Financial Planning Post-Divorce
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One of the important gains in every divorce settlement is the right to manage your own finances. If you were involved in organizing the budget during your marriage, you may feel relief at flying solo financially; if you were not, you may feel fear and insecurity. Either way, taking total charge of your financial future is both challenging and empowering. Here are a few tips to get you started.
Splitting One Household Into Two Creates Financial Issues
After a divorce, two separate households must be run on income that previously funded one. You'll need to plan carefully to minimize the problems this causes.
"These financial problems may be exacerbated if one spouse earned either all or most of the family income," according to Chris Hildebrand, a divorce attorney and principal in the Arizona law firm, Hildebrand Law.
Family law courts address this new financial imbalance by awarding alimony and child support to one spouse, but Hildebrand says, support payments rarely place the lower-earning spouse into the same financial situation he or she enjoyed prior to divorce. That's why it's essential to begin post-divorce financial planning early.
Begin Financial Planning Before Divorce Is Final
The time to start post-divorce financial planning is before the divorce decree, cautions Hildebrand. A lower-earning spouse should make asset-division choices that will work best for her once the decree is in place.
For example, Hildebrand says, "she could ask to be awarded the vehicle that is either paid off or has low monthly payments, rather than the vehicle with a high car payment."
One way to keep financial planning in the front of your mind during the turbulent times of divorce is to put together a comprehensive financial plan for your new household to follow. Develop a budget that includes both day-to-day expenses and contributions to long-term goals like retirement or college funds for the kids.
Update Financial Accounts After Divorce
After the divorce decree becomes final, take the steps necessary to transfer your financial accounts into your own hands. Experts recommend that you update all of your accounts and take these actions after divorce:
- Obtain a new Social Security card, driver's license and passport if you are changing your name or address.
- Apply for and obtain a credit card in your name, if you don't already have one.
- Notify your banks, insurance companies, health insurance plan and credit card companies about your new marital status, as well as new name or address.
- Revise the titles to real estate with mortgage companies.
- Update title to vehicles with auto loan holders.
- Change beneficiaries on life insurance policies, bank accounts, 401(k)s, retirement pension accounts and IRA accounts.
- Revise your will.
Plan for Emergencies
Everybody needs an emergency account with enough cash to cover four to six months' living expenses, and this is even more critical after a divorce. You don't have to create the fund overnight, but make it a priority by depositing some funds in it every month.
As a single person, you may worry about what would happen to you and your family if you become disabled, so consider buying disability insurance. It would keep you afloat financially in case you are injured or fall seriously ill and can't work.