Divorce and Finances: What to Know About Money During a Major Life Transition 

Divorce often brings emotional and logistical challenges, but it also carries significant financial implications. This is especially true for individuals divorcing later in life, a trend sometimes referred to as “gray divorce.” As more couples over the age of fifty choose to separate, questions around housing, retirement accounts, income sources, and long-term planning become increasingly relevant. 

Separation at any stage can shift the financial picture, prompting individuals to reassess their goals, resources, and responsibilities. For many, it may involve taking on financial tasks that were previously managed by a spouse, reevaluating plans for retirement, or navigating new tax and legal considerations. 

This post was inspired by A Clear Path Forward: Navigating Your Journey Towards Financial Confidence and Security, a book by Claire Hollander with contributions from Sheila Hollander. In the chapter titled “Divorce and Dollars,” the authors explore the practical realities of managing money during and after divorce and the many details that often require attention during such a transition. 

Assessing Your Financial Landscape Post-Divorce 

Divorce often calls for a full reassessment of your financial life. This process can feel overwhelming, but gaining a clearer picture of where you stand is an important step toward moving forward. 

Start by identifying your sources of income, regular expenses, and outstanding liabilities. Understanding your monthly cash flow can help you evaluate what adjustments may be needed to support your lifestyle moving forward. This might include reviewing employment income, spousal or child support (if applicable), and any passive income from investments or rental properties. 

It’s also essential to distinguish between joint marital and separate individual assets. Marital assets typically include anything acquired during the marriage, such as retirement accounts, property, or jointly held investments. Separate assets are generally those acquired before the marriage or received individually through inheritance or gifts. While definitions may vary depending on your state, having proper documentation helps clarify these distinctions during the legal process. 

Gathering account statements, property deeds, mortgage documents, insurance policies, and loan agreements can make the next steps more manageable. Listing out all known assets and debts—including those that may not be immediately obvious, like personal loans or business interests—can help create a more complete picture. 

Key Assets to Review and Reallocate 

Dividing assets during a divorce involves more than just splitting everything evenly. Each type of asset carries its own set of financial, legal, and tax considerations. Understanding how different assets function and what their long-term implications might be can help inform more thoughtful decisions during the process. 

Primary Residence 

The family home often holds both financial and emotional value. Deciding whether to sell the property, transfer ownership, or buy out a former spouse’s share can significantly affect your future cash flow and financial stability. It’s important to consider the equity, mortgage responsibility, and potential tax implications of any decision involving the home. 

Retirement Accounts 

401(k)s, IRAs, pensions, and other retirement plans may require special legal documentation, such as a qualified domestic relations order (QDRO), to divide them. Each type of account has unique tax rules, withdrawal restrictions, and beneficiary considerations, which can affect how and when funds are accessed. 

Brokerage and Investment Accounts 

Unlike retirement accounts, brokerage accounts offer more flexibility but can also come with capital gains taxes when assets are sold. It’s helpful to understand the cost basis of each investment before agreeing to any distribution, as some assets may appear equal in value but differ significantly after taxes. 

Pensions and Annuities 

Pensions and annuities may involve long-term income streams, contractual obligations, or surrender charges. Their division often requires legal guidance and a thorough understanding of how and when payments will be distributed. Not all annuities are easily divisible, so these details should be clarified early in the process. 

Life Insurance 

Life insurance policies—especially those with cash value—can have implications in a divorce settlement. It’s important to understand who owns the policy, whether it’s term or permanent, and who is named as the beneficiary. In some cases, beneficiary changes may be required or restricted depending on the divorce agreement. 

Social Security 

If your marriage lasted at least 10 years and you meet certain age and eligibility requirements, you may be able to claim benefits based on your former spouse’s work record. While this doesn’t reduce their benefit, it may influence your broader retirement income planning. It’s worth reviewing this option with a financial professional if you are nearing eligibility age. 

Tax Considerations During and After Divorce 

Taxes can play a significant role in how financial decisions during a divorce affect you later. While some assets may appear equal in value on paper, their tax treatment can make a substantial difference over time. 

Not All Accounts Are Taxed the Same 

For example, funds in a traditional IRA or 401(k) are typically taxed as ordinary income when withdrawn, which could result in a higher tax bill depending on your income level in retirement. In contrast, a Roth IRA may offer tax-free withdrawals if certain conditions are met, making it potentially more favorable in some situations. 

