You’re Divorcing or Lost Your Spouse: What Do You Do Financially?
Neither situation is easy, and trying to figure out the financial side of things can be especially difficult. Here are some steps to help get finances in order.


The loss and grief following a divorce or a spouse’s sudden death can feel overwhelming. Uncoupling a marriage does not end a relationship. Decisions about money, the division of assets and possibly parenting must be shared between the separating spouses for quite some time. The sudden death of a spouse, on the other hand, often puts the surviving spouse in the unenviable position of finding a way forward alone. It can be challenging to manage the daunting financial repercussions that come from these life changes.
In both cases of divorce and loss, I recommend that you find a trusted person. It can be a friend or relative who is honest and won’t take advantage of you when you’re the most vulnerable and likely to make emotional decisions vs. rational ones.
You’ve decided to uncouple. What happens now?
In many marriages, one spouse takes the lead on the finances and taxes, and the other relies on that person to make smart decisions on behalf of the partnership. When you get divorced, the first steps anyone should take is to put together a basic financial affidavit — a document that outlines your income, expenses, assets and liabilities — and a balance sheet — a document that outlines the marital assets and liabilities.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For some, this is a daunting task but a necessary one, as it helps you to understand what you have and how it is held. In many jurisdictions, the division of assets is a final one. Understanding what your income, expenses, assets and liabilities are will help you to back into the financial settlement that you need and want. These are also the basic tools that are required to create a cash-flow analysis.
When drafting a settlement, there are many ways that assets can be divided. For example, the marital residence can be sold, and the proceeds from the sale and all other assets are simply divided equally down the middle. That is one way to do it, but often does not make sense given the circumstances. Let’s say one party (we will call her Jane) wants to keep the marital home until the children start college. How do you compensate the party not receiving the house (we will call him John) for his equity in the house?
This can be accomplished in many ways. You could give John his equitable share of the house as an additional distribution from the parties’ brokerage account. In the alternative, John could agree to wait to get paid his share of the equity until the children go to college. In this scenario, John puts a lien on the property with an appropriate interest rate, and the property is either sold or John is paid what he is owed when the children go to college.
The important thing to remember in each of these examples is that there are many ways to create a settlement. But understanding what you want, what you need and how you are going to get those things in a fair way means that you should understand the tax consequences of receiving each asset, how that asset will work for you (i.e. income-producing, illiquid asset, retirement asset) and how it fits into the overall settlement.
In addition, you need to factor in if you are going to receive child support and/or maintenance/alimony. Keep in mind that any assets you receive as part of a divorce maintain the current cost basis for tax purposes.
Once you have an idea of what a possible settlement may look like, running a cash-flow analysis and a more in depth Monte Carlo analysis can be very helpful to most clients. A Monte Carlo analysis, in this sense, would take the income, expenses, assets and liabilities that were used for the cash flow and apply approximately 1,000 market conditions during the life of the client to see how successful the plan is for the long term even with market volatility. This will help you understand how your settlement will work for you and support your lifestyle.
In addition, something to consider is whether any of the assets or ongoing payments need to be “insured.” Let’s say that the father is paying the mother child support and alimony for the next 10 years. If something should happen to the father before the 10-year period has concluded, that income stream would disappear. The use of life insurance on the father’s life can help to ensure that the mother is receiving funds to cover her expenses and the children’s expenses even if the father passes away.
Lastly, once divorced, it is important to meet with your accountant and estate attorney to go over your new tax situation and make sure your estate will be handled according to your preferences and in a tax-efficient way. Find your own trusted, professional advisers who can help you navigate your newly found singledom.
Your spouse suddenly passes away. Now what?
Unlike a divorce, the sudden loss of a spouse takes a lot of your choices away and forces you to follow the estate documents or the decision of the probate court regarding how the assets will be distributed. A sudden death highlights how prepared or unprepared a family is.
