Skip to Content
Risk & Behavior

Divorce Financial Planning: What Advisors Should Know

How the psychology of money can impact your clients in a divorce

Nothing on earth will make a contentious divorce easy, though understanding the psychology of possessions can help prevent advisors from making it worse for their clients. When it comes to divorce financial planning, here’s what advisors should keep in mind.

Grief and identity

With the dissolution of the relationship comes the splitting of assets, which can restart the grieving process. Losing physical assets that are an integral part of a client’s identity can be just as painful as parting with hopes, dreams, and people. Sure, a person’s identity is much more than material possessions. But it’s hard to escape the cognitive processes that our minds use to organize and understand the world—including the fact that our minds link our possessions to our sense of self or what is called the possession-self link.

Once we accept that the possession-self link is part of a normal human psyche, we can begin to understand the roots of many financial conflicts that may otherwise seem irrational. Why argue over a physical object, especially if it is not in your financial best interest? If you can recognize that the object holds a story that is core to the person’s sense of self, it may make more sense.

The transitioning self

In a life transition such as divorce, it’s not surprising that people go through stages of ambiguity about their identity. Other life changes—such as marriage or having children—have cultural and community rituals to ease the transition in identity that a life change can bring, but divorce has none. Your clients are left to devise their own strategies to cope with the massive alteration in their lives.

Researchers have found differences in the ways people cope based on whether they initiated the divorce or not. Initiators will often begin financial changes long before the divorce takes place. Many times, these changes are derived from their feelings of guilt or even their need to cleanse themselves of their old identity.

Non-initiators may be more inclined to hang on to particular assets, not because they want to maintain the relationship, but because they want to hold on to an aspect of themselves which the asset represents. For these clients, advisors should factor in the psychological value as well as the financial value of the assets that become the center of arguments.

Recognizing the psychological motives for conflict in divorce financial planning

Dr. Marshall Rosenberg’s theory about needs and strategies assumes that every action an individual chooses is a strategy to meet an underlying need. In divorce financial planning, a client’s fixation on certain assets may be serving a need to maintain identity, continuity, or self-esteem.

Advisors can help their clients maneuver around obstacles, such as conflicts over possessions, by helping them stay focused on their long-term needs. The theory here is simple: If a strategy for meeting a need creates conflict, then advisors can help their clients devise a new strategy that meets that same need without creating the conflict.

A framework to help guide clients through divorce financial planning

In our latest research, we present a simple discussion framework to help advisors work through the emotional side of divorce financial planning by applying Rosenberg’s theory to a client’s unique experience in divorce.

The proposed discussion structure can help clients make the link between their needs, emotions, and financial decisions. That way, advisors can help guide their clients to decisions that are both emotionally and financially sound.

Read the full paper to learn more about guiding your clients through divorce financial planning.
Get My Copy

Learn more about the Morningstar Investor Success Project and read our latest insights.