By Cristin Rigg, CFP®, CDFA™
After going through a major life event like divorce, it may be challenging to get your bearings at first, especially in the money department. However, with proper planning and execution, you can start a new financial life and discover what works for you post-divorce. Here are some tips to help you take control of your finances and financial outlook.
Starting with a Clean Slate
The silver lining in life after divorce is that you have an opportunity to take a fresh look at your finances and start with a clean slate. Your first order of business should be closing the door on your old financial life. When your divorce is final, focus on separating assets and accounts in the most appropriate way. Consider the following:
• Clean up accounts: Close any joint accounts (credit, bank, brokerage, etc.) and open new separate accounts under your name alone. Shift the assets you were delegated in the divorce into your new individual accounts. Pay particular attention when moving retirement assets to ensure these funds are distributed appropriately per the guidelines of your divorce. A Qualified Domestic Relations Order (QRDO) can help you do so and avoid incurring taxes.
• Update records: Revise insurance policies, property titles, utility bills, retirement accounts and estate planning documents to reflect the change in your marital status and remove your ex-spouse as needed.
Reassessing Your Financial Goals & Priorities
Some find freedom on the other side of divorce and view it as an opportunity to reset goals and priorities. Take time to figure out where you want to be in the future financially. Would you like to relocate or purchase a new house? Are you focused on funding college for your child? Or your goal may be simply to pay the bills and manage the day-to-day expenses, and that’s perfect. The main thing is to have goals that help drive and motivate you to stay on top of your finances and make informed decisions about your future.
Taking Stock of Your Situation
After identifying your goals, take a hard look at your finances to pinpoint where you are relative to your desired future state. The best way to regain control of your finances is to begin to make sense of them and remember that this is just a starting point. Begin by identifying your post-divorce income streams. Then outline your expenses and debts (daily, monthly and long-term) and see how your liabilities stack up against your income. Based on your findings, sketch out a budget that makes sense for you and your new family dynamics. It may be jarring to go from a two-income household to a single income, but you can make adjustments to align with your new financial norm, such as cutting back in certain areas or finding ways to diversify your income stream. Once you’ve acclimated, take a second look at your budget and approach to see if any fine-tuning is needed or if you have room to grow in any category of your financial life.
Creating a New Action Plan
Once you have a clear picture of your new landscape of assets, income, and expenses, you’re ready to create a new game plan to address your current situation and goals. Your long-term objectives should be the focus of this phase, particularly your retirement outlook. There are a lot of nuances to consider (taxes, Social Security, healthcare, etc.) as you carve a new path toward your goals, which can be further complicated by divorce. You may want to consult with a financial professional while restructuring your financial plan. If you have an estate plan, a financial advisor can also help you update it to reflect your intentions and new situation.
Slow and Steady Wins the Race
Though it can be daunting, it can be empowering to take control of your finances and chart a new course for your future. Start small and continue to build on the foundation you create. By making smart choices with your resources, you can build wealth and prosper in the new life you make for yourself. Reach out if you’d like to explore new strategies for your financial situation or need help creating an action plan to reach your goals.