Divorce can be a very challenging and emotionally exhausting process. During this time, focusing on your personal finances is likely one of the last things you may want to do. But understanding your financial situation, and taking the right steps to strengthen it, is critical to regaining your independence after a divorce and rebuilding your wealth.

One of the unfortunate facts about divorce is that both partners will generally be financially worse off after the divorce.  This is because the same amount of income will have to support the cost of two households rather than just one.  So, it’s critical to examine and thoroughly understand your finances during a divorce.

Keep Calm

It can be difficult to keep your emotions in check during a divorce, and that’s understandable. But it’s important to make decisions objectively as you go through and emerge from your divorce.  Making smart decisions about money and your finances during this time will help you rebuild your wealth more quickly and bounce back from your divorce.

Most of us value certainty, (real or perceived) safety and security, and that can affect how we make decisions.  For example, many women who are going through a divorce will want to keep the marital home.  It’s familiar, comfortable and, if there are children, a source of stability.  But those emotional and psychological reasons can have a profound negative impact on your financial security and independence.  So, if at all possible, make all of your divorce-related decisions that have a financial aspect calmly and objectively.

Assess Your Finances

The foundation of your post-divorce financial planning should be an honest, objective assessment of your finances. Take stock of your current financial situation.

What resources did you receive as part of your divorce settlement?  Will you be receiving any spousal support or child support?  Have you received a share of any retirement or investment accounts, or perhaps a share of your ex-spouse’s defined benefit pension?

As you’re making the inventory of your financial resources, you’ll also want to begin building your post-divorce budget.  Be as accurate as you can, and remember that some expenses won’t change much from year to year (your “core” living expenses, like your cost of housing, food, utilities, insurance, and clothing), while others will be much more flexible (things like vacations, new cars, home upgrades, charitable gifts, and so on).

You should include saving for retirement as part of your budget and your post-divorce financial planning.  Most Americans are woefully unprepared for retirement, but if you build your budget with retirement savings included, you’ll help secure your financial independence and start rebuilding your wealth.

Finally, don’t forget to factor in any one-time expenses that you’ll incur as a result of your divorce, like moving, furnishing a new home, etc.

Get Creative to Save Money

During and immediately after your divorce, you should track your spending very closely until you’re sure what your income and expenses will be when you’re living independently.  This will give you an opportunity to find creative ways to potentially save money.  Can you start your own garden, or begin dining out less?  Can you “cut the cord” and lower or eliminate your monthly cable bill, and discover free entertainment in your community? Can you drive a less expensive, more efficient vehicle, or even use public transit more often?

Sticking to the post-divorce budget you made will give you much greater financial flexibility today and in the future.  And financial flexibility is key to gaining and maintaining financial independence.

Contact us today to learn how a Certified Divorce Financial Analyst® can help guide you and answer your financial questions before, during, and post-divorce.

 

Look for Ways to Increase Income

Once you’ve objectively assessed your financial situation and have built your detailed post-divorce budget, you may find that you won’t have enough income to maintain the lifestyle you had before your divorce.

An important aspect of gaining and maintaining financial independence is living within your means. Doing so will give you a sense of control over your financial life, which is important to bouncing back from your divorce. So, if the budget you built is realistic, and you don’t have room to easily reduce your expenses, you’ll want to look for ways to generate more income.

Can you find a higher-paying job in your field?  Can you invest in yourself by taking additional coursework or training, which will lead to a pay increase?  Will relocating to a new area offer greater employment opportunities? 

By consistently earning more than you spend, you’ll be able to rebuild your wealth more quickly, and ensure a secure financial future.

Save For Retirement

Saving for retirement is an essential part of post divorce financial planning and building wealth, because the money you save today will be the source of your income in retirement.

After a major life change like divorce, it can be tempting to put something like saving for the future on the back-burner, or on hold.  But it’s important to continue saving for retirement during and after your divorce.  Every dollar you’re able to save will help you gain and maintain financial independence and ensure a secure retirement.

And as part of the divorce settlement process, you’ll want to make sure that you update the beneficiary designations on your retirement accounts and insurance policies, taking into account any agreements you made in the settlement.  And you’ll want to make sure any non-retirement accounts are properly retitled.  You may want to consult an estate planning attorney for guidance.

Consider Working with An Advisor

Going through a divorce may seem overwhelming at times.  Fortunately, there are resources available to help you navigate the process.  In addition to your mediator or attorney, you can look to work with an accountant or CPA, and with a financial expert like a Certified Divorce Financial Analyst® during your divorce. A CDFA® professional can help you make smart, objective financial decisions and avoid potentially costly mistakes that could set you back in the long run.

An advisor who holds the CDFA® credential is a professional with a financial planning, accounting or legal background and who has undertaken an intensive training program to become skilled in analyzing and providing expertise related to the financial issues of divorce.

After your divorce is complete, you should give serious consideration to working with an advisor on post-divorce financial planning. Studies have shown that people with a financial plan in place are more optimistic about their preparation for retirement, and have greater peace of mind about their finances.  Your planning work should address your budget and cashflow needs, risk management through insurance, tax planning, management of your investment and retirement accounts, retirement planning, and estate planning.

If you’re looking to work with a financial advisor after your divorce, look for one who holds the Certified Financial Planner® credential. The CFP® designation is considered the gold standard in the financial services profession.