Post Divorce Finances: 7 Steps to Rebuilding Your Financial House

by Nora Dunn

My, how life changes when you close one chapter of your life and open a new one. Severing a conjoined life and combined finances as a result of divorce is painful through and through. The jump to a single income lifestyle paves the way to feeling the cash crunch, and if children are involved it is even more pronounced. Even if the breakup is liberating, there is still some mopping up to do after the storm.

Here are seven things you can do to set your new life up on the right foot:

Joint Banking Be Gone

Close all joint bank accounts, joint non-registered investment accounts, and credit cards. Not only is this a tangible form of evidence to demonstrate a date of separation (in locales where you need to be separated for a time prior to applying for divorce), but it also protects each party from destructive actions the other may take in anger or apathy.

Remove all Beneficiary Designations

Here is a list of items you may need to look at in terms of removing joint or beneficiary designations:

  • life insurance policies
  • retirement funds
  • auto insurance
  • credit card insurance
  • pension funds through work
  • health care plans through work

If you are required to designate a new beneficiary and are not sure who to choose just yet, simply choose your estate for now, or until you hear otherwise from your lawyer/accountant/financial planner. Although an estate designation may not be the most tax-efficient option, it will keep things simpler until all the divorce paperwork is properly nailed down and you get on your feet again.

Create a New Budget

Flying solo means creating a whole new budget – a crucial step of the process. You may or may not have been actively involved in the finances while married, so creating a new budget could be an exercise in learning how much things cost, or simply reallocating income streams accordingly.

Update Your Will

Updating a will doesn’t have to be a laborious process. If it is simply a matter of changing beneficiaries, a codicil (a one page addendum that attaches to the will) can suffice.

Review Your Estate Plan

Although you will have covered most of the bases with reassigning beneficiaries and updating your will, your estate plan may incorporate some larger issues or opportunities given the new financial structure of your life.

For example, your previous estate plan may have been mindful of your ex-partner’s parents who are – or will become – financially or physically dependant. Or maybe children from a first marriage have been incorporated into the estate plan and now the structure of trusts or income streams needs to change.

Don’t Blow the Financial Settlement!

Just in case you had eyes for a new stereo system or a bigger house, you may want to seek counsel before spending any financial settlement that arises as a result of your divorce. From tax efficiency, to your overall financial plan, there could be ways to greatly help or detrimentally cripple your finances by virtue of what you do with the settlement.

If you are the one doling out the settlement, then refer to the following point to help you sort through the noise:

See a Financial Planner

Your financial planner will be instrumental in helping you with many of the above chores. Many financial planners can help with the transition and separation of accounts, but if you are uncomfortable meeting with the same planner you used as a couple, then ask around for a referral to a new planner who you can trust and establish a new relationship with.

You face lifestyle changes (in some cases drastic ones), income differentials, emotional transitions, tax plan modifications, and investment time frame readjustments. Your asset allocation plan may change, either because your investment personality is different from your ex-partner’s, or because you plan to utilize your investments differently (ie: your time horizon is longer, or you need to draw down on some investments now).

As crushing and stressful the trauma of severing your life from a loved one can be, you must try to maintain a level head throughout the process. By covering off the bases above, and keeping your eyes on the road ahead, you can survive the ordeal and move forward without falling into so many of the traps that lurk along the way. Life will go on, and in some cases, may even improve.

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1 Comment

Filed under Divorce, Post Divorce

One response to “Post Divorce Finances: 7 Steps to Rebuilding Your Financial House

  1. Robert Oosthout

    Being an attorney at law for more then twenty years I can tell from my experience with divorce cases that the things Nora write about do make sence. At the same time the whole drama started with the fact that we never learned to take responsibility for our personal finances. The Dutch Institute for household finances and budgeting NIBUD tells us that when you divorce each party on average will end up with a 40% raise in costs, given that our income stays the same. I suspect that is the case in most of the countries around the globe. It could be less, could more. The point I want to make is that as soon as we learn to handle our finances and live within our means, drame will be gone forever. If we make the statement:”I am accountable for my life”, we create a powerful context in which we say we are cause in the matter of our life no matter what. First thing we need to stop is being the victim.

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