Protecting Your Million-Dollar Divorce Settlement: A CFP's Guide to High-Net-Worth Divorce
Written by Madeline Barconi
When Sarah walked into my office last spring, she thought her $3.2 million divorce settlement meant financial security for life. Eighteen months later, poor tax planning and investment mistakes had cost her nearly $500,000.
Sarah's story isn't unique. As a Certified Divorce Financial Analyst and Certified Financial Planner with over 10 years of experience, I've seen too many high-net-worth women watch their settlements evaporate due to preventable financial missteps.
If you're facing a million-dollar divorce, this guide will help you protect and grow your settlement for lasting financial independence.
The Hidden Costs of High-Net-Worth Divorce
Million-dollar divorces come with million-dollar complexities. Unlike typical divorces, high-asset cases involve:
- Multiple property holdings with varying tax implications
- Complex retirement accounts and pension valuations
- Business interests requiring professional valuation
- Stock options with intricate vesting schedules
- Alternative investments difficult to divide
- Substantial tax consequences often overlooked
The shocking truth: On average a woman can expect an almost 30% decline in her standard of living following divorce, while men often see an increase of 10%." Leopold, Thomas. “Gender Differences in the Consequences of Divorce: A Study of Multiple Outcomes.” June, 2018.
Pre-Settlement: Protecting Your Financial Interest
1. Document Everything-Then Document It Again
High-net-worth divorces involve complex financial landscapes, and assets can be unintentionally missed without a clear system for documentation. Your documentation checklist:
- Last 3 years of tax returns (personal and business)
- All investment account statements
- Business valuations and financial statements
- Stock option grants and vesting schedules
- Insurance policies (especially cash-value life insurance)
- Debt obligations and guarantees
- International assets and accounts
- Trust and Estate Documents
Pro tip: Centralize all documents in a secure, digital folder and share access only with your legal and financial team. Consistency and organization protect you far more than volume.
2. Understand the True Value of Assets
Not all million-dollar assets are created equal. Consider these two scenarios:
Scenario A: Jane receives $1 million in a taxable investment account
Scenario B: Lisa receives $1 million in a traditional 401(k)
After taxes, Jane keeps approximately $800,000 (assuming capital gains), while Lisa keeps only $600,000 (at ordinary income rates). Same "value," vastly different outcomes.
3. Beware the Liquidity Trap
High-net-worth divorces often involve illiquid assets:
- Real estate holdings
- Business interests
- Private equity investments
- Art and collectibles
Case study: One client received three rental properties worth $1.5 million in her divorce. Two years later, she needed cash for everyday expenses and quickly learned that real estate doesn’t pay the grocery bill unless you can actually sell it and while rental income can help, it has to do more than just cover the property’s expenses; it needs to meaningfully support your life, too. It was a perfect reminder: in a settlement, value matters, but liquidity matters just as much.”
The solution: Ensure your settlement includes sufficient liquid assets for 24 months of expenses plus emergency reserves.
Tax Strategies That Save Millions
The Capital Gains Advantage
When dividing assets, prioritize those with higher cost basis if you can.
Example:
Asset
A: $500,000 in Apple stock purchased at $400,000 (gain: $100,000)
Asset
B: $500,000 in Tesla stock purchased at $100,000 (gain: $400,000)
Choosing Asset A saves you approximately $60,000 in future long term capital gains taxes at a 20% rate
Retirement Account Optimization
High earners face unique challenges with retirement accounts:
- Backdoor Roth conversions - Structure your settlement to maximize future conversion opportunities if possible
- Net Unrealized Appreciation (NUA) - For company stock in 401(k)s, NUA treatment can save hundreds of thousands in taxes depending on your situation
- Cash-flow flexibility planning – Build a post-divorce income plan that matches your lifestyle needs without tapping retirement accounts prematurely. This may include adjusting spending, re-entering the workforce, or structuring settlement payments to support near-term goals while preserving long-term assets.
Property Transfer Tactics
Under IRC § 1041, property transfers between spouses, including those to a former spouse incident to divorce, generally remain tax-free, so long as they occur under a divorce or separation agreement within the time and procedural limits set by law.
- Transfer appreciating assets while §1041 treatment applies so future growth shifts to the receiving spouse without triggering immediate tax.
- Delay transferring assets with built-in losses until after §1041 no longer applies, allowing the transferring spouse to potentially recognize those losses.
- Ensure all transfers are completed within the “incident to divorce” rules (timely and clearly tied to the divorce agreement) to preserve tax-free treatment and avoid unintended gain recognition.
