How to Rebuild Finances After Divorce
Updated on Nov 02 2018
Divorce can derail financial planning and retirement. Get tips on how to rebuild your finances after divorce so you can get your future retirement and life goals back on track.
No one plans on divorce, but the reality is that many Americans get divorced. While divorce rates have declined, the acceptance of divorce has increased and since one in five married Americans are getting divorced, according to a recent relationship study, it’s important to be prepared.
Financial Recovery After Divorce
Divorce is devastating in many ways, but it can be specifically hard on finances. Many people lose half, or more, of everything they’ve saved over their lives. Whether it’s their home, retirement, business or investments; divorced people often watch their assets wither and their expenses rise.
Sacrificing retirement assets can be one of the biggest psychological blows from a divorce. Other assets couples normally divvy up, such as the family house or cash, which are usually in joint accounts and are not as big a surprise.
However, if divorce is inevitable, here are a few things you can do to improve your financial situation significantly:
1. Do Not Make Big Financial Decisions
A divorce is not the time for making big decisions that will affect your finances. You don’t want to make life-changing decisions in an emotional state. For example, it’s common knowledge that you don’t invest or buy based on emotions. It’s best to keep your finances on track with your old portfolio setup and strategy, if possible, and then revisit once your emotions have calmed.
An unbiased third party, such as a fiduciary advisor can help you get financially organized after divorce and help you determine when a good time would be for you to strategize a different financial planning approach.
2. Take a Financial Inventory
Understanding your financial ‘big-picture’ is important to getting organized and back on track financially. When you get divorced, you need to review your income, expenses assets and liabilities.
Keep track of your individual accounts, their amount, the rate and the institution where they are housed. Automating your finances for a consolidated view of all the accounts is a good way to get organized. There are many handy apps to help with this endeavor.
It’s also a good idea to do a financial health checkup, which includes checking your credit report to make sure you have tabs on all your accounts. If you have joint accounts with your ex-spouse, you will need to close those accounts to make sure you have control over your finances. Think about it: You don’t want to have the balances go up significantly or have payments missed for joint accounts since you can’t control another’s financial actions.
3. Balance Your Budget
After you do a financial inventory, you’ll need to balance your budget for your individual income and expenses. You don’t want to spend more than you can afford, so you’ll need to keep track of all your expenses and spending in relation to the income you bring in each month. This is one of the most important aspects of financial management as this knowledge tells you whether you need to cut back on your expenses or get back into the workforce if you haven’t been working.
If you figure out that your spending exceeds your income, it may not be pretty. However, you are a lot better off knowing what the situation is than by ignoring that there’s a problem. An expert financial advisor can help you balance your budget and manage your finances to get you back on track.
4. Revist Your Beneficiaries
In addition to getting your accounts straightened out correctly with just your name and information, you need to also make sure you update your beneficiary information on relevant accounts.
Beneficiary information is specifically important when it comes to dealing with retirement accounts, such as your 401(k) and IRA as well as your healthcare and insurance plans. A legal representative or fiduciary financial advisor can help you with specifics.
5. Get Your Retirement On Track
Retirement assets are the most vulnerable assets in divorce. Most savings are depleted by half, which can be extra burdensome on the spouse who has been the most diligent planning. Setting aside a chunk of income each month and a targeted investment plan are crucial for your future retirement success.
Retirement planning tends to go better if you start a plan sooner as compound interest reaps return. An expert can help you determine what investments make the most sense for your unique situation.
Enlist a Professional’s Help
If you need to put yourself back together financially, get expert tax, legal and financial advice. Professional insight pays for itself to help with your retirement planning and future needs; just make sure to get a referral or shop around to find the right fit.
Make sure your team empowers you and makes you feel comfortable; after all it’s their job to make sure you understand what they propose doing and why. If you feel intimidated or confused, move on as it’s your money. You have the right to expect a professional and supportive team. Learn how to find the best financial advisor.
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