Contributed by: Kali Hassinger, CFP®, CDFA®
Divorce isn’t easy. Determining a settlement, attending court hearings, and dealing with competing attorneys can weigh heavily on all parties involved. In addition to the emotional impact, divorce is logistically complicated. Paperwork needs to be filed, processed, submitted, and resubmitted. Assets need to be split, income needs to be protected, and more paperwork needs to be submitted! With all of these pieces in motion, it can be difficult to truly understand how your financial position will be impacted. Now, more than ever, you need to be sure that your finances are on the right track. Although every circumstance is unique, there are few steps that are helpful in most (if not all) situations.
Assess your current financial situation
Following a divorce, you’ll need to get a handle on your budget. You may be responsible for paying expenses that you were once able to share with your former spouse. What are your current monthly expenses and income? Regarding expenses, you’ll want to focus on dividing them into two categories: fixed and discretionary. Fixed expenses include things like housing, food, transportation, taxes, debt payments, and insurance. Discretionary expenses include things like entertainment and vacations.
Reevaluate your financial goals
Now that your divorce is finalized, you have the opportunity to reflect on your needs and wants separate from anyone else. If kids are involved, of course their needs will be considered, but now is a time to reprioritize and focus on your needs, too. Make a list of things you would like to achieve, and allow yourself to think both short and long-term. Is saving enough to build a cash cushion important to you? Is retirement savings a focus? Are you interested in going back to school? Is investing your settlement funds in a way that reflects your values important to you?
Review your insurance needs
Typically, insurance coverage for one or both spouses is negotiated as part of a divorce settlement, however, there is often still a need to make future adjustments to coverage. When it comes to health insurance, having adequate coverage is a priority. You’ll also want to make sure that your disability or life insurance matches your current needs. Property insurance should also be updated to reflect any property ownership changes resulting from divorce.
Review your beneficiary designations & estate plan
After a divorce, you’ll want to change the beneficiary designations on any life insurance policies, retirement accounts, and bank or credit union accounts. This is also a good time to update or establish your estate plan.
Consider tax implications
Post-divorce your tax filing status will change. Filing status is determined as of the last day of the year. So even if your divorce is finalized on December 31st, for tax purposes, you would be considered divorced for that entire year. Be sure to update your payroll withholding as soon as possible.
You may also have new sources of income, deductions, and tax credits could be affected.
Stay on top of your settlement action items
Splitting assets is no small task, and it is often time consuming. The sooner you have accounts in your name only, the sooner you will feel a sense of organization and control. Diligently following up on QDROs, transfers, and rollovers is important to make sure nothing is missed and the process is moving forward as quickly and efficiently as possible. Working with a financial professional during this process can help to ensure that accounts are moved, invested, and utilized to best fit your needs.
When your current financial picture is clear, it becomes easier to envision your financial future. Similarly, having a team of financial professionals on your side can create a feeling of security and support, even as you embrace your new found independence.
Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.