In this episode: Financial fear is one of the heaviest parts of a divorce. Jon Peyton breaks the work into three stages, gathering the data, analyzing it and defining the outcome you want, so you can face the numbers with a plan instead of dread.
Key insights
- Gather three years of financial records, or five if either spouse owns a business, starting with tax returns.
- Expenses often matter more than income, and most people underestimate what they spend.
- Divorce turns one household into two, often on the same total income, which is where alimony and child support conversations start.
- Equal dollar amounts aren’t always equal: retirement accounts limit access to cash, and investments with built-in gains carry future taxes.
- Gifts and inheritances may be treated as separate property, depending on your state and how the money was used.
Episode timeline
- 0:00 Introduction
- 2:27 Three stages: gather, analyze, decide
- 3:01 Start with tax returns
- 3:56 Variable income and bonuses
- 5:47 Why expenses matter more
- 7:56 Building a one- to two-year baseline
- 10:14 One household becomes two
- 13:36 The balance sheet and gifted assets
- 15:33 Retirement accounts and access to cash
- 17:52 Built-in gains in investment accounts
- 20:08 Valuing illiquid assets
- 22:14 Health insurance and children’s needs
- 23:27 Analyzing the data
- 27:09 Planning the outcome and life after
The episode in brief
Three stages. Jon frames the financial side of divorce in three steps: gather the data, analyze it, and define the outcome you want, both during the process and after.
Start with tax returns. Collect every piece of financial information you can access for the past three years, or five if either spouse owns a business, so the returns tell the business’s story. Returns include W-2s, 1099s and K-1s. Add recent pay stubs.
Variable income tells a story. If part of the household’s pay is a bonus, look at how consistent it has been. Variable income isn’t predictable, which matters when alimony or child support is discussed.
Expenses matter more. Jon has sat with clients reviewing card statements who found spending they didn’t remember: travel, dining out, rideshares. Without tracking, a category can drift 10% to 40% over budget. Review one to two years to set a baseline, spot seasonal patterns such as holidays and summer travel, and catch recurring “one-time” purchases that belong in the budget. Then estimate how much went to the household, to each spouse and to the children.
One household becomes two. If half your spending went to the home, divorce creates two homes, often on the same total income. Jon’s example: $20,000 a month in gross pay, perhaps $12,000 to $14,000 after tax, against $10,000 in expenses. If one spouse earns $12,000 and the other $8,000, the costs don’t split as neatly. That gap is where alimony or child support may come in, depending on your state.
The balance sheet. List everything: retirement and brokerage accounts, bank accounts and CDs, the home, cars and jewelry, including the engagement ring. Know where each asset came from. If in-laws gave $50,000 toward a house, it could be marital or separate property depending on your state and how the money was treated.
Retirement accounts and cash. When most of the wealth is in retirement accounts, access to cash becomes a problem because of taxes and penalties. The spouse who transfers part of a 401(k) through a QDRO keeps the rest locked in the plan, with limited loan options. The receiving spouse can roll their share into an IRA and, subject to taxes and penalties, reach it.
Built-in gains. In taxable accounts, two positions worth $100,000 each aren’t equal if one carries large gains and the other losses. After taxes, the side with gains might keep $90,000.
Illiquid assets. Real estate, private investments, businesses and collectibles may have no public market. A business can be valued on its assets, its cash flow or its intellectual property, so who values it matters. Keeping half could also mean being partners with your ex for 20 years.
Analyze with your team. Your attorney and a CDFA turn the data into a story that supports your strategy, and community property and common law states may call for different approaches. Sometimes the numbers don’t add up. Jon recalls a case where a spouse had been quietly setting money aside for years; a forensic review uncovered it.
Decide, then plan. Some people want a clean 50/50 split; others negotiate for specific assets or alimony. Know which you want, and aim for amicable negotiation. Then build a post-divorce plan for cash flow, savings, retirement and college. With a path laid out, you’ll notice when things drift and can decide what to accept. Preparation replaces fear with confidence.
Key action items
- Pull three to five years of tax returns and recent pay stubs for both spouses.
- Review one to two years of statements and build a monthly budget that includes recurring “one-time” costs.
- List every asset with where it came from, and flag any gifts or inheritances.
- Ask your tax professional about the after-tax value of each account and investment before agreeing to a split.
- Price health insurance you may need after the divorce.
Listen next: Episode 23: Turning the Illiquid Assets Into Liquid Assets
Jon Peyton previously held the Certified Divorce Financial Analyst (CDFA) designation and no longer holds it. References in this episode reflect his credentials at the time of recording, including references to work done by C-Suite Planning™.
This episode is educational and isn’t legal, tax or financial advice. Speak with your own attorney and advisers about your situation.