After a couple of very positive years in the stock market, volatility has come roaring back with a vengeance in the past month. The markets are swinging back and forth with each new tariff announcement from the White House. Investors are, understandably, spooked.
Whenever there is uncertainty about the future, the markets aren’t sure how to react and you can see this kind of movement. It is normal for the market to react this way, and it has happened many times in the past, but it can still be hard to stomach. For the most part, your best course of action is to stay the course and stick to your financial plan (assuming you have developed a plan). But that can be easier said than done. Especially if you are in the midst of a divorce while all of this is happening.
Managing volatility is never easy. But managing during a time when your life is filled with uncertainty is even more difficult. Not only are you anticipating dividing your assets in half, but you are also watching the value decrease by the day – how is anyone supposed to remain calm?
In this post we will cover things you should consider as a woman navigating divorce during market volatility. While staying the course may still make sense, there are other considerations, given your pending divorce, that you need to keep in mind.
Understanding Your Timeline
One of the most important factors in any investment plan is your timeline. When determining your asset allocation and your risk tolerance, you must first understand how long the assets will be invested.
While the market can be very volatile over the short term, history has shown that it generally grows in the long term. Because of this, you generally should not invest the money that you need in the short term in the stock market. This rule applies whether you are getting divorced or not.
As you think about your investment strategy, it is often helpful to think of it in “buckets”:
- The first bucket is money that you plan to spend in the next year or two – that should go in your short-term bucket.
- Anything that you don’t plan to use for three to five years in your medium-term bucket.
- And anything that you don’t plan to use for 10 or more years is your long-term bucket. Each of these buckets gets its own investment plan.
Typically, the short-term bucket includes things that you may be planning to purchase in the near future like a new car or home improvement project. However, when you are getting divorced, this bucket should also include funds that you anticipate needing to pay out as part of your settlement or to cover your legal expenses. This is money that you want to keep in a high-yield savings account or a money market, generally not in stocks and bonds.
The long-term bucket is usually retirement savings or college funding, depending on your age and life stage. Even if you are approaching retirement in the next few years, you won’t be withdrawing all of your funds on the day you retire so at least a portion of your funds will still be invested for the long term. This longer-term money is what you can invest in the stock market.
Special Financial Considerations During Divorce
Home Buyout
One of the biggest assets most couples have is their home. If you are planning to keep your home after the divorce, that likely means that you will need to buy out your spouse’s portion of the home equity. If you are planning to do that with money from your investment accounts, then that is definitely something you should consider short term. As soon as you know you will be using assets to buy out your spouse’s equity, I recommend you move that money out of stock and into savings where it will be protected from market ups and downs.
Also keep in mind any new mortgage you may be taking out as part of the transaction. I recommend getting a mortgage lender (and preferably a Certified Divorce Lending Professional) involved in the process as soon as possible. There are things you will want to consider in terms of moving your assets and structuring your settlement so that you will be able to qualify for a new mortgage when you are ready.
Asset Division Planning
Even if you aren’t buying out a house, you may still be required to split investment accounts. Splitting investment accounts, however, does not require selling any investments. Once you have your settlement agreement (or in the case of a 401k, your QDRO) you are able to request that the investment firm divide your assets into two accounts without selling anything.
This can be preferable because if nothing is sold, there will be no capital gains taxes. You can each take your half of the investments and continue to leave them invested and growing for the future.
However, you still need to consider your liquidity needs. What will be your income situation after the divorce? Do you need to withdraw from assets for a period of time to cover your living expenses? If so, then again, that is money that should probably be moved to a money market or high yield savings account, even if it means you will owe some capital gains tax on the sale of investments.
Risk Management Strategies
Whether you are happily married, or newly divorced, one of the key pieces of your financial plan is your emergency fund. It is important to have 3 to 6 months of expenses set aside in cash so that you can cover any unexpected expenses. And as a newly divorced person, I would recommend that you have more like 6 to 12 months of expenses in savings until you can adjust to your new situation. This should also be held in a high-yield savings account or money market so that it is easily accessible when needed.
Between your emergency fund and any cash you are holding for divorce related expenses, this can seem like too much cash to have on hand. However, you want to avoid having your funds fall 20% in a bad market just before you need them. Prioritize safety over FOMO with your settlement money and emergency funds.
And likewise, keeping anything in the market at a time like this, when your life already feels so unpredictable, can seem impossible. But again, you need to think about your timeline. Moving long-term assets to cash out of fear can be detrimental to your future self and your ability to meet your long-term goals. Even if you think it’s only for a short period of time, it becomes very hard to get back into the market once you get out and it frequently leads to greater losses over time as you miss out on the comeback.
Common Pitfalls to Avoid
Avoiding emotional responses to market volatility is hard, even when your life is otherwise calm and predictable. When market volatility is combined with the emotions and stress of divorce, it can be even more challenging to respond rationally. However, one of the biggest mistakes you can make is letting your emotions drive your investing.
When making decisions on whether to move your assets or change your investments, start first with understanding the timeline for when you will need the money. While you may need to liquidate some funds to cover short term expenses, don’t over liquidate things that are longer term such as your retirement funds.
Figuring out your investment strategy at this point is a balance between maintaining enough cash to meet your liquidity needs while also keeping enough invested so that you don’t jeopardize long-term growth and your future. It may seem like a tall order, but by understanding your timeline, it will be easier to manage.
Action Steps
As you think through the right next step for you, it may be a good idea to engage a skilled professional. A Financial Planner or Certified Divorce Financial Analyst can help you think through what cash you might need and when. And they can make recommendations on how you should be investing that are aligned with both your timeline and your risk tolerance.
This is also a good time to review your investment strategy and your risk tolerance. It is often the case that you feel differently about risk after a divorce then you did while married. And while that does not mean you should move all of your investments to cash, it may be time to rebalance into a lower risk portfolio. Again, a Financial Planner can help you think through what makes the most sense for you.
Conclusion
While market volatility is never fun, and is even more challenging in the midst of divorce, it is something you can manage with the right plan. Remain calm, think about your timeline and engage the right professionals to help. Both market volatility and the divorce shall pass, and you want to emerge on the other side in the best financial position possible.
Sara Zuckerman, CFP®, CDFA® is the founder of Reset Financial Planning located in Scottsdale, AZ. She supports women across the country with a focus on helping divorcees and widows align their financial resources with their values to plan for the next chapter of their lives.
If you are interested in learning about how Reset Financial Planning can help you take charge of your finances as a newly single woman, please contact us at or schedule a free 20-minute consultation.
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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Reset Financial Planning, LLC, and all rights are reserved.
