It’s a topic that no one wants to think about. Yet, divorce has become more of a common part of life than most people would like to acknowledge, with about 40-50% of married couples in the United States divorcing.1 No one plans for this to occur—but if it does, you want to be prepared financially for the transition ahead.
Divorce can be a draining process on both your emotions and your finances. In addition to the financial considerations that arise throughout the divorce procedure, you will also have much to review, update or change financially after the divorce is final. No matter your situation, transitioning from a lifestyle that accommodated potentially two incomes and many shared expenses, accounts, and so on to a single income budget and lifestyle is a change that requires careful planning and implementation.
A financial advisor can assist in this process and help get you acclimated to this new phase of life. Several post-divorce financial considerations that you should discuss and review with your financial advisor include:
Budgeting. You will likely need to create a single income budget that accommodates your new lifestyle. Factor in any and all sources of income, which could include a divorce settlement, child or spousal support, etc.
Assess your living situation. Your living situation may have changed during the divorce process. If you stayed in your home, are you able to maintain your lifestyle there? Or is downsizing or moving somewhere else a better option for you?
Bank accounts and credit cards. Conduct a review of any formerly shared bank accounts, credit cards, and so on to confirm that your name is the only one listed on any statements or other supporting documents.
Estate planning documents. Along with your bank accounts, review your estate planning documents, such as a will, trust, or any other associated documents, to make changes that accurately reflect your current situation.
Employee benefits and insurance policies. If you received any benefits, such as health insurance, disability insurance, etc. through your former spouse’s employer, consider your options to gain coverage elsewhere. Be sure to update any insurance policies where beneficiaries are listed, such as a life insurance policy.
Retirement accounts. You and your former spouse may have had shared retirement accounts or a goal in mind to save for. Be prepared to adjust your goals and account for the loss of contributions by one person.
Tax implications. Consult with your tax professional to review how your filing your taxes may change and how to prepare financially for the difference.
We understand that the complications and changes that accompany a divorce don’t end when the divorce is final. The transition process that follows requires expertise to guide you through the financial changes and implications of your new lifestyle, while also keeping in mind any other financial goals you have.
Financial advisors with the CDFA® (Certified Divorce Financial Analyst®) designations are particularly knowledgeable with the divorce process. It is important to consider the potential future impact of various financial decisions and options during this process. For help navigating how divorce will impact your financial strategy, contact a North Star financial advisor here.
1 “Marriage & divorce.” American Psychological Association. Accessed June 7, 2017. http://www.apa.org/topics/divorce/.
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