There are few life transitions more emotionally draining than divorce. At the same time, the end of a marriage can also bring the promise of a new beginning. Once the final papers are signed, sealed and delivered, here are some practical steps you can take to best secure your financial future.
A top priority is to establish a new, reasonable budget to live on. After all, you’ll have a hard time taking care of your family if you’re not on solid footing yourself.
Start by getting your arms around your spending in the first six months. Especially if you’re the spouse who has stayed home with the children, and/or you’re seeking reemployment, your new budget will probably be far more constrained than you were used to. You may be unable to replace your income at a level equivalent to you and your spouse’s joint earnings, or even to your previous single, or pre-parenthood earnings. It might make most sense to take a “blank slate” approach, tailoring your new budget and cash flow to your new normal. Using a reverse budget can be a great way to get started.
Logistically, funding your new budget may involve managing lump sum divorce settlements in the form of cash or other assets. It’s worth taking the time to assign or reassign each asset into the right place – whether that is in a checking/savings account, an investment account, or a retirement account (such as an IRA, Roth IRA or 401(k) plan). In total, this becomes your personal portfolio, for optimally funding your ongoing lifestyle needs and expenses.
Next, there are several financial planning decisions best made soon after your divorce.
Even under ideal circumstances, divorce generates a multitude of money-related issues – especially if joint custody is involved. What are some of the financial and related ramifications here?
Claiming Dependents: With joint custody, who gets the tax deductions? This should be addressed in the parenting/custody agreement, but it’s often unclear or, conversely, unnecessarily complex.
If these one-off outlays are not specified in your agreement, they can fall under the overall allocation you’ve agreed upon, or you may need to split them 50/50, depending on the details of your divorce.
That’s an overview of some of the opportunities and challenges involved in navigating through a divorce. As you work through the logistics, remember: The end of your divorce can come with a new beginning for you and your family. Engaging a seasoned, independent financial advisor to help you sort through the details can help ensure you start off on the right foot.
Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.