Negotiating a Divorce Settlement? What to Know Now

How to come to an agreement with your spouse that's fair.

By

Aviva Pinto

 
Published June 22, 2023
illustration of house split in half, divorce, house settlement
Jared Oriel

As a wealth manager and certified divorce financial analyst, I have worked with dozens of people going through the challenges of ending a marriage. It can be brutal, both emotionally and certainly financially, particularly for older women who may not be familiar with the couple’s joint accounts.

It is not uncommon in a relationship for one partner to handle most of the finances. Divorce leaves the uninformed spouse vulnerable. It is critical to get a firm grasp on your household finances.

Knowledge is power

When you first file for divorce, you will have to fill out a net worth statement. Understanding that this document is filed with the court and outlines everything you (and your soon-to-be ex) own, earn, spend and owe is extremely important. Having the correct information can arm you with the tools to get a fair settlement.

For those who have not handled the finances, filling out the net worth statement can be overwhelming. I had a client who was in her 70s who found out her husband had carried on a 20-year affair with a coworker. He handled all the finances and she was literally lost when she started her divorce.

We were able to help her figure out what was theirs, what was his and what was hers. We gathered all the bills and put them on autopay; we determined what she would need to meet her budget, and how she should be investing her settlement.

When you fill out the net worth statement, you will have to have gather all your legal and financial documents, such as trusts, mortgage, bank account and credit card statements, recent tax returns, payroll statements, income from investments, insurance coverage information and deeds and titles for real estate and vehicles. And, you will need to know your Social Security benefits as well as your spouse’s benefits.

As this can be overwhelming and confusing, it helps to work with a financial adviser who has knowledge of the divorce process.

One of my clients in her 50s put all the files she could find in a suitcase and wheeled it into our office. She had no idea what was in there or where to start. But luckily, we were able to piece it together. Having the information put her in a position of strength.

Being ignorant of what is owned and owed can lead to settling for a lesser amount that may not be able to sustain you, going forward.

Be careful how things are divided

When you are dividing and liquidating assets, there are often tax consequences. For example, if you divide a taxable investment account, you will need to make sure that the assets are split equitably. You would not want to agree to take assets that are assessed at their original value or purchase price when they have appreciated and are worth more. When you sell these assets will incur capital gains taxes.

Many clients are very attached to their homes, though they may not be able to afford staying put. One client told me all she wanted was the house and the spouse could keep the cash investment accounts. She told me the house was worth $800,000 and their accounts were worth the same amount. We found that the house had a $500,000 mortgage and annual expenses including maintenance and taxes that exceeded her income.

If she accepted those terms, she would have had no cash to pay the mortgage and daily living expenses. And, she would have given away more than she was receiving. You must be aware of the tax implications of selling a house, of selling a portfolio of stocks and bonds and of rolling over retirement assets.

Filing your taxes

You should also speak with an accountant or tax adviser before you file a tax return. Should you file jointly or as a single taxpayer? Will you be in a higher or lower tax bracket? Should you fund pretax accounts like traditional IRAs and 401(k)s? Can you claim the children as dependents?

Inflation

If you do not factor inflation into your settlement, as prices rise you can find yourself in a situation in which your income can’t keep up. Increasingly, women are living into their 90s. If you are divorcing in your 50s and have another 40 years ahead of you, make sure you factor in what inflation will do to your settlement and investments over time.

Do not get overwhelmed

Even with an intact marriage, it is important to stay informed about your family finances, your budget, savings, your investments, what you both own and what you both owe. When a split is imminent, all of this can seem too overwhelming — especially to those who have not been exposed to the financial information in the past.

Even those with little financial experience can become savvy by asking the right questions and seeking help from the right experts.

Have any of you had to negotiate a divorce settlement? Let us know in the comments below.

Aviva Pinto is a Managing Director and member of the Advisory committee at Wealthspire Advisors in New York.  As a wealth advisor, Aviva works with individuals in transition (sale of business, inheritance, divorce, widowed) to determine the most appropriate course of action for their financial assets. She is a Certified Divorce Financial Analyst (CDFA) and a Certified Divorce Specialist (CDS). Aviva is currently on the finance counsel of Forbes.com and is quoted regularly in many publications. Aviva has  been voted one of the Top 50 Businesswomen on Long Island for multiple years and was named one of Crain’s New York Business 2020 Notable Woman in Finance.  The mother of two daughter, Aviva loves to ski, sail, ice skate and a cold glass of wine!