When a client is going through a divorce, they are in a state of trauma. Advisors should first address basic needs like housing and immediate cash flow, following Maslow's hierarchy, before attempting any long-term financial planning. Rushing into portfolio details is ineffective when foundational stability is lacking.
When valuing a private business in a divorce, some states differentiate between "enterprise goodwill" (the business's intrinsic value) and "personal goodwill" (value tied to one spouse). The marital asset to be divided may only be the firm's value *without* that key person, which is often drastically lower than its market value.
A common early mistake is for divorcing couples to try and work out a settlement themselves. The less financially informed spouse often makes agreements without knowing the full extent of their holdings or legal rights, leading to unfavorable outcomes. Pausing for full data collection is critical.
The first year after a divorce involves a steep learning curve for managing a new budget. Advisors recommend proactively negotiating for a larger-than-normal emergency fund or temporary alimony. This creates a financial buffer to accommodate unforeseen expenses and eases the transition to financial independence.