Post-Settlement Wealth Preservation
Investment Strategy for Newly Single Women
Your investment approach must evolve with your new reality. Core priorities often include:
- Rebuilding financial independence: Shift from a dual-income structure to a self-directed plan that aligns spending, saving, and investing with your long-term goals.
- Creating a resilient portfolio structure: Ensure your investment mix reflects your time horizon, liquidity needs, tax situation, and capacity to weather market volatility, without relying on a partner’s income as a cushion.
- Designing a sustainable withdrawal and savings strategy: Integrate cash flow, emergency reserves, and investment timelines so your assets support both near-term stability and long-term growth.
Estate Planning Essentials
High-net-worth divorce necessitates immediate estate planning updates:
- Revoke all powers of attorney granted to ex-spouse
- Update beneficiaries on all accounts and policies
- Establish trusts if necessary for asset protection and tax efficiency
- Review business succession plans
- Create new healthcare directives
Warning: Beneficiary designations override wills. Update them immediately.
Common Million-Dollar Mistakes to Avoid
Mistake #1: Keeping the House for Emotional Reasons
The family home often represents stability, but consider:
- Maintenance costs
- Property tax increases
- Opportunity cost of tied-up equity
Real example: A client kept a $2.5 million home with $40,000 annual maintenance. Downsizing would have freed $1.5 million for income-producing investments.
Mistake #2: Underestimating Inflation
A fixed support payment loses purchasing power quickly. For example, a $50,000 annual payment today would have the buying power of about $43,100 in just five years assuming 3% inflation. Even over a short timeframe, the real value erodes more than most people expect.
A Better Approach: While cost-of-living adjustments (COLA) can exist in theory, they are rarely included in separation agreements. Because support amounts typically remain flat, it becomes essential to build a financial plan that anticipates rising expenses. This means stress-testing your cash flow for inflation, maintaining an investment strategy designed to help offset long-term cost increases, and revisiting your spending plan regularly to ensure your support dollars continue to meet your needs.
Mistake #3: Trying to Manage Everything on Your Own
After a divorce, your financial world becomes more complicated—not less. Coordinating investments, taxes, cash flow, and long-term planning on your own can feel overwhelming, and small oversights today can quietly compound into bigger issues down the road.
A Better Approach: Think of professional guidance as your decision-making infrastructure. An advisor helps you create order out of chaos, stay disciplined when life gets busy, and ensure your money is working in alignment with your goals. It’s not about beating the market—it’s about having a clear plan, a reliable partner, and the confidence that nothing important is falling through the cracks.
Your Action Plan: A Practical Roadmap Through Divorce
Phase 1: Get Grounded
Start by creating clarity. Understand your assets, debts, income, and expenses, and make sure your essential cash flow is secure. Begin assembling your support team, your attorney, your CDFA, and the professionals who will help you make smart, confident decisions.
Phase 2: Build Your Strategy
This is where information becomes power. With your CDFA, dig into the numbers, explore what genuinely matters to you, and model how different settlement paths shape your future. You are designing the foundation of your next chapter, make sure it reflects your priorities.
Phase 3: Navigate Negotiations
As proposals start to move back and forth, lean on your team to help you evaluate trade-offs, understand the long-term impact, and stay anchored in your goals. Divorce negotiations take time, and thoughtful pacing is an advantage, not a setback.
Phase 4: Step Into Your New Financial Life
Once the agreement is finalized, bring your plan to life. Transfer assets, update accounts, and set up your new financial systems. Revisit your investments, taxes, insurance, and long-term goals to make sure everything supports the life you're building now. This is where stability and confidence start to take root.
The Bottom Line: Your Financial Independence
Million-dollar divorces require million-dollar thinking. With proper planning and expert guidance, your settlement can become the foundation for a more prosperous, independent future.
Your settlement isn't just money, it's your freedom, security, and future. Protect it wisely.
Ready to Protect Your Financial Future?
As a CFP® and Certified Divorce Financial Analyst, I've helped many women navigate high-net-worth divorces with confidence and clarity.
Schedule your confidential consultation today and and explore how your settlement could lead to lasting financial independence.
Madeline Barconi, CFP®, CDFA® is a Partner at Breakwater Capital Group and specializes in divorce-focused financial planning. With a decade of experience helping clients navigate complex transitions, she guides women through the financial, tax, and long-term planning considerations that shape life before, during, and after divorce.
The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
Breakwater Team
At Breakwater Capital, we work with families across the United States, providing each client with a personalized experience tailored to their current circumstances, future goals, and timelines.
