Divorce Finances: How to Help Secure Your Financial Future

single female at home reviewing her divorce finances

Key Takeaways

  • Splitting assets and debts during a divorce can get complicated, so get legal help to navigate property division and transfer of ownership.
  • Create a realistic post-divorce budget based on your new income and expenses. Cut back on spending where possible.
  • Review insurance needs for life, health, auto, and home, as coverage will likely change after the divorce.
  • Be cautious about cashing in investments or retirement accounts too quickly. Consult a financial advisor first.
  • Start saving for retirement if you haven't already. Don't cash out existing retirement accounts without understanding tax and penalty implications.

Dealing with the end of your marriage is difficult for many reasons, but your finances don't have to add to the complexities of divorce. Funds are often intertwined in a marriage, which is why divorce finances could throw you for a loop — if you're not prepared.

Learning how to adjust your financial plan after a divorce could help you move forward in life with confidence.

The Big Divide

Splitting asset ownership is an essential part of the divorce process and will vary greatly from couple to couple. Financial assets could include bank accounts and investments, as well as property like a home or car.

Examining the fine print could help you come up with a strategy. Are both of your names still on the deeds and loan documents? If so, you may want to look into the implications of keeping it that way (versus ownership and debt transferred to an individual's name).

For example, if you or your spouse don't make the agreed-upon payments, the other person could be financially liable. Also, when trying to sell personal property, having both names on the deed may complicate the negotiation and sale. Consider seeking legal representation, which could help you navigate the divorce process.

Budgeting: Back to Basics

Things are often more expensive when you're no longer married, as only one adult is paying the living expenses previously covered by two. And other unanticipated costs may also pop up. For example, your former spouse may no longer contribute to things like your health care expenses or home maintenance costs.

Gaining a firm understanding of your current income could help you create a realistic budget that leaves room for both expected and unexpected expenses. Identifying areas where you could cut back on spending may also help you stay on track. Watching your budget closely for the first few years after a divorce could help you build a strong financial foundation.

Your divorce decree could also significantly influence your post-divorce finances. How? It could limit who you live with, which could affect child custody or alimony. It could also affect where you live, which could complicate matters if you want to move to a less expensive town or state — or want to move for a new job.

Insure Your Future

If you and your former spouse have children, you may be required to buy a certain amount of life insurance as part of your divorce settlement. Life insurance could offer financial protection for your children if you died unexpectedly — protection that could help pay for their education, other living expenses and more. Consider speaking with a financial representative who could help you find the right policy for your needs.

Do you already have a life insurance policy? You may want to examine the beneficiary to ensure you're happy with who is named in the policy.

Health insurance may also be a new expense. If you were covered under your former spouse's health care plan, you may no longer have coverage after the divorce. Consider a personal insurance plan to help cover the costs of health care, including deductibles and copays.

Changing the insurance policies for your car and home could also have financial implications. Consider speaking with representatives from your insurance companies about any adjustments to your policies.

Prepare for Tomorrow

You may be tempted to cash in some of your investments, such as mutual funds, stocks or investment properties. However, cashing in could come with costs — from brokerage and sales fees to taxes on gains and selling at a loss. Consider speaking with a financial representative who could help you decide on the best strategy for your investments.

Depending on your situation, you may no longer rely on your former spouse for retirement funding after your divorce. Are you already saving for your retirement? If not, now could be a good time to start.

You may have split up your retirement accounts so that you have some of the retirement investments formerly in your former spouse's name, or perhaps you divided some of your accounts with your spouse. Cashing those in could mean possible tax implications and financial penalties. Before making any changes to your retirement accounts, you may want to consider getting expert advice.

The Bottom Line

Divorce finances don't have to be difficult. Preparing a financial plan after divorce can be a positive experience, giving you a chance to take charge of your future. Think about it as a fresh start and an opportunity to move forward on solid ground.

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