Proactive Financial Planning During Divorce

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Generally, a person facing divorce has two approaches financially – reactive or proactive.

In the reactive mode, an individual acts in response to immediate financial concerns and trying to maintain the status quo. In the proactive mode, an individual works toward the post-divorce future, considering all options with the long-term in mind and the reality that the status quo will change. CNBC recently ran an interesting article sharing several proactive tips we thought we would share.

First, take a financial accounting of your fixed expenses and anticipated income streams. If you have a shortfall, you either need to increase income or reduce expenses. If you cannot improve your employment, you need to consider if you would be able to receive maintenance from your spouse.

On the expense side, all expenses are not equal and some can go in order to reduce your shortfall. This is also the time to consider downsizing as an option. If you have fixed expenses, like a mortgage, you cannot afford post-divorce, you need to look for other housing arrangements. Too many people wait until the divorce nearly ends before thinking of the future, and the house tends to be the most likely issue left on the back burner.

Second, having budgeted for what you can afford, look if you can plan for retirement. One danger of divorce is that by focusing on present needs the individual forgets about the need to support oneself for the long haul. Do you have retirement assets? Does your spouse? Should you ask for more retirement funds to protect your long-term health? An interesting suggestion in the CNBC article encourages people receiving maintenance to use some of it, even all of it, as savings into an IRA to reduce the tax implications of counting maintenance as income.

Third, think about Social Security, particularly if you are closer to retirement. If you were married for at least ten years and your former spouse made more money, you can claim that spouse’s Social Security benefit. However, if you remarry, you lose the right to that claim.

Finally, you should consult a financial planner to look at your investment portfolio and income streams to see how you can maximize your resources come retirement. If you wait too long to start saving or shifting assets, you may cost yourself the ability to a reasonable lifestyle at retirement.

If you have questions about post-divorce financial considerations, contact us – we can help.