There’s no doubt about it – going through a divorce can be an emotionally trying time. In addition to the emotional impact a divorce can have, it can also take a significant toll on finances. If you have recently gone through a divorce, now may be a good time to take a fresh look at your financial situation. Consider how these steps may help you get on firmer footing:
Adjust your budget: A good place to start is to establish a budget that reflects your current monthly income and expenses. Calculate your new monthly income, including spousal or child support if applicable, and estimate what you expect to earn over the next year. If you are a stay-at-home parent or spouse, you may decide to re-enter the workforce to bolster your income. Or the time may be right to switch careers or seek a higher-paying job.
Next, look at your spending to see if you need to adjust your patterns. Whether you’ve decided to remain in your home or seek new living arrangements, crunch the numbers to see how much house you can realistically afford. Also, evaluate your lifestyle spending to see if it’s necessary to trim your expenses. If possible, avoid making any major purchases until you feel comfortable with your updated budget.
Consider your children’s future. If you have children, they will understandably take center stage in your planning. It’s important to start thinking about how you’ll handle future financial milestones. Milestones may include paying for private grade school, college tuition or a wedding. If you’d like to help your children with such expenses, consider these questions: Will you receive financial support from your former spouse? Do you expect your kids to contribute? As each event approaches, be up front with your kids about what you can afford so they can set realistic expectations.
Ensure you’re protected: An important step following divorce is to maintain, replace or establish insurance that will help secure your financial future. All forms of insurance should be reviewed and considered. Make sure you understand the specific benefits that you and your former spouse are entitled to, as well as the life, health and disability insurance policies that you both own through your employers. If you have children, whose health insurance plan will be used to cover them? Work quickly to establish an insurance plan to avoid financial risk of being uninsured.
Change your beneficiary designations: After a divorce, you’ll want to change the beneficiary designations on any life insurance policies, retirement accounts, annuities, and bank or brokerage accounts you may have in place. This is also a good time to make a will or update your existing one to reflect your new status. Make sure that your former spouse isn’t still named as a personal representative, successor trustee, beneficiary, or holder of a power of attorney in any of your estate planning documents.
Prioritize saving for retirement: No matter how close – or far – you are to retirement, make it a priority to update your retirement goals and continue building your nest egg. While retirement saving can feel overwhelming as you balance competing financial priorities, having a plan can help you feel more in control.
Dream and plan for the future: Once you have a handle on your new day-to-day finances and retirement, allow yourself to dream and plan for other milestones that are important to you. While you were married, you may have set certain financial goal with your spouse. Now that you are on your own, these goals may have changed.
Don’t go it alone: Professional guidance from an attorney, tax professional, estate planner and financial advisor can ease the burden of managing your finances. It’s hard to start over, but you can do it. A financial advisor can help you with the complex decisions you face during a divorce and offer strategies you get on track to meet your new financial goals.
Ziyah Esbenshade, CFP®, APMA®, CRPC®, is a Private Wealth Advisor and Senior Vice President with Pell Wealth Partners, private wealth advisory practice of Ameriprise Financial Services, LLC in Rye Brook, New York. She specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact her, visit pellwalthpartners.com, call 914.253.8800 or visit our office at 800 Westchester Avenue, Suite 300, Rye Brook, New York 10573.