Sometimes in life things just don’t go the way we planned. Most of us enter into a holy matrimony with the intention of “till death do us part,” yet somewhere along the way the relationship goes awry, and we find ourselves calling it quits. When this happens, one of the first things to take care of is your money. Follow these financial tips for after divorce to help keep your nest egg from unraveling like the relationship did.
Divorce is hard emotionally, physically, and financially. Allow a period of time to recover from the heartbreak. Most of the time the emotions run the gamut—from anger to despair. Processing each of these is vital to making smart financial decisions. All too often I’ve seen intelligent people do stupid things right after a divorce because their judgment is so clouded. They’ll get a QDRO, or alimony, a house or even child support, turn around and buy a fancy new car, get plastic surgery, or something they wouldn’t normally choose to do if they weren’t in an excruciating amount of pain. So take time to work through all the emotional baggage.
Think about what’s next for you in life. Take an assessment of what your goals are—will you move, perhaps even change jobs, etc. Once you know what your plans are then you need to tackle doing a new budget. Your income will likely change during a divorce; perhaps you’re paying alimony or maybe you go from being a stay at home parent to looking for work. Whatever the circumstances, you need to start with a newly adjusted budget.
When you were first married you and your spouse probably combined your financial holdings, so there will be several changes that you need to make, like removing their name as beneficiary on all your life insurance policies or IRAs. You may want to close your joint bank account and open a new one in just your name. If you chose them as your Power of Attorney (POA) you’ll want to put someone else in that position. Take time to visit your attorney and update your Will in order to remove your former spouse as the recipient of any of your assets. However, I can’t tell you how many times I’ve seen people come in without having taken the time to update these important legal documents. The last thing you want to do is go through a violent divorce and have your ex in charge of your medical directives. So do this NOW!
The saddest thing I see is those clients that come in completely dumbfounded about their financial future. There’s typically one person, and it’s not gender-specific, that was NOT the money person. Those are the ones that especially need to seek out the help of professionals. They need to find someone they trust and learn how to handle finances. I’ve worked with some stay at home parents where the spouse left. Now they’re privy to hundreds of thousands of dollars from their ex’s IRAs, yet they’ve never dealt with investments at all. That means they can easily be taken advantage of, especially in the emotional state of mind that follows a divorce. That’s why you really want to make sure to build a team you can trust to teach you. Not pushy sales people—they need to be there to try to guide and help you. Take this time to invest in yourself and learn what you need to know to be successful in the future.
During a trying time like a divorce, the best thing to do is have your team of experts (a CFP®, CPA, an attorney) in place for those decisions that have to be made quickly. These people make these types of recommendations every day and can oversee things as you go through them. One thing I’ve found to be true is those that listen, come out okay financially. So the bottom line—have your team in place or at least an idea of those you trust long before it becomes an issue you have to deal with.