Brokerage accounts operate differently. You’re generally taxed only on the gains when assets are sold, and those gains may qualify for long-term capital gains tax rates, which are often lower than income tax rates. An annuity, on the other hand, can involve complex tax rules, especially if it has grown significantly or includes rider benefits. Some annuities also carry surrender charges or penalties for early withdrawal. Understanding the long-term tax impact of each asset type can help inform how they’re divided and prioritized during negotiations. 

Selling the Home Before or After Divorce 

The timing of a home sale can also have tax consequences. Married couples who sell a primary residence may qualify for an exclusion of up to $500,000 in capital gains. For individuals, that exclusion is reduced to $250,000. As a result, some couples choose to sell jointly before the divorce is finalized to take advantage of the higher exclusion limit. However, this decision involves many factors, including market conditions, emotional readiness, and future housing needs. 

Seek Professional Tax Guidance 

Tax rules around asset division can be complex and vary based on personal circumstances. Engaging a qualified tax advisor or financial professional during the divorce process can help clarify how each asset might affect your future tax obligations. This guidance can also support your attorney in structuring a more informed and balanced settlement. 

Estate Planning Adjustments 

Divorce often calls for more than just dividing assets and revising budgets. It’s also a time to revisit your estate plan to be sure that your documents reflect your new circumstances and priorities. 

Review and Update Legal Documents 

Wills, trusts, powers of attorney, and healthcare directives should all be reviewed following a divorce. These documents often name a spouse in key roles, such as executor, trustee, or healthcare agent. After a separation, those designations may no longer align with your intentions. Updating these documents can help prevent confusion or legal complications down the line. 

Revisit Guardianship Plans 

If you have minor children, your estate plan may include instructions for guardianship. While custody decisions are handled through family court, your estate documents can still provide guidance in the event something happens to you. Reviewing this part of your plan with an attorney can help verify that it still reflects your wishes and takes current family dynamics into account. 

Check All Beneficiary Designations 

Retirement accounts, life insurance policies, and other financial instruments are typically passed on through beneficiary designations—not through a will. It’s important to review these designations and update them if needed. Some divorce agreements may require certain beneficiaries to remain in place for a period of time, especially in cases involving support obligations, so it’s best to work closely with your legal and financial team before making any changes. 

The Role of a Financial Team 

Divorce involves a wide range of financial and legal decisions, many of which have long-term consequences. Having the right team in place can help bring structure and support to what can otherwise feel like an overwhelming process. 

Who Should Be Involved 

In addition to your divorce attorney, it’s often helpful to work with a financial professional, tax professional, and estate planning attorney. Each brings a specific area of knowledge that can help you navigate the details more thoroughly. For example, a financial professional can help evaluate the long-term impact of different settlement options, while a tax advisor can provide insight into how asset divisions may affect your tax position. An estate attorney can help you understand if your legal documents are updated appropriately. 

Collaboration Supports Strategy 

When these professionals work together, they can help you develop a more cohesive plan that aligns your financial, tax, and legal decisions. Coordinated guidance may reduce the risk of overlooking key details, such as outdated beneficiary designations or the tax implications of dividing retirement accounts. 

Why This Matters 

The financial aspects of divorce can be complex, especially when multiple accounts, property, and long-term planning goals are involved. A collaborative team can help identify blind spots, offer clarity around your options, and support decisions that reflect both your current needs and future priorities. 

Moving Forward: Rebuilding with Intention 

Divorce can create an unexpected pause in the rhythm of life, forcing you to reassess your plans, priorities, and financial responsibilities. While the process may bring difficult decisions and emotional weight, it can also mark the beginning of a new phase, one shaped by your values, goals, and preferences. 

Rebuilding your financial life after divorce isn’t about starting from scratch. It’s about taking what’s already in place, identifying what needs to be adjusted, and moving forward with more clarity. That might mean creating a new budget, revisiting retirement timelines, or setting different goals for the future. It may also involve learning more about your finances if those responsibilities were previously shared or managed by your former spouse. 

Each person’s path looks different, and there is no one right way to move forward. What matters is taking the time to understand your options and making choices that reflect your current circumstances and the life you’re working toward. 

This transition, while challenging, can also serve as a moment to redefine what financial independence looks like for you. 

Final Thoughts 

While the divorce process can be complex, taking a deliberate and informed approach to your finances may help you feel more grounded as you move into the next chapter of your life. 

From understanding your current financial picture to making long-term adjustments around taxes, estate plans, and asset division, there are many moving parts to consider. You don’t have to navigate them alone. 

Need help reassessing your financial picture after a major life change? We’re here to support you. 

For more insights on navigating divorce and finances, explore A Clear Path Forward by Claire and Sheila Hollander, now available on Amazon.