Financial Planning & Divorce

By: Michelle Buonincontri, CFP®, CDFA

I recently read an article that hit home for me as a single divorced Financial Planner and raises the question, “Why isn’t the divorce scenario tested when creating financial plans? “.

The current landscape

Americans are living longer than previous generations with an average life expectancy reaching nearly 79 years old and typically women live longer than men.

According to the U.S. Census Bureau roughly 80% of women will outlive their husbands, and we’ve also heard that approximately 60% of women alive at 62 can expect to live to age 90. Then add in that Retirement Security Trends in Marriage and Work Patterns May Increase Economic Vulnerability for Some Retirees according to a report to the Chairman, Special Committee on the Aging in the US  = this is a serious planning concern.

What does this mean for you?

It means that planning for the loss of income due to loss of a partner, including divorce, is so important.   This may also include increased taxes that are owed as a single filer – as that reduces net spendable income. Yet many Americans age 40 and older  do not have an actual financial plan to model the income loss after the loss of  a partner due to separation, widowhood or divorce, according to  a new survey conducted by The Harris Poll on behalf of TD Ameritrade and out-lined here.

Of course planning your finances around the potential end of a relationship is uncomfortable to say the least.   Who want to think about that, but we must, just live we talk about and model the potential need for life insurance.   Divorce is long and complicated – we need to be prepared legally, emotionally & financially.

The divorce rate for those over age 50 has doubled in the past 20 years according to research by Bowling Green State University.   So for those in their 40”s, 50’s and later, this is a real planning concern.  A late-life divorce can wreak havoc on even the most well-thought out retirement plan –  as there is little time to amass assets and recover from the loss of anticipated retirement income.

Now what?

Financial Planners & Wealth Managers focus on various forms of unsystemic risk when planning for retirement; such as company risk, sector risk, inflation risk, longevity risk (outliving your money), concentration risk etc.  They manage this risk through “diversification”.  They may even run “Monte Carlo” simulations to see how your portfolio would have fared in previous economic scenarios and try to project the likelihood that you will be OK in retirement.

Understanding and preparing for these possible scenarios is an important part of a financial plan to help ensure future financial security; it’s NOT just about sequence risk (withdrawing/selling assets in a down market during retirement).

Planning for these scenarios should be a key part of financial planning, and a Certified Divorce  Financial Analyst (CDFA) can help with this.  Managing expectations is paramount in this scenario.  The income that once supported one household may now be supporting two, and various scenarios can be modeled through the use of specialized software and individualized reports for couple/families – so that options can be understood to minimize the financial impact on a retirement plan and provide longer term peace of mind.

Both the IDFA (Institute for Divorce Financial Analysts)  https://www.institutedfa.com/  and the ADFP  (Association of Divorce Financial Plannerswww.divorceandfinance.org/ can be resources for finding a CDFA™  (Certified Divorce Financial Analyst)  professional to support you and your client in these scenarios.

This article is not meant as counseling, investment, tax or legal advice, but rather information. It is always advisable to seek out and work with a qualified professional in their area of expertise to determine your unique situation and what particular options are available to you.


Michelle Buonincontri Circle Headshot.png

Michelle Buonincontri is a Certified Financial Planner™ (CFP®), Certified Divorce Financial Analyst (CDFA™) and founder of Being Mindful in Divorce. As part of her commitment to families in reducing the emotional and financial impacts of divorce and promoting alternative resolution models, she is trained as a Mediator and a Collaborative Divorce Financial Neutral; working with singles, couples and as a family law case expert. Michelle is also a Divorce Transitional Certified Life Coach and facilitator of Divorce Overwhelm Workshops, a volunteer at Fresh Start Women’s Foundations and Savvy Ladies. Michelle may be reached at 520-369-3380 or [email protected]

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