Divorce can be overwhelming emotionally and financially. According to statistics, women who get divorced typically experience a drop in the lifestyle they once had. It is so important, now more than ever, to maintain your financial situation while you cope with your divorce.
Whether you are still in the process or are newly divorced, here are some key steps to maintaining your financial situation while getting back on your feet:
1. Build a good divorce team
If you are still going through the process of getting divorced, it is critical to have key professionals as part of your Divorce Planning team. At a minimum, the team should include a Family Law Attorney and a divorce financial planner. The financial planner should hold the specialized designation of Certified Divorce Financial Analyst™ (CDFA™). A CDFA™ professional can help you determine the short-term and long-term financial impact of proposed divorce settlements, offer valuable insight into the pros and cons of different settlement proposals, and help you avoid the common financial pitfalls of divorce such as keeping the family home when it makes no financial sense.
2. Know where you stand financially
Organize and understand your expenses, savings, debt, etc. before putting a plan in place and moving forward financially. Understanding where you are pre-divorce can help you see the whole pie and potentially how assets can be divided. This is the first step post-divorce so that you can start the rebuilding process.
3. Create a spending plan
Whether you are receiving spousal support or not, your income will not be the same as what it was when you were married. You need to know what your income and expenses are to keep your spending under control as well as set aside money for your long-term goals such as retirement.
4. Review insurance needs
You want to make sure that you have adequate insurance in place (i.e. health, life, disability, and property).
5. Build an emergency fund
Since getting divorced, your household income has dropped. Therefore, you need to build a cushion for emergencies. Typically, you should keep three to six months living expenses in a liquid account such as a savings or money market account for emergencies.
6. Review your credit report
Know what is on your credit report and make sure you have credit in your own name. It is also important to close any joint credit card accounts. You do not want to be responsible for any additional debt incurred on any joint accounts after the divorce.
7. Update your estate plan
There have been horror stories about a divorcing spouse not changing their beneficiary designation on accounts and the money went to the former spouse. Remember to update your will or trust and any beneficiary designations.
8. Work with a financial planner
If you feel you need guidance to help you get on the right track financially, working with a Certified Financial Planner™ professional can be beneficial. A CFP® professional is dedicated to using the financial planning process to serve your financial needs. A CFP® professional can help you identify and set realistic goals and objectives, and design and implement a plan to help you stay on track to meet your long-term financial goals.
9. Take care of yourself emotionally
This is not a “financial step” per se, but emotions can affect your decision-making. This can be a stressful and emotional time for you. You need to have some emotional support such as friends, family, or a professional, so that you can keep the emotion out of your financial decisions related to the divorce.
While getting divorced can be difficult financially and emotionally, taking these key steps can help you maintain your financial situation or help you get back on your feet.