Let’s say Sara and Scott have been married for 10 years and have a 5-year-old child. Scott passes away in an unexpected motor vehicle accident. Scott has a basic will, beneficiary designations on his retirement accounts and a group life insurance policy through his work.
The first thing Sara needs to do is be appointed as the executor/administrator of the estate by the probate court. This will enable her to retitle assets, apply to receive the life insurance proceeds and start working through the estate process. The assets in Scott’s name receive a step-up in cost basis, helping to eliminate any tax consequences to selling an asset. The group life insurance policy provides some liquidity, as she needs to figure out how she’s going to meet her expenses with her sole income.
When a spouse passes away, going through the previously mentioned exercise of understanding your income, expenses, assets and liabilities helps to instill clarity and outline a basic plan during an emotional time. Similar to a divorce, your tax situation changes, your income may change, and your expenses, which you once shared, become solely yours. A cash-flow and Monte Carlo simulation, for example, will show you how you are going to fund your expenses or pay off a debt and how long your assets will last.
Once things have settled down, you should meet with your trusted advisers: your estate attorney, accountant and financial adviser. You will need to update your estate documents, understand what your tax filing will look like for the year of the passing as well as subsequent years and work through the investments and the retitling of assets. Having access to professionals who can assist you will make the process more seamless and less stressful. These individuals can also help you to create building blocks for the new situation you are facing.
Although this is not an exhaustive list, it gives you an idea of the differences between divorce and death and some key things to think about.
Header Cell - Column 0 | Divorce | Death of spouse |
---|---|---|
Assets/liabilities | Divided by negotiation or trial. You can be creative. | Pass based on wills, trusts, beneficiary designations or probate. |
Income | Child support, alimony or none. | Income ceases unless there is a spousal benefit. |
Income taxes | You file single the year you get divorced. | You still file married the year your spouse passes away. |
Estate tax | N/A | Depending on the size of your estate, there may be a federal and/or state tax. |
Insurance | You may want to use it to insure certain payments. | It will pay based on beneficiary designation and could fund an income shortfall. |
In either of the cases I’ve outlined, I want to stress the importance of having the right team in place to guide you safely through the financial challenges that come from a divorce or untimely death of a spouse. The right team of advisers can help you manage the complex and interconnected legal, investment and accounting requirements needed to make sure you don’t risk running out of money in that critical period following a life-changing event.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Before joining the financial services industry as a Senior Vice President at Wealth Enhancement Group, Lane worked as a senior associate for the law firm of Rutkin, Oldham & Griffin, LLC, litigating high net worth dissolution and child custody matters. Her work has been widely recognized and she frequently draws on her extensive experience to write articles and speak at events on legal and financial matters.
-
Dow Hits New Intraday High on Fed Day: Stock Market Today
Not even the most important stock in the world could keep the oldest equity index down on a significant day for markets.
-
Savings Goal Calculator
Tools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
Gray Divorce Can Throw Your Retirement a Curveball: What to Know
If you're entering retirement and going through a divorce at the same time, you've got some work to do to shore up your long-term financial security.
-
I'm a Real Estate Investing Expert: Optional 721 UPREIT DSTs Can Be the Best of Both Worlds
Before investing in any 721 UPREIT exchange, look for one that offers a straightforward, investor-friendly exit.
-
How an Expired Passport Thwarted Blackmail (and What Other Important Documents You Should Keep)
An optometrist produced his expired passport to foil a blackmail attempt by the daughter of a former employee. After proving he was out of the country on the date of a forged diary entry, he took it a step further.
-
Optimize, Grow, Retain: The Power of Annual Client Reviews
Financial advisers can use annual reviews to help enhance client outcomes, strengthen relationships and build their practice.
-
I'm a Real Estate Investing Pro: This Is What Investors Should Know About Truck Stop Investments
Truck stops might seem like good investments, but they can actually be a risky gamble due to unstable fuel prices, unreliable operators and coming changes in transportation. Instead, consider safer options like industrial or residential properties.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams Now
Beyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
While some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.