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Pre- and Post-Divorce Planning – What Every Advisor Should Know

Tom Dickson hosted a webinar on how advisors can support clients before, during, and after divorce, featuring Janet Rhodes Freeman, CFP®, CDFA®, Rick Fingerman, CFP®, CDFA®, and John Thompson (mortgage planner). The panel stressed that divorce is both a legal/financial event and a deeply emotional one, and that advisors add the most value when they combine technical planning with empathetic support.

1. Why Pre- and Post-Divorce Planning Matters for Advisors

• Janet emphasized that divorce planning is a multi-year process, not just the moment the decree is signed. Advisors should help clients:
  • Understand how their state’s laws treat property division, support, and custody.
  • Visualize life after divorce (housing, income, lifestyle) before they make big decisions.
  • Assemble the right professional team: divorce attorney, CPA, CDFA®, financial planner, therapist/coach, and—when needed—forensic accountant.
• They noted the growth in “gray divorce”—divorces after age 50—where stakes are higher due to larger retirement balances and less time to recover from mistakes. Recent research confirms that divorce rates among Americans 50+ have more than doubled since the 1990s and now account for about one-third of divorces. ABC News+1

2. Key Concepts in Pre-Divorce Planning (Janet Rhodes Freeman)

a. Understanding State Law & Legal Status

• Advisors must know whether clients live in a community property or equitable distribution state, because that dramatically affects how marital assets are divided. Community property states generally treat most assets acquired during marriage as jointly owned and divided roughly 50/50, while equitable distribution states divide property “fairly,” which may not be equal. Wikipedia+1
• Janet highlighted the example of Massachusetts, where there is no formal “legal separation” status. Couples may live apart and can seek “separate support,” but under state law they are either married or divorced; there is no official “legally separated” status. Massachusetts.gov+1

b. Step-by-Step Pre-Divorce Checklist

Janet walked through practical steps for clients who are contemplating or entering divorce:

1. Confidential information gathering
   • Tax returns (3+ years), pay stubs, bank/brokerage/retirement account statements, loan documents, insurance policies, business financials.
   • Prenuptial or postnuptial agreements and any trust documents.
2. Inventory of assets & liabilities
   • Home(s), retirement plans, stock options, closely held businesses, real estate, and all debts (mortgage, HELOCs, credit cards, student loans).
3. Health insurance and special-needs planning
   • How coverage will work post-divorce (COBRA, marketplace, employer plans).
   • Extra attention for children or spouses with special needs, including guardianship and long-term care planning.
4. Choosing the divorce process
   • Uncontested, mediation, collaborative divorce, or litigation, with an emphasis on lower-conflict approaches where possible.
5. State-specific rules
   • How property is characterized (marital vs. separate), how support is calculated, and what judges in that jurisdiction typically prioritize.

Janet encouraged advisors to help clients pace the process, practice self-care, and avoid reactive decisions (e.g., giving up the house without understanding its long-term affordability or tax consequences).

3. Mortgage & Home-Equity Planning in Divorce (John Thompson)

John focused on the family home, often the largest marital asset and an emotional hot button.

Four phases of mortgage-related divorce planning:

1. Valuing the home
   • Getting a realistic market value (appraisal or comparative market analysis).
   • Considering repair costs and selling expenses.
2. Qualifying income
   • Determining which spouse can qualify for a mortgage post-divorce using employment income, support payments, and other income sources under lending guidelines.
3. Analyzing debts and obligations
   • How mortgage, HELOCs, and other debts will be allocated.
   • Whether the debt load will block either spouse from qualifying for a new mortgage.
4. Using home equity
   • Options such as:
     • Keeping the home and refinancing into one spouse’s name.
     • One spouse buying out the other’s equity.
     • Selling the home and splitting proceeds.

He stressed that the divorce settlement language must match lender requirements. Vague language around who pays the mortgage or how long support will last can make refinancing or qualifying impossible.

John also pointed out tax and planning nuances around selling the home, including the capital-gains exclusion on the sale of a primary residence (up to $250,000 for single filers, $500,000 for married filing jointly if conditions are met), which can become more complex when a couple divorces before or after a sale. TaxGPT+1

4. Post-Divorce Planning Essentials (Rick Fingerman)

Rick explained that many people “quit” on planning once the decree is signed, even though the most important personal finance work happens afterward. His post-divorce checklist included:

1. Create a realistic post-divorce budget
   • New housing costs, health insurance, childcare, legal bills, and support payments.
2. Update estate planning documents
   • Wills, powers of attorney, health care proxies, and any trusts.
   • Align these with the divorce judgment and custody/support provisions.
3. Retirement & investment accounts
   • Make sure QDROs (qualified domestic relations orders) are properly drafted and processed for employer retirement plans (like 401(k)s); IRAs follow different rules and typically do not require a QDRO but must follow IRS and state property division rules. IRS+1
   • Re-evaluate asset allocation and risk tolerance based on the client’s new situation.
4. Insurance review
   • Life insurance (especially when required to secure support obligations).
   • Disability and long-term care coverage.
   • Property & casualty insurance on home, auto, and umbrella.
5. Beneficiary changes
   • Update beneficiaries on retirement accounts, life insurance, and TOD/POD accounts to reflect the new plan and any court-ordered requirements.
6. Credit rebuilding and protection
   • Pull credit reports and monitor for joint debts that were supposed to be refinanced or paid.
   • Establish independent credit if one spouse previously had little or none.

