by
Robert J. Mascia, CFBS, Green Ridge Wealth Planning
| May 1, 2025
Divorce is one of the most emotionally and financially challenging events a client can face, and CPAs often find themselves as trusted advisors during this turbulent time. While CPAs play a critical role in untangling financial complexities, partnering with a financial advisory firm can often provide the additional support needed to craft thoughtful, unbiased solutions. The following are some client-focused strategies that align with your work as a CPA:
1. Lifestyle adjustments and budgeting: Divorce often results in two households operating on the same income, which can significantly impact lifestyle. Clients need to set realistic expectations for their post-divorce budgets. A fee-only financial advisor can help craft a plan that accounts for future cash flow, expenses and potential trade-offs, such as keeping the marital home versus selling it.
2. Asset distribution: equitable versus equal: Clients frequently equate fairness with equal division, but equitable outcomes often produce better long-term results. For example, a non-breadwinning spouse nearing retirement may yield a higher net income from receiving retirement assets, allowing the higher earner to keep more after-tax assets. We would calculate the “net” value benefited, after tax, to appropriately equalize for both parties. CPAs are critical in evaluating the tax implications and liquidity of proposed settlements to ensure outcomes that work for both parties.
3. Business, private equity and real estate: A failed business or asset is bad for both parties, as well as their children, which is why dividing complex assets introduces unique challenges:
- Valuation: Accurate appraisals are critical, particularly for businesses or investment properties. Keep in mind any capital calls or carry costs that may arise in the future.
- Liquidity: Divorce-driven liquidity demands can force the sale of real estate or private equity stakes, leading to unanticipated tax consequences or diminished value. Forced liquidity can feel like a short-term win for a long-term loss.
- Operational impacts: Business partners, co-owners, family members and children may be affected by the division. CPAs, working with financial advisors, can help strategize around those nuances and preserve value, incomes and the integrity of the business while meeting settlement obligations.
4. Division of stock options and restricted stock units (RSUs)
- Vesting schedules: Unvested stock may require contingencies in the divorce agreement.
- Valuation: The value of options depends on vesting, the strike price and market conditions.
- Taxation: Stock options are taxed at exercise, and RSUs are taxed at vesting. Collaborating with a financial advisor ensures these assets are divided equitably while minimizing tax exposure.
5. Debt and credit management: Evaluating and dividing debt is part of most divorce settlements, but clients often overlook its impact on creditworthiness. A spouse with poor credit may face challenges in securing housing or loans post-divorce.
6. Tax implications of asset transfers: Divorce settlements can trigger significant tax consequences:
- Capital gains: Selling assets to meet settlement obligations can result in capital gains taxes.
- Retirement accounts: Proper use of qualified domestic relations orders (QDROs) can enable tax-deferred transfers of retirement funds.
- Asset basis: Low-basis assets may carry substantial hidden tax liabilities, making their division less favorable. Understanding the tax basis of family assets helps clients decide whether to sell now or retain assets for potential step-up in basis benefits.
7. Protecting assets for the next generation: Without proper estate planning, divorce can disrupt inheritance goals. For instance, remarriages may inadvertently disinherit children from the original marriage. CPAs can collaborate with financial advisors to:
- Revise wills, trusts, life insurance and beneficiary designations.
- Establish irrevocable trusts to protect assets from future spouses or creditors.
- Discuss pre- or post-nuptial agreements for future marriages.
Divorce requires a multidisciplinary approach, working with the team of professionals for the client. CPAs are often the financial anchors, but working with financial advisors and family law attorneys ensures comprehensive support. Financial advisors can assist with complex valuations, tax-efficient settlement strategies and post-divorce planning, freeing you to focus on your core expertise while ensuring your clients receive well-rounded guidance. Together, you can ensure this challenging chapter ends on a stable, forward-looking note.