It’s All In Your Hands – A Post Divorce Action Plan

Budget

Budget You have just gone through one of the most challenging and difficult periods that a person can experience in their life – a divorce.  While many things may still be up in the air, one aspect of your life that you should make sure you’re in control is your finances.

Financial planning for a divorced man or woman is not much different than financial planning for married couples.  Several basic elements are the same.  However, the differences offer both good and bad news.  The good news: you can make plans and decisions based solely on your needs and goals.  There won’t be any miscommunication or conflicting ideas.  The bad news: it’s all in your hands.  Any mistakes will be your own and a poor decision can’t be salvaged by the income or assets of a partner.

The following post-divorce action plan offers a few things worth considering:

  1. Work with a Professional.
  2. How much will your future cost – especially for women?
  3. Update your Beneficiaries.
  4. Consider you may marry again.

One way to counter the bad news is to find a trusted professional to seek advice from.

After a divorce, friends are often split between spouses.  Financial representatives can be the same way.  If you lost yours in the divorce or never had one to begin with, it’s a good time to consider finding a professional who can help you make sound financial decisions for your new life.

To find one, start simply.  Ask friends or acquaintances who they may use and trust.  The attorney who handled your divorce may also be a good source for a referral.  It’s important to have someone who has previously assisted or – best of all – who specializes in helping people who have gone through a divorce.  Here is a link to find Certified Divorce Professionals in your area: A CDFA Professional Near Me .

Selecting the right professional for you is a critical step.  After all, this person will be helping you with the important financial decisions you may now have to face.

A woman’s retirement is usually more expensive than a man’s.

Women live – on average – 5 to 10 years longer than men.  Eighty-five percent of people over 100 are women.  This means a woman’s retirement savings must, on average, be stretched out over a longer number of years.

While, in general, retirement planning for a single person is easier in many ways than for a couple, remember – you can no longer rely on a spouse’s financial resources if a mistake is made.  It’s important to review your social security estimates (more about this in a follow up blog), any pensions you have and your retirement assets.  You can then compare that to the kind of lifestyle you would like to have during retirement.

Long-term care insurance may become even more important post-divorce.  The reason that women usually need long-term care insurance more than men is the same reason that retirement income planning for women may be more important.  Long-term care policies are designed to cover the costs of care if you are unable to care for yourself because of age or if you become ill or disabled.  Long-term care is especially important for women because they typically pay more for it then men do.  The reason is simple: women typically live longer than men and usually will require longer care during those years.

Because retirement may be more expensive in the future, you may want to make an employer-sponsored retirement plan a larger deciding factor in any job search.  Also, you may decide that you must retire at a later date than you had originally planned.

Update your beneficiaries and consider using a trust to help manage your assets.

People often forget to update the beneficiaries of their life insurance and retirement accounts after a divorce.  If not changed, your ex-spouse may stand to inherit a large portion of your assets.  Also, the estate laws give certain tax breaks to married couples that are not available to a single person.  Establishing the proper type of legal trust may be a way to pass along more of your assets to your heirs, rather than to the IRS.

Finally, after you have moved on from your divorce there may come a time when you consider remarriage.

It’s important that you understand the financial effects this may have.  If you were married longer than 10 years you may be collecting or entitled to 50% of your ex-spouses Social Security benefit.  If you remarry you will no longer have that right.  While you become entitled to your new spouse’s benefit, you must know if your new spouse’s benefit will be lower or higher, and how that will affect your retirement.

Remarriage can also lead to blended families, blended assets and blended income.  Your new spouse may have their own family from a previous relationship.  A financial professional can help the two of you prepare for this blending that satisfies the financial needs of each of you, as well as your new family.