You are newly divorced and have a copy of your Judgment of Dissolution of Marriage in hand. You are concerned about finances and want to make sure that you have enough money now and during retirement. What are you to do next with your personal finances as a single individual? Below is a list of 11 tips for you to consider and discuss with your financial advisor post-divorce.
1. Make sure to close all joint accounts.
If you haven’t done so already, cancel and close all joint accounts with your ex-spouse. Why is this so important? Joint accounts that remain open are liabilities that could come back to haunt you. Do you want to be on the hook after your ex-spouse runs up charges on credit cards or overdrafts a bank account? Absolutely not. So, close all joint accounts immediately. What if the joint account is a credit card that cannot be closed because there is a balance? You should contact the card provider and instruct them to suspend your account to prevent any future charges. Ask them to send you a letter confirming that the credit card account cannot be re-opened or unsuspended by your former spouse.
2. Make sure to open new accounts in your individual name.
You will also need to open new bank accounts, securities accounts, etc. Make a list of the accounts you had with your spouse while married and seek to replace these with accounts in your individual name as soon as possible.
3. Make an emergency fund account.
Now that you are single, it is more important than ever to have an emergency fund (also known as a cash safety net). You should have six months of living expenses in cash and set it aside in a bank account.
4. Consider opening a new credit card account.
Do you have a credit card in your individual name? If not, then open one before canceling all joint credit card accounts. The credit card isn’t the same as an emergency fund. However, if you don’t have an emergency fund, getting access to a credit card should be a priority.
5. Make sure to change the beneficiaries on all your accounts.
Go through all your accounts and make a list of each one that has your now ex-spouse listed as a beneficiary. These accounts include your bank accounts, securities accounts, life insurance policies, and retirement accounts. Changing beneficiary designations is an easy process that can usually be done with a simple form. Contact each account provider to obtain the form and the process required for the form to be accepted.
6. Make sure to update your personal insurance coverage.
You will need to consider your health, automobile, homeowner’s (or renter’s), and umbrella liability coverage. When reviewing your homeowner’s (or renter’s) policy, review the list of scheduled assets and remove any property that you no longer possess post-divorce. There is no reason to pay for property awarded to your spouse in the divorce. Also, if you didn’t have an umbrella liability policy when you were married, you should consider securing a policy to protect your assets post-divorce. Also, consider getting a disability insurance policy for yourself. Disability insurance provides you with a monthly “paycheck” if you become injured or ill and cannot work. It typically is not cheap, but it can provide you with peace of mind that your financial life will not be destroyed if you suffer from a long-term disability.
7. Make sure you have retitled assets awarded to you in the divorce.
Post-divorce, there may be many assets that need to be retitled. For example, did you need to secure a quitclaim deed for the marital home? Did you need a gift affidavit for each automobile awarded to you?
8. Make sure to change your income tax withholdings.
After divorce, it is important to meet with your CPA and do a new tax projection based on your new individual income status and deductions. Based on your new tax liability, you probably will need to change your income withholdings (or pay a different amount of estimated quarterly taxes if self-employed).
9. Make an appointment with your financial advisor to review your investments.
If your spouse did the family’s investing, you may now own securities that you aren’t familiar with or that are not right for you as a single individual. Make an appointment with your financial advisor to complete a deep analysis of each investment awarded to you in the divorce to see if it is prudent and makes sense for your risk tolerance and goals. Your advisor can help you create a new asset portfolio that is appropriate post-divorce and analyze the tax consequences of any sales and reinvestments. Working with an advisor will also assist in knowing what you should be saving for retirement, what your budget should look like, and how to make the most financially of your post-divorce life.
10. Make a new estate plan.
If you didn’t have an estate plan before the divorce, then there is no better time to think about your estate plan than after a divorce. If you had an estate plan and have children, you may need to update your will and trust documents. Update or create a power of attorney for healthcare and finances, a living will, and other documents.
11. Check your credit report at least once per year.
I’m confident you checked your credit report at all three credit bureaus before signing the Judgment of Dissolution of Marriage. You should calendar a date each year to review your credit report. You can receive a free credit report through annualcreditreport.com. 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.
This is a long to-do list. Take one at a time until you’ve addressed each of them. By completing each of these, you will be on the right track financially and can rest assured you have done everything you can to take control and make the most of your finances post-divorce.
Should you need the advice of an experienced divorce attorney or have questions or concerns about your situation, know that we are here to help and ready to discuss those issues with you.