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Financial Articles from Hefren-Tillotson

Making Finances a Priority During and After Your Divorce

Written by
July 3, 2017

When a marriage has broken down and one or both parties decide to divorce, the impact can be devastating. Not only to the individuals involved, but also to the children, family, friends, and employers of the divorcing couple.

Divorcing individuals must now deal with the traumatic emotional impact as well as the financial impact they will soon face. Regardless of who handled the finances during marriage, it is important to focus on your future and set personal goals that will likely impact the rest of your life. With significant assets potentially at stake, there is no do-over in divorce so preparing for your financial future after divorce is critical.

Here are a few financial considerations for during and after your divorce.

1. Gather your documents

It is important to inventory all personal property and make copies of your important files and records. This includes, but is not limited to, bank records, tax returns, insurance statements, loan documents, retirement plan statements, pay-stubs, and monthly expenses. Take pictures if needed. You should also clean up information online and secure passwords.

2. Set realistic goals

Think about your goals for the future, both personally and financially. This may direct you to what type of divorce process fits your situation best, whether it be mediation, collaborative, or litigation. Remaining rational and setting reasonable expectations could give you an advantage.

3. Keeping the home?

What will your financial situation look like once you’re solely responsible for the house? Consider your budget after divorce and do not let emotions cloud your decision. This is a major financial decision and it is important to remain clear-headed and practical. Once your decision is made, follow through and make sure the mortgage and deed are transferred appropriately.

4. Consider joint accounts and your credit

It will usually make sense to close joint bank and credit accounts if possible. Alert your creditors that you are going through a divorce and would like to be notified of unusual activity. Closely monitor your credit reports during and after the divorce process. If your credit score is low, start working to repair it. Visit annualcreditreport.com to access three credit reports per year for free.

5. Hire the right team

Do your research and work with an attorney that understands your goals and what you are looking to accomplish. Remember that your attorney is not a therapist and it could become very costly if you treat them as such since most attorneys charge hourly rates for their time. Additionally, it is important to have a financial professional as part of your team. The financial decisions you make are irrevocable and will have a lasting impact on your post-divorce finances so it is important to understand the implications of your settlement.

6. Update beneficiaries and estate planning documents

If a Qualified Domestic Relations Order (QDRO) is needed to divide an employer-sponsored retirement plan, ask your attorney to file this prior to the divorce being finalized. Make sure you have updated beneficiaries on retirement accounts and insurance policies. Talk with your estate planning attorney about executing new legal documents.

7. Protecting your settlement

Alimony and child support are dependent on your ex-spouses ability to continue paying. Premature death or disability could greatly alter your settlement. Consider protecting against these risks with life and/or disability insurance.

8. Update your post-divorce budget

Transitioning from one household to separate households may cause your cash flow to tighten. Complete a new cash flow worksheet for income and expenses. Accumulate enough liquid assets to have an adequate emergency reserve fund and then determine an appropriate level of savings to meet your short and long-term goals.

9. Options for long-term care

Its easy to overlook long-term care insurance, but planning for long-term medical costs often becomes more important when shifting from couple to single status. A lack of long-term care planning can have a devastating impact on the physical, emotional, and financial well-being of both the individual needing care as well as their family. Part of your divorce settlement could include purchasing a lump sum long-term care policy when dividing assets.

10. Moving Forward: The MASTERPLAN approach

Perform a comprehensive review of your entire post-divorce financial planning situation by going through Hefren-Tillotson’s MASTERPLAN approach. This may include a review of estate planning, education planning, insurance, retirement forecasts, and proper investment allocation. It is important to put together a financial plan focused on your new individual situation and goals, which may vary greatly from your goals as a married person.

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Rob Rodgers, CFP, CDFATM is a Financial Advisor with Hefren-Tillotson. He is a Certified Financial Planner and Certified Divorce Financial AnalystTM. As a graduate of the Institute for Divorce Financial AnalystsTM, he has received specialized training in the financial areas of divorce and maintains technical competence through required continuing education.