Divorce can be a tumultuous and emotionally draining experience, but it doesn’t have to be financially devastating.
Before the Divorce is Final
- **Determine How You’ll Cover the Cost of the Divorce**:** You may need to tap into your income stream and savings accounts, or even explore alternative options, such as borrowing from your retirement plan, if it’s allowed by a divorce court judge.
- Create a Budget:** You may want to build a temporary budget. Your divorce attorney can advise you on how long your separation period may last in a contested case.
- Start Building Separate Bank and Brokerage Accounts:** Consult with your divorce attorney on ways to establish independent bank and brokerage accounts without harming your spouse.
- **Understand Your Retirement Benefits**:** Know the value of your and your spouse’s 401(k) or similar plans, IRAs, pensions, stock options and other employer benefits. Also, you might need to negotiate the splitting of retirement benefits through a qualified domestic relations order (QDRO).
It’s essential to understand the financial implications of your divorce and make informed decisions to protect your future. By doing so, you can minimize the financial stress and ensure a smoother transition to your new life.
After the Divorce is Final
- F**inish Building Your Separate Financial Accounts**:** You may want to close any joint accounts or credit cards, change online access to financial accounts, remove your name from bills for which you are no longer responsible and complete any agreed-upon asset transfers, such as dividing retirement assets.
- Create a New Budget:** You can now create a longer-term budget, incorporating any spouse or child support you receive as income. You may also need to adjust your spending to reflect items in the divorce agreement, such as expenses now covered by your former spouse and court-ordered responsibilities for paying college education expenses for dependent children and possibly the attorneys’ fees for a former spouse.
- Review Your Protection Plans:** You may need to review your life, homeowners and auto insurance policies. And if you were covered under your spouse’s health insurance plan, you may want to apply for COBRA to stay on that plan up to 36 months or switch to your own employer’s plan, if available.
- Review Your Estate Plans:** To reflect your new marital status, you may need to work with your legal professional to change some of your estate-planning documents, such as a will, living trust, advanced health care directive or power of attorney. Also, review the beneficiary designations on life insurance policies, IRAs, annuities and investment accounts, as these designations can likely supersede instructions on your will or trust.
By taking the necessary steps before and after the divorce is finalized, you can minimize the financial fallout and set yourself up for a more secure and stable financial future. Consult with a financial advisor, such as Austin Harris, to ensure you’re making informed decisions about your finances.
“The key is to be proactive and seek professional advice when navigating the financial aspects of divorce. By doing so, you can protect your financial well-being and create a brighter future for yourself and your family.
Austin Harris is a Certified Financial Planner and Financial Advisor at Edward Jones, and he can be reached at austin.harris@edwardjones.com.