No one goes into a marriage expecting it to end in divorce. Sadly, despite their best efforts, many couples face this reality. Not only is the end of a marriage emotionally devastating, but the after-effects can have a major impact on each partner’s financial life.
As you navigate through your divorce, it’s important to gain a clear picture of your current financial situation. Then, you’ll be able to take steps to help minimize the negative effects of this major life change. Finding financial independence after a divorce is rarely easy. However, the following tips may help you get back on track.
Successfully separating your finances is one of the most important steps towards getting back on track after a divorce. This includes dividing up joint bank accounts, short-term and long-term investments, properties, and more. There are many considerations that go into determining the fairest and most equitable way to split finances. Never attempt this without professional advice.
Once you've agreed to the financial divisions, double-check everything to ensure you're properly removed from any joint accounts. Otherwise, you could end up with additional liability even after the divorce is finalized.
While divorce itself is expensive, many people are surprised by how much single life can cost as well. Studies show that most individuals need to increase their income by 30% after a divorce to support their standard of living. For individuals aged 50 and older, this change can be even more drastic. 1
Creating a realistic budget and responsibly managing your money are important keys to overcoming this setback. Take some time to assess your expenses and consider making some lifestyle changes if necessary.
Reviewing your insurance coverage is another critical step to tackle as you wrap up your divorce. While the courts may require you to keep your ex-spouse on some policies, if you don’t have any restrictions, you’ll want to remove him or her from your beneficiary designations.
Since your needs have likely changed, now is also the ideal time to ensure you’re properly covered. If you have more insurance than you need, you may be able to cut your expenses by making some adjustments. However, it’s important not to surrender any insurance coverage without first discussing it with a professional advisor. You may have difficulty finding a suitable replacement policy, particularly if you’re older. Some types of insurance policies may also be subject to surrender charges and surrendering them may create tax implications.
As you begin to get back on track, you’ll want to start thinking about how your divorce has affected your retirement savings. If your retirement accounts have been split or transferred, think about how this may change your plans for the future. Determine how much more you'll need to save and create a plan to help you reach your goals.
If you’ve received a divorce settlement, consider how much you can afford to put back into investments. Reinvesting as much as possible will help you enjoy potential growth that can support your future spending needs.
It’s also important to understand how divorce affects your Social Security benefits. If you’re currently unmarried, are age 62 or older, and were married to your spouse for at least 10 years before your divorce, you may be able to claim Social Security benefits based on your ex-spouse’s earnings records. This is true even if your ex has remarried.2
You’ll want to consult with the Social Security Administration and a professional advisor to determine how this affects your specific financial situation.
Divorce is a complex and expensive process. Taking the steps above will help you protect yourself and take advantage of any opportunities that arise. However, this is just the beginning. For even more advice to help you get back on track, download our free whitepaper, “Navigating Divorce: Getting Back on Solid Ground.”
As you go through your divorce, you may find that working with a financial professional helps minimize your uncertainty. Having a financial professional by your side may also help you make suitable decisions and preserve your interests. If you have any questions, we’re here to help. Contact us today to schedule a no-cost consultation.
1 TheStreet.com, April 3, 2020
2 SSA.gov 2020
This is for informational purposes only, does not constitute as individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.