Even though your divorce may be final, there are several things left to do before starting your post-divorce life. Make sure you have several certified copies of your divorce decree so you can get your post-divorce financial life in order. Your divorce attorney’s job is to get you divorced. It is your responsibility to make sure you get your post-divorce financial life in order.
- Create a “fresh-start” budget. Using your current income such as wages and spousal and child support, develop a reasonable budget for this new phase in life. Write down all known monthly expenses and also any one-time expenses such as legal fees that will be due. Don’t forget to include expenses that occur quarterly or annually. Many people have fewer resources after divorce and must adjust spending. Be honest with yourself during this process about your spending habits. This is the time to identify ways to cut expenses if necessary, usually by cutting nonessential expenses such as eating out, shopping, and gym memberships. If you create a workable budget in the very beginning, things will likely be less stressful as far as finances go.
- Review assets and debts. Close any previously held joint accounts held with your ex-spouse. Remove your ex-spouse from any bank accounts, investment accounts, retirement accounts, and insurance policies. All credit cards and loans (car, house) should be reviewed to see if changes to the titling or beneficiary designation need to be made per the divorce decree.
- Review and monitor your credit report. Once you have completed step 2, request a new credit report to make sure all credit cards and/or loans are titled correctly and thus reported correctly on your credit report post-divorce. Set a reminder to review your credit report annually.
- Review your savings plan. In a perfect world, your budget will have a surplus of cash at the end of the month. However, many times after divorce, it takes some time to build your savings back up. Start putting as much as possible each month in your emergency fund (savings account). This would ideally be three to six months of expenses. It’s also important to think about retirement. If you have a retirement plan at work, contribute as much as your budget allows each month. Other big-ticket items such as college and weddings should be taken into consideration when building your savings plan. However, consider taking care of your emergency fund and retirement savings first, as scholarships and loans may be available for other big expenses. Remember, you can’t borrow money for retirement!
- Examine your insurance. Review your insurance coverage for health, car, home, and life to make sure you are properly covered in your post-divorce situation. You can usually save money by “shopping around” at different providers. It is usually more advantageous to use the same provider for your home and car insurance, as the discount you receive is usually sizable. Make sure you understand the divorce decree on who pays for what.
- Set up your team of trusted advisors. After divorce, your tax filing status may change to either single or possibly head of household depending on if you have dependents. There could be significant changes in your federal or state tax rate due to your change in filing status. It is important to understand this before filing your next tax return to avoid a large payment due at filing. If applicable, review your current Form W-4 at work to determine if your tax withholdings need to be changed due to filing status for the next year.
While you may be exhausted after the divorce process and ready to move on, getting your post-divorce finances in order cannot be stressed enough. Make a list of to-do items and systematically work your way through everything you need to do. Managing this process can be made easier by working with your team of trusted advisors.
For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.