Divorce is incredibly personal. While no two are the same, there are several things that, when viewed through a wide lens, are often similar. The proactive steps taken before, during and in the final stages of divorce can greatly influence the final outcome, and your subsequent happiness, or lack thereof. Regardless of which stage you are in, you will be better off in the long run if you keep the following in mind. in considering your new financial situation.
List your most critical financial questions.
It’s worth acknowledging that nobody comes out of divorce better off financially, and it is likely that everybody’s standard of living will go down. These are some of the more common issues recent divorcees need to consider:
Understand your income and re-imagine expenses.
First, you have to know what your income is. If you’ve been a stay-at-home spouse, this likely means you’ll have to dust off your resume and join the workforce. If regular spousal or child support payments are part of your divorce decree, acknowledge that child support will usually end at 18 or 19 (depending on your state), and if you or your former spouse’s employment situation were to change drastically, it is likely that spousal support will change right along with it. Hope for the best, plan for the worst. At the minimum you should have 6 months of living expenses stashed away.
Build new goals.
Old goals may not fit your new reality. Be creative and come up with better, realistic goals. More expensive doesn’t necessarily mean more fulfilling.
Pros and cons of keeping the house.
In high housing cost states such as California, typically divorce means selling the house and splitting the proceeds. If you think you are in the position of buying out your former spouse, refinancing your mortgage based on your own finances and staying put, you really need to get expert advice, run the numbers and see if it makes sense. You’ll be paying your mortgage, property tax, insurance and all repairs on one income. Ultimately, you don’t want to “steal” from yourself by borrowing from your retirement plan or other investments in order to make ends meet. Remember, a house isn’t a retirement plan. It probably makes more sense to downsize and save rather than count on home equity to fund retirement.
Retirement income.
After all you’ve been through, retirement may be the last thing on your mind. But the day will come, and the sooner you plan for it the better off you will be. Increasingly, couples over 50 are choosing to get divorced. If you are like most Americans and saving for retirement has been a low priority, this could cause significant anxiety. Even if you and your former spouse had done a good job of saving for the future, only having half of that to look forward to could be cause for concern. As a side note, it’s worth noting that if you were married for more than 10 years, you may be entitled to an amount equal to half of your former spouse’s Social Security benefit when you turn 62.
Review retirement account, pension and life insurance beneficiaries.
The beneficiaries named on these accounts take precedence over whomever you may have designated in your estate planning documents. Make sure they are in line with the terms of your divorce decree.
There are many other things that need to be considered when planning for life after divorce, such as health insurance, taxes and tax filing status; especially when kids are involved. Our in-house team of professionals and strong referral partners can help guide you through this difficult time.
With thoughtful, realistic planning comes stability; which is the foundation for feeling independent and in control of your new reality.
Jarrod Jacobi is an Accredited Wealth Management Advisor (AWMA®) with the independent investment advisory firm Van Hulzen Asset Management in El Dorado Hills, CA. He and his firm specialize in wealth management and retirement planning for individuals, families and small businesses. Jarrod has been in the investment business for 25 years.
Jarrod@vaminvest.com