Level The Playing Field By Being Financially Informed

Level The Playing Field By Being Financially Informed

By Diane Pappas, CDFA, CQS On 03/11/2025

We all know the saying: if marriage is about love, then divorce is all about the money. This reality makes financial knowledge one of the most powerful tools you can have when going through a divorce. When one spouse has a stronger grasp of the couple’s finances, it creates an imbalance of power that can lead to an unfair settlement. Without a clear understanding of what you own, what you owe, and what income is coming in, you may find yourself agreeing to terms that do not serve your long-term financial well-being. However, the good news is that financial knowledge can level the playing field and put you in a stronger position to advocate for yourself.

Understanding Your Financial Picture

Before initiating the divorce process, take the time to gather and review all financial documents. Understanding your full financial picture means looking at assets, debts, income, and expenses. Key documents to collect include:

• Bank statements (checking, savings, and investment accounts)
• Retirement accounts (401(k), IRAs, pensions)
• Mortgage statements
• Credit card and loan statements
• Tax returns (at least three years’ worth)
• Pay stubs, year-ending paystubs and W2s
• Household expenses

Having access to these documents will provide clarity on what is at stake and help you prepare for negotiations. If your spouse has always handled the finances, you may need to request copies through your attorney and then work with a Certified Divorce Financial Analyst® to uncover missing details.

The Power Imbalance in Divorce

In many marriages, one spouse takes on the role of managing the finances, while the other may be less involved or busy raising the family. This can create a significant power imbalance during a divorce. If you are the spouse who has not been involved in financial decision-making, you may feel at a disadvantage when trying to understand your financial position. This lack of knowledge can put you at risk of agreeing to a settlement that does not meet your needs.

To counteract this imbalance, educate yourself as early as possible. Working with a CDFA® from the beginning can be a crucial step in this process. A CDFA helps you understand what assets are marital property, how different types of assets impact your financial future, and what settlement options are in your best interest.  CDFAs also help with understanding your cash flow so you can live within your means.

Retirement Assets: What You Need to Know

Retirement accounts are often among the largest assets divided in a divorce. Unfortunately, they are also among the most misunderstood. Many people assume that a 50/50 split is the fairest way to divide retirement assets, but the reality is more complex. Factors to consider include:

• Tax implications: A $100,000 401(k) is not equal to $100,000 in cash. Withdrawals from tax-deferred accounts will be taxed, reducing the actual value.
• Trading away retirement in order to stay in the home is usually not advisable – a house can’t pay the bills in retirement.
• Dividing pensions: major mistakes can be made, like which election is made at retirement, and how the marital portion is being calculated
• Qualified Domestic Relations Orders (QDROs): If dividing a retirement account, a QDRO may be necessary to avoid tax penalties and ensure proper distribution – don’t do it on your own.

Without a clear understanding of these issues, you risk walking away with less than what you are entitled to and the possibility of making some very bad mistakes.

Income and Spousal Support Considerations

Understanding your spouse’s income is essential when negotiating spousal support (alimony) and child support. If you have been out of the workforce or earn significantly less than your spouse, spousal support may be a critical component of your financial security. Key questions to ask include:

• What is your spouse’s actual income, including bonuses and commissions? Trust but verify.
• Does your spouse have business income that may be difficult to trace?
• What is your “need” and is the support figure enough to cover your living expenses?

A CDFA can help you analyze income sources and help to determine a fair support arrangement based on your needs.

Protecting Your Financial Future

Divorce is not just about dividing assets—it’s about securing your financial future. Some important steps to take include:

• Take time to understand what it takes to run your household and what expenses you will be responsible for post-divorce.
• Review your credit report and ensure your credit remains intact, especially if a new mortgage or other loan is in your future
• Once divorced, make sure any money owed to you is paid, especially if retirement accounts are involved.

Empower Yourself with Knowledge

Financial literacy is one of the most powerful assets you can have during a divorce. While the process can be emotional, having a clear understanding of your finances allows you to make decisions based on facts rather than fear. If you are unsure where to start, seek professional guidance. A CDFA can provide you with the information and strategies needed to achieve a fair and financially sound settlement.

By taking control of your financial knowledge, you reclaim your power in the divorce process. The goal is not just to get through the divorce but to set yourself up for financial stability and success in the years to come. No matter where you are in your divorce journey, it is never too late to start making informed financial decisions. Knowledge is power and it is never more important than in divorce

Tagged with: finance, cdfa, divorce, idfa, financial literacy

Blog Disclaimer: The opinions expressed within these blog posts are solely the author’s and do not reflect the opinions and beliefs of the Certitrek, IDFA or its affiliates.