Post-divorce: 7 steps to rebuilding your financial house
Posted
Dec 04 2008, 09:38 AM
by
Karen Datko
Rating:
This post comes from Nora Dunn at partner blog Wise Bread.
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 a 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:
If you are required to designate a new beneficiary and are not sure whom 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 dependent. 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 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 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 timeframe 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 (i.e., 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 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.
Other articles of interest at Wise Bread:
Can you afford to have a baby?
Why couples fight over money and what to do about it
Personal-finance advice forums
