Managing Finances During and After Divorce

By Christine Benz, Morningstar

Divorce can take a devastating emotional toll, but it can also be devastating financially. Here are some tips for managing your finances during and after divorce.

Let's talk about, in a big picture sense, the impact that divorce can have on your own retirement nest egg.

For many couples what happens is that all of their retirement assets are divided in half, and they may have a qualified domestic relations order that dictates that the 401(k) plans be split in half, IRAs may be split in half. That can be emotionally devastating. If you have been saving and saving diligently, and all of a sudden what you see on your statement is half of that amount, it's demoralizing.  So, the two of you may have been on track for retirement together, but you split it in half, and neither party maybe is on track?

And it's important, by the way, that as part of the divorce that you do split retirement assets in half, because they are not the same as taxable assets. They are tax-deferred; they are in tax-deferred accounts. So, you're getting a tax benefit when you split the retirement accounts in half. So it's important that be part of what you receive as someone who is going through a divorce.

There are so many changes that are going to be happening. One is, you may not have the same goals that you and your ex-spouse had when you were married--that's big. You may not have the same time horizon for goals that you used to have. You may have a very different risk tolerance than your spouse had. So, you need to examine all of those things, and ... if there are any changes at all--that will definitely dictate a change in your asset allocation.

Lastly, do what you have to do with the finances to manage them, but you don't make major decisions, like perhaps move your whole portfolio somewhere else or cash in everything, and do something drastically different.  It's just not the time to do that. Give yourself plenty of time to go through the roller-coaster emotions. That could be a year before you then settle down and get to business again.

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