5. Special Topics Highlighted in the Q&A

a. State Laws & Legal Separation

• The panel used Massachusetts as an example where there is no formal legal separation status, but spouses can file a Complaint for Separate Support to obtain court-ordered financial support while remaining married. Massachusetts.gov+1

b. Having Separate Attorneys

• Panelists strongly suggested that each spouse have their own attorney, especially when:
  • There are significant assets (business interests, multiple properties, large retirement accounts).
  • Power imbalances or potential coercion exist.
  • One spouse is a sophisticated financial professional and the other is not.

c. Prenuptial & Postnuptial Agreements

• For second marriages or blended families, they recommended prenuptial agreements to protect children from prior relationships and to clarify expectations around separate vs. marital property.
• Postnuptial agreements were discussed as a tool to clarify ownership of inherited assets or other property obtained during the marriage, where both spouses are on the same page and have separate legal counsel.

d. When to Bring in a Forensic Accountant

Advisors should suggest a forensic accountant when there are signs of hidden assets or unreported income, such as:

• A lifestyle that cannot be explained by reported income.
• Cash-based businesses where income can be under-reported.
• Sudden, unexplained changes in account balances or transfers.

Forensic accountants can help trace assets, analyze financial statements, and provide expert testimony if necessary.

e. Mortgage Issues After the Divorce

• Even if the divorce decree says one spouse will pay the mortgage, lenders are not bound by the decree. If both spouses are still on the note, both remain legally responsible.
• Many lenders will require:
  • Refinancing to remove one spouse from the mortgage, or
  • A formal assumption of the mortgage, which can involve its own underwriting.
• Advisors should make sure clients understand how long they have to refinance or sell the home under the agreement and the consequences if they don’t.

f. FAFSA and College Planning After Divorce

• The panel addressed confusion regarding which parent files the FAFSA for college aid when parents are divorced. Under recent rule changes, the parent who provides the most financial support (not necessarily the custodial parent) may be the one who must file, and only one parent’s information is typically used when parents live apart. Saving for College+1

g. Social Security Benefits for Divorced Spouses

• They discussed Social Security benefits based on an ex-spouse’s record:
  • Generally, a divorced person may be eligible for benefits on an ex-spouse’s record if:
    • The marriage lasted at least 10 years,
    • The claimant is age 62 or older,
    • They are currently unmarried (with some nuances if they remarry later). Dayton Social Security Planning+1
• The panel shared examples where a client married multiple times met the 10-year rule with one ex-spouse and could potentially benefit from that work record.

6. Emotional Support & Advisor Role

Throughout the session, the speakers emphasized that:

• Divorce clients are often overwhelmed and fearful, and may not absorb technical information on the first pass.
• Advisors should:
  • Normalize the emotional strain.
  • Pace the flow of decisions.
  • Encourage counseling and support groups when appropriate.
• They also emphasized the importance of clear communication, noting the example of a client who didn’t realize their divorce had already been finalized—an illustration of how easily overwhelmed clients can miss critical details.

7. Practical Takeaways for Advisors

1. Use structured checklists for both pre- and post-divorce planning so no major issue is overlooked.
2. Coordinate with attorneys, CPAs, and mortgage professionals early—especially when decisions about property, support, and taxes are intertwined.
3. Educate clients on state law basics, but always defer to legal counsel for specific advice.
4. Make sure settlement terms are implementable (refinance timelines, QDRO language, support duration, college cost allocation, etc.).
5. Revisit the plan annually post-divorce as housing, employment, and family circumstances change.

External References for Fact-Checking & Further Reading

Below are external, publicly available resources that align with the concepts discussed in the webinar:

Divorce trends & gray divorce

• Gray divorce trends and statistics (ABC News):
  https://abcnews.go.com/US/gray-divorce-rates-rise-women-open-becoming-single/story?id=116371849ABC News
• Demographic research on gray divorce in the U.S.:
  https://www.bgsu.edu/ncfmr/resources/data/family-profiles/FP-24-22.htmlBowling Green State University

Community property vs. equitable distribution

• Overview of community property in the United States (Wikipedia):
  https://en.wikipedia.org/wiki/Community_property_in_the_United_StatesWikipedia
• List and explanation of community property states (Hekmat Family Law):
  https://hekmatfamilylaw.com/guides/community-property-states-full-list/hekmatfamilylaw.com

Massachusetts and legal separation

• Massachusetts: “Legal Separation / Separate Support” (Mass.gov):
  https://www.mass.gov/legal-separationseparate-support Massachusetts.gov
• Overview of separation vs. divorce in Massachusetts (Massachusetts Legal Help):
  https://www.masslegalhelp.org/children-families-divorce/divorce-separation/overview-divorce-and-separationMassachusetts Legal Help
• Explanation that Massachusetts does not recognize “legal separation” as a formal status (LaFountain & Wollman):
  https://lafountainwollman.com/do-i-have-to-get-legally-separated-before-i-get-divorced/LaFountain & Wollman P.C.

Tax issues, QDROs, and property division

• IRS Publication 504 – Divorced or Separated Individuals (IRS):
  https://www.irs.gov/publications/p504 IRS
• Capital gains tax rules on selling a home during or after divorce (DivorceNet):
  https://www.divorcenet.com/resources/divorce/capital-gains-tax-sell-house-divorce.htmwww.divorcenet.com

Social Security for divorced spouses

• Social Security: Prior marriage and divorced spouse benefits (SSA):
  https://www.ssa.gov/help/iClaim_marriagePrior.html Social Security
• Explanation of the 10-year marriage rule for ex-spouse benefits (LegalClarity):
  https://legalclarity.org/what-is-the-10-year-marriage-rule-for-social-security/LegalClarity

FAFSA & divorced parents

• FAFSA rules for divorced or separated parents (Saving for College):
  https://www.savingforcollege.com/article/divorce-and-the-fafsaSaving for College
• Additional explanation of FAFSA changes for divorced families (College Aid Pro):
  https://collegeaidpro.com/fafsa-for-divorced-families-tips/College Aid Pro