Financial Freedom After Divorce
It is no secret that going through a divorce can be an emotionally trying experience. Everyday, your patience and understanding is pushed to the breaking point. But when the ink is dry, and you’re finally on your own and ready to heal, the most important step you should take is managing your finances.
Understanding your finances is a vital part of gaining, or regaining your financial freedom. While everyone's finances are different, the following list is a good place to begin if you find yourself needing to regain financial control.
Revise Your Will/Trust: Whether you have had a will or trust in place in the past, now is the time to meet with an estate-planning attorney to draft one. This document allows you to determine who will inherit your hard earned assets, who will care for your children in the event of your death, and how your children will inherit the assets you have left to them. It is important to establish these guidelines rather than leaving the decision up to the state. In addition, you should ask your attorney about a medical directive. This important document appoints a trusted love one with the ability to make medical decisions on your behalf if you are unable to do so.
Update your beneficiary designations- While you have taken the steps to update your Living Will or Trust, certain accounts require you to directly appoint a beneficiary. This includes your life insurance and retirement accounts. Contact your life insurance company or broker, as well as the companies where your retirement accounts are held and request a change of beneficiary form. This form can usually be faxed in, no questions asked.
Develop a Budget: It is important to put together and follow a budget. Now that you are living off one income, instead of two, understanding what income is coming in, as well as what income is flowing out, will allow you to plan for expenses and ensure you are not overspending. You may need to cut back or you may have more money to save! Either way, it is important to know for sure. During this process, it is also important to understand how you income is being taxed. For instance, child support is not taxable. Speak to a tax professional to help you determine what is and what is not taxable.
Manage your Credit Cards: Have you pulled your credit lately? It is important to review your credit report to ensure that your ex-spouse is no longer authorized on your cards. This is an important step for home and car loans as well.
Develop a Retirement Plan: During divorce settlements, retirement assets are often split 50/50.This may or may not have worked in your favor. Either way, it is important to understand what you can expect, and what you need to plan for. A Certified Financial Planner can assist you in forecasting your retirement need, developing a savings plan, and determining which investments are right for you.
Reassess Your Health Insurance Needs: It is important to be sure that your health insurance is sufficient to cover your needs, but isn’t too expensive. If it is through your work, don’t forget to remove your ex from the plan. If you were previously on your spouses plan, you do not need to wait until open enrollment to sign up at your company. Just make sure you act quickly. Most insurance companies consider divorce a "qualifying event" or "life event" and allow thirty days to change your plan accordingly.
Life Insurance: In order to be sure your children are well provided for and your debts will not affect those you love, having adequate life insurance coverage is important. I recommend using a life insurance calculator or speaking with a Certified Financial Planner to determine how much coverage you should purchase.
While everyone's situation is different, applying these steps will allow you to begin on the path to financial freedom. Understanding your current financial picture while setting goals for your future are important steps in starting your new life. Please give us a call to schedule a time to review your situation.
