Divorce is scary to face. A million questions will be asked before any answers are found. You will need to start a new life, and the tolls of that will not only be emotional, but also financial. Regardless of if you are receiving child support and alimony, or paying child support and alimony, you will need to learn what it means to be on your own.
Luckily, others have gone before you an can advise you on how to get through this tough time. While family and friends are great for support, they are not the ones to talk to about your financial future. You’ll want to consult with professionals familiar with re-structuring finances after divorces.
Advise from Financial Professionals
As you move forward in your new life there will be a number of things you need to change: weekend schedules if you have children, perhaps addresses, maybe even your employer if you have to go back to work or get a higher paying job. There are going to be a number of unanswered questions. You don’t have to answer them all immediately, but chances are, you’ll need to answer them sooner rather than later. Here are some things to consider when it comes to your finances after divorce.
Figure Out a Budget
You might not have been the spouse in charge of the finances before. Now that you’re on your own, you’re going to have to be. This can be difficult if you’ve never taken care of a checking account. According to certified divorce financial analyst Eva Sachs, the first step toward financial independence is balancing your income with your expenses. So how do you do that? she advises that you sit down and figure out how much money is coming in (this will vary depending on what side of alimony and child support payments you’re on). After you figure this out you’ll need to assess how much of what is coming in is being spent on living expenses.
“Think of it as a spending plan rather than a budget,” says Sachs. “Knowing where your money goes is key, especially after divorce. There will be many new expenses you might not have thought about prior to your divorce; this is a critical time to refrain from spending money you don’t have.”
It might be helpful to write everything down until you have a clear picture. This will give you an up-close look at your financial habits. If you’ve never done this before, this might be a shock. It’s good to know where you can tighten up, or loosen up so that you can budget accordingly.
Change Your Beneficiaries and Will
Emily McBurney, an attorney and qualified domestic relations orders (QDRO) expert, says that somewhere at the top of your to-do list should be updating the beneficiary on your life insurance and retirement accounts.
“Review all of your accounts and insurance policies and change the beneficiaries. A divorce does not automatically terminate your former spouse’s rights to be the beneficiary on your retirement plans, bank accounts, and life insurance policies –- even though your divorce decree might say that your former spouse has waived all rights to the benefits,” she says. “You will need to formally submit a change of beneficiary form to each financial institution. Otherwise, the benefit will be paid to whoever is listed on their forms at the time of your death — regardless of your divorce.”
In addition to this, you’ll also want to revise your will, according to certified divorce financial analyst Donna Cheswick.
“Meet with an estate planning attorney to discuss your state’s laws regarding possible updates to your will, power of attorney and advanced directives,” she advises. “You want to be sure that your former spouse is no longer entitled to any distribution in the event of your death. And if your settlement agreement requires one party to maintain life insurance on the other, then there needs to be a method in place to be sure this is actually occurring. Just because the former spouse says they will do something, doesn’t mean that they are following through.”
During your marriage it made obvious sense that your spouse would be entitled to everything, but now, they are definitely not. You will need to check and then double check that all your financial and important paperwork is in your name and the names of the people that you designate, whether they be other family members or your children.
Rainy Day Fund
Now that you don’t have a spouse to lean on in times of trouble – loss of job, medical emergency, unplanned home expense – you’ll want to create your own rainy day fund. Any unexpected hits to your bank account will need to be covered by you and solely you. Protect yourself, says Sachs. She recommends creating an emergency fund you can continue adding to when you have the chance.
“An emergency fund should equal three to six months of your living expenses,” she says. “If you can swing it, I recommend six months because you’re now single and need an even bigger cushion if you are not able to work or an emergency occurs.”
Make Sure Assets Have Been Transferred
The papers are signed, your divorce is final, you can consider it over. Think again. According to Cheswick, the divorce may be finalized but your work isn’t really complete until you’ve ensured the assets awarded in the settlement have been distributed. Make sure all your t’s are crossed and i’s dotted before you skip along to singledom. Just because things have been agreed to in a settlement, that doesn’t necessarily mean they will automatically happen.
“I can’t tell you the number of people who will contact me months (and unfortunately even years) after their divorce is finalized and there are still outstanding items which have not been resolved,” Cheswick says. “Remember that the agreement is a legally binding contract that you both signed and agreed to uphold. If one party is failing to comply with the terms of the contract then the other party has every right to take steps to ensure their compliance including going back to court to have the agreement enforced.”
Enlist a Professional
It might seem like another financial burden to use a certified divorce financial planner during your divorce. In addition to legal fees it can feel like yet another financial expense. But a financial planner can save you a lot of headaches while also setting you up for a bright financial future, according to McBurney.
“Most financial mistakes that people make during and after divorce could easily have been avoided if they had sought professional assistance,” she says. “Financial planners can help you figure out how to live within your new financial realities post-divorce and develop strategies for building back your financial security. And tax advisors and CPAs can help you avoid making expensive (and very common!) tax mistakes (related to things like asset transfers, retirement, spousal and child support).”
Retirement can be a difficult thing to face during divorce. Chances are you imagined yourself and your spouse sitting on an amazing porch, sipping lemonade, and reminiscing about your children. Just because your spouse is no longer in the equation, that doesn’t mean that you need to abandon your dream retirement life. As Sachs advises, now that the divorce process is almost finalized, look to your future and start to maximize your retirement savings.
“Don’t let divorce stop you from planning for your future,” she says, “Investing in your 401K plan will allow you to save for retirement. You can begin by saving a small amount each week and then let it build slowly or make payroll contributions that match your employer contributions. Don’t stop thinking of the future!”
Just because your future plans have changed, that doesn’t mean it can’t be a bright one. Be smart about your finances and you’ll find the financial freedom you need to help you move on and start a new life.
Working with a Family Law Attorney
As with anything regarding your divorce: child support, spousal support, marital property division, child visitation, etc… you should consult a family law attorney. A lawyer from the expert law firm of Divorce Law LA will be able to guide you through the divorce process. The Divorce & Family Law Offices of Divorce Law LA will provide you with the highest level of expertise and professionalism from our skilled attorneys. Our Divorce and Family Law Practice spans a wide spectrum of areas that include: divorce, high net-worth divorce, marital property division, child custody and visitation, and child support.
33 S. Catalina Ave. Ste. 202
Pasadena, Ca. 91106