Lemonade Out of Lemons: Taking Charge of Your Finances Post-Divorce

I’ve never been divorced. In fact, I’ve not been married, but I have seen and experienced the emotional toll that a divorce can take on everyone involved. It is a paradigm-shifting life event, and many are often left overwhelmed and wondering: “Where do I go from here?” There is no easy answer. As a financial advisor, I’m not qualified to address the emotional piece of the equation. That said, when I have unresolved emotions, focusing on what is practical can bring some peace – and any divorce brings sweeping financial changes.

1. Budget for Your New Path (Not Necessarily What You Were Accustomed To)

For many, managing finances after a divorce means spending less, for others it may not. But one thing is certain: it would be wasteful to assume that nothing has changed. Whether you are incurring new expenses (alimony, purchasing a new home, etc.) or adjusting to diminished resources, it is vital that you re-evaluate your needs rather than “staying the course” for simplicity’s sake.

While these changes can be difficult, acknowledging their impact is key to creating a future on firm financial footing. You don’t want to be burdened with the stress of being over-leveraged in a home, living in debt, or simply feeling out of control.

2. Take Stock of Your Resources

To craft a path forward you’ll need an understanding of every resource at your disposal.

Begin by compiling your own personal balance sheet: all your assets (from financial accounts to cars and real estate), all your liabilities (from credit card debt to your mortgage), any current insurance coverages, etc.

Next, you’ll want to identify any sources of income, whether from your work, a pension, an annuity, alimony, or even your anticipated social security benefits.

Furthermore, you’ll want to account for any assets that were shared with your spouse and whether they’ve been re-registered officially and appropriately. This may mean removing authorized users from your bank account(s), canceling credit cards, or (an often-missed detail) updating beneficiary designations on insurance policies and retirement accounts.

Finally, this is a great opportunity to investigate and hopefully streamline which expenses are directly tied to the management of your finances: bank account maintenance charges, credit card membership fees, investment transaction costs, financial advisory services, etc.

3. Define and Prioritize Your Goals

The silver lining following divorce  is that you have absolute control of your financial future from this point forward. Any successes will be your own, and that will be something to take pride in.

With a firm understanding of your current financial circumstances and resources, it is time to identify just what you want your financial future to bring. While you and your spouse may have planned to retire to a more tropical climate or join a country club, many of YOUR goals are now different. Take some time to thoughtfully outline what sort of lifestyle will provide you with happiness both up-to and during retirement. Maybe your goals remain centered around your children; paying for their college, helping them buy a home, or providing a lovely wedding. Perhaps, your new perspective has you considering a much more modest lifestyle than you’d previously envisioned. No matter the circumstances, it is of vital importance that identify these goals and objectives so that you may craft a path forward.

4. Don’t Go It Alone

I debated whether to place this point first or last. The fact is, it is possible to accomplish everything I’ve stated on your own, but I believe few would recommend it.  Working with professionals to assess your circumstances and build a plan that maximizes your likelihood of achieving your goals can be enormously valuable – especially for spouses who may have not been, for lack of a better term, “CFO” of the relationship.

A financial advisor/planner can be a critical resource when managing finances, helping you identify and evaluate your new short and long-term financial goals. They can clarify what you need to earn, how you need to save for retirement or your children’s needs and how your newly single status may provide opportunities for improved investment management. A thorough financial advisor will also help you to understand how these new-found circumstances will affect your tax picture and will have the ability to connect you with a tax accountant with experience providing services to newly divorced clients (another invaluable resource).

Finally, you will want to engage an estate attorney to adjust your estate plan for your freshly established financial objectives. If you’ve gone to the trouble of re-defining all your intentions, you will certainly need to ratify those intentions through establishment of a new will, healthcare directive and perhaps Powers of Attorney and trust documents.

At first, it may take a village (your family attorney, a financial advisor, a CPA, an estate attorney), but the value of establishing a sound plan for your new financial future and setting out “on the right foot” cannot be understated. Seize the opportunity, embrace these new and exciting decisions, and proceed on your new path with confidence!