of our clients’ financial situations, including the investments, retirement planning, life insurance and long-term care needs, and estate planning. As Certified Divorce Financial Analysts, our focus is much narrower. As CDFA’s we look specifically at the financial aspects of divorce. We collect financial data, format it for both the clients and the attorneys, look at budgets, division of property, and run alternative scenarios. We can illustrate in a spreadsheet all that we do throughout the divorce process, and then subsequent to divorce in terms of post-divorce planning and management. This spreadsheet is five columns wide by approximately six sections deep. Today, I want to focus on one of the thirty or more tasks and functions we perform when working with a client pre-, through and post-divorce. I’m talking about Post-Divorce Transition Management.
Clearly divorce is a tumultuous time. Besides the the emotional trauma typically present and the difficult physical logistics of separating (i.e. moving, dividing personal possessions, etc.) and the inherent difficulties of putting together a parenting plan, there is also the gnawing uncertainty of what lies ahead financially. And even in the least combative of divorces, there are still the logistical difficulties in actually transferring assets from one party to another, setting up one’s own accounts, and then assessing how best to allocate available funds. All this falls under the general subject of post-divorce transition planning and management.
It is relatively uncommon that both spouses in a marriage are equally savvy when it comes to finances. Typically, one spouse, usually the husband, although the degree to which that is true is happily changing, has a dominant role in managing the couple’s finances. This makes it all the more difficult for the sub-dominant partner to transition to the management of his or her finances on his/her own. How does one get a percentage of one spouse’s 401(k) moved to the other spouse? Just that one transaction can be quite cumbersome requiring many steps. How does one (particularly the one who is not in charge of routine bill-paying?) set up a workable budget going forward? And how does the spouse who was not in charge of all the investments now proceed with stocks and bonds and all those other financial aspects?
In broad terms, the progression from separation to financial independence follows the following order: Divorce, Financial Planning, Asset Transfers, Asset Allocation, and lastly Monitoring. The divorce will play out as it will, hopefully collaboratively as opposed to combatively, but in any case, critical to the sub-dominant spouse will be to establish his/her very own financial plan. Having one’s own plan will help to instruct just what assets need to be moved and how to move them, what accounts to establish in which to move those assets, and how best to allocate those assets in terms of accomplishing the goals and objectives as established in the financial plan. The mechanics of getting all that done, and getting the newly single person on his/her way to leading a financially independent life is what we call “Post-Divorce Transition Management.” It is, as stated above, one of a number of steps we as professional financial advisors utilize in helping our divorcing clients survive and then succeed as they continue on their journey.
