Managing your finances is not a simple task, but a divorce can make it far more complex. A divorce is a life-changing event that is also very expensive. We’ve listed 8 tips to help in regaining your finances after a divorce
If you are going through a divorce, there is a lot more to deal with than just the emotional issues. There are also finances to think about. According to a Nolo report, the average cost of divorce in the U.S. is $12,900, including $11,300 in attorneys’ fees and about $1,600 in expenses such as court costs and fees for child custody evaluators, tax advisors, real estate appraisers and other experts. The after-effect is also challenging.
If you are facing a divorce, and you need help to maintain some sanity when it comes to managing your finances. The below tips will be a good starting place. A well-established plan and seeking professional advice can help you regain your financial independence. If you’re not sure how to handle all of these post-divorce financial challenges, this guide will walk you through some of the key steps you need to take.
Cancel All Joint Accounts
Once you have filed for divorce, it’s important to close all joint accounts. Failure to close joint accounts can become liabilities that could be harmful to your finances in the future. Close these accounts immediately. If you and your ex-spouse have a balance on these accounts that cannot be paid off, suspend the account and not allow any future charges.
You should notify your joint creditors, in writing, that you and your partner have divorced. This will prevent them from being used by your ex-spouse.
Open New Accounts
Depending on the situation and you may be strapped for cash to cover rent or food after the divorce, it may make sense to apply for new credit cards before you cancel joint accounts. If you have marginal credit and do not have an emergency reserve of cash, getting access to a credit card should be your priority.
Also, open new bank accounts, investment accounts. Make a list of the accounts you had while married, and seek to replace these as soon as possible.
Change Your Beneficiaries
I cannot overestimate the importance of changing the beneficiaries on your accounts after a divorce. If you fail to do this, your ex-spouse could end up with your IRA, 401(k), and other assets when you pass away. Changing beneficiary designations is an easy process that can usually be done with a simple form. Most forms will list a primary beneficiary and a contingent beneficiary. If you have a new living trust, ask your estate attorney who should be listed as primary and contingent beneficiaries on your accounts.
Update Your Insurances & Estate Planning
After your divorce, reevaluate who should benefit from your estate in the event of your death. Discuss updating your will and power of attorney with your lawyer to ensure that your interests are protected and that your intended beneficiaries will benefit from your estate.
Also, update insurances to ensure you and your loved ones are still protected. Contact your insurance broker and update your automobile, homeowner’s, and umbrella liability coverage.
Check Your Credit Score
During and after a divorce you should check your credit score at all three credit bureaus. If you see errors or other issues on the credit report contact the bureau immediately and get these discrepancies resolved as they can impact your credit and cause you to pay more for loans, insurance, and can even make it difficult for you to get a new job or rent an apartment.
Create a Budget
Going from a two-income household to a single income is a major transition. If you haven’t adhered to a budget in the past, a divorce is a compelling reason to start doing so immediately. It’s a critical step in regaining your finances after a divorce. List your income sources (e.g., work, marital support, child support, investments) and list your new expenses.
Track what is coming and going so you can see how much you have to save and invest and how much you have to spend on non-essentials. This will help you avoid overspending as you adjust to your new financial norm.
Update Wills and Medical Power of Attorney
Your ex-spouse may have served the role of power of attorney, medical power of attorney and beneficiary to a will. If you have designated your spouse as any of these things, it’s important to update all of these to reflect the new person or people you’d like to appoint to fulfill these roles.
Start Managing Your Finances
In many marriages, one spouse may have acted as the financial manager. Which most times means they handle things like paying the bills, setting the budget, balancing the checkbook, filing annual tax returns, etc. If you were not the spouse that handled these you may have little to no knowledge of how to manage your day-to-day finances. I would recommend partnering with a certified financial planner, a banker, and a professional tax preparer to help you better understand your finances.
Divorce is never something we plan for. It can feel completely overwhelming when dealing with all of the decisions and details that need to be worked out. By slowing down and taking things one step and one day at a time. You will find that both you and your finances will adjust to this life change. Do your best to remain focused and think through each money decision as logically as possible. Making smart money moves and regaining your finances after a divorce is critical to look out for your financial future.