The Finances of Divorce
Planning Your Finances Must be a Priority During Divorce
Whether you are just thinking about divorce, in the middle of the divorce, or your divorce is finally over, planning your finances should be a top priority.
Regardless of who handled the financial decisions during marriage, it is critical to focus on your future and set financial goals, as these decisions will likely affect the rest of your life.
Emotions are Expected, but try to Separate Them From Your Financial Assessment
It is easy to get swept up in the emotions and not want to deal with the finances, but at the end of the day, a rational, objective, thought-out approach to your financial goals post-divorce is required.
Unfortunately, after a divorce you will have the same expenses and only half the resources. You will go from living in one house with one electric bill, one fuel bill, one cable bill, and one phone bill to both of you having two of each of those expenses. If there was one income covering household expenses, that paycheck will now have to be stretched to pay for both.
It is therefore important to set a post-divorce budget.
Evaluate Your Post-Divorce Needs With an Updated Budget
You need to make sure that your current spending can be satisfied with the amount of child support, spousal support, savings, and income you will actually have after the divorce.
How much will you need to live on? Consider not only your rent/mortgage, food, clothing, car bills, utilities – but also consider college education for children, health care for yourself, long term care, and emergency expenses that may come up. For example, you may need to replace the roof on the house, you may need a new car, etc.
And, watch those credit cards and debit or ATM withdrawals! It is very easy to run up the credit card debt if you aren’t paying attention. And going to the ATM or using your debit card without thinking can deplete accounts quickly.
A Financial Plan Will Help Estimate Your Post-Divorce Needs
Once you have your budget in place and know how much you spend each year, you will need to create a financial plan – a road map of where you are and where you want to be financially. The financial plan will help you see the big picture, set both short-term and long-term goals, and help you stay on track to meet those goals.
The financial plan will get you to think about how you want to live post-divorce. It may be necessary to scale back on some of the things you used to do in the past. If you were not previously working, it may be necessary to find employment. You may need to think about downsizing. Can you afford to take as many vacations as you had in the past? A financial plan will help you look at your retirement goals – what will your after-tax spending be when you retire? Will you be living in another state when you retire? At what age do you plan to retire? What is your life expectancy? Can you live the rest of your life on your current assets?
Your plan will lay out your goals, your needs, wants, your current balance sheet, your investments, all of your assets. It will show how your assets are currently allocated (categorized) and whether the current asset allocation will allow you to meet your goals.
Revisit Your Investment Strategy
Investing assets for future growth is an important part of the financial picture. You need to be realistic about investment returns. You need to account for market risk. You cannot assume that the same return will occur every year. You cannot forget about inflation and taxes. Those will affect your investments. And, figure in longevity. Women are living to be mid 90’s and men just a few years less. Make sure your plan takes into account that it may need to sustain you for 40 or 50 years!
You must revisit your plan regularly to see if anything has changed. Don’t just set it and forget it. Many things can happen to change your plans – the world has unexpected events.
Strengthen Your Financial Situation With the Help of a Trusted Financial Advisor
While it may seem overwhelming – especially in the middle or post-divorce – working with a financial professional can help keep you on track.
As you transition to your life after divorce, taking steps to strengthen your financial situation can provide a level of comfort that will free you up to enjoy your new single life.
From Bronfman Rothschild: Our Financial Planning Process
Case Study: Retirement Readiness