What Financial Planning Do I Need to After Divorce?
Divorce impacts your relationships, your mental health, and your finances. After dividing up assets and debts, sometimes both spouses struggle to make ends meet. However, with the right financial planning, you can minimize the negative effects of divorce and set yourself up for a more certain financial future.
Here are some key steps to take after divorce to help you achieve financial stability:
1. Reevaluate Your Budget
Divorce is a major life-changing event that can significantly impact your financial situation. As such, it’s important to take a close look at your budget and adjust it to meet your new circumstances. During the marriage, many spouses are paying one mortgage, one utility bill, filling one fridge with food, and buying one set of clothes for the children based off of two incomes. After divorce, you’re paying for virtually all of those same things but with only one income. So, after a couple splits up they may need to cut back on expenses and find new ways of saving money. Step one: make a budget. Tally up all of your expenses, bills, and debts and compare it with your guaranteed income. If there’s a large gap, or a consistent gap with your ability to meet your debts, start looking at ways to either (1) cut back on your expenses; (2) supplement with some additional income.
2. Update Your Financial Accounts
After a divorce, it’s important to update your financial accounts to reflect your new status. This includes everything from bank accounts to insurance policies. Start by updating your bank accounts to reflect any name changes. You should also update any beneficiaries on your accounts, as you may still have your ex listed as sole and primary beneficiary. If you’re receiving alimony or child support, you may want to set up a separate account to manage and keep track of those funds.
3. Reevaluate Your Retirement Plan
In most marriages longer than 5 or so years, there is some division of retirement upon divorce. In long-term marriages, retirement may be divided 50/50. This can obviously have a significant impact on your future retirement plans, especially if you’ve been relying on your spouse’s income or retirement savings. As such, it’s important to reevaluate your retirement plan and make any necessary adjustments. If after the Divorce you were to receive a portion of your ex’s retirement plan, make sure you hire an attorney to draft the proper documents (usually called a “QDRO”) that effectuate a transfer of retirement assets. You will need to set up your own retirement account to receive this money.
Next, review your retirement accounts to see how much you’ve saved and what your current investment strategy is. If you’re not on track to meet your retirement goals, you may need to adjust your contribution levels or investment strategy or talk with a financial advisor to assist you.
4. Consider Working with a Professionals
Going through a divorce can be overwhelming, and managing your finances on your own can be a daunting task. You may want to consider working with various professionals to help you accomplish your financial goals. While many people resist hiring accountants because they don’t want to spend the money, in some situations the right accountant can actually help you save thousands of dollars. Additionally, financial advisors can help you create a plan for achieving financial stability, as well as offer guidance on investment strategies and retirement planning. Your attorney should have some reliable, skilled professionals to work with, so make sure you ask for referrals.
5. Stay Focused on Your Goals
Of course a divorce can set you back in terms of accomplishing your financial goals, but don’t let a divorce derail your goals completely. Deal with the divorce and then get right back on track to accomplish what you were already planning for. Save for that down payment on a house, continue your retirement planning, restructure or pay off your debt, or save for that vacation you’ve always wanted to take. Getting back to what you were motivated to do, or setting new financial goals, can be very important part of healing after divorce and is a healthy step towards building a new life. Remember, financial planning is a process and mistakes will be made along the way.
To sum it up, going through a divorce can be a challenging and emotional experience, but it’s important to focus on taking steps towards rebuilding your financial stability. With the right mindset and support, it’s possible to navigate this transition and come out even more financially independent than you were before—it just may take some time. Don’t hesitate to reach out to professionals or seek guidance from trusted friends and family members.