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Divorce and Finances

Creating a financially stable life after divorce

Divorce can impact long-term financial goals, and may require you to completely restructure a new financial plan that includes rebuilding retirement accounts and establishing a new monthly budget.

Divorce isn't just tough emotionally; it can wreck a solid financial plan. It's important to understand the cost of divorce before everything's final so that you may restore your financial life and still achieve your goals. If you're younger than 50, there are a few important considerations when restructuring your financial life.

Establish separate accounts

Life after divorce includes taking a fresh look at your finances - and perhaps closing the door on your old way of managing money. What's on the top of your list? How about these quick tips:

  • Close any inactive joint bank and investment accounts.
  • Review any joint credit accounts with your soon-to-be ex-spouse and ensure they are closed or the appropriate name is removed from the accounts.
  • Establish a credit card in your own name if you don't already have one.
  • If you haven't already done so, consider making a list of your individual property and your debts. Making this list early can help you avoid surprises down the road.

Determine your post-divorce income

Look ahead to your life after the divorce and answer a few questions about what your post-divorce life will look like.

  • Where is your income going to come from after the divorce?
  • If you weren't working during your marriage, are you going to receive alimony and/or child support?
  • If so, what amount is needed to support you?
  • Will you need to find another job?
  • How does your post-divorce budget match up to your post-divorce income?

Take stock of your situation

Do you need to get a job to protect yourself in case your ex-spouse has trouble making payments, or if your divorce agreement sets a date for when the payments will end? Even if you will receive alimony and/or child support,you might consider purchasing a life insurance policy on your ex-spouse. If they died, depending on what assets might revert to you, your income could stop as well. Keep in mind, establishing this policy would require your ex-spouse's written consent.

On the other hand, if you are the one making alimony or child support payments, you have another set of questions to answer.

  • How will this impact your monthly take-home income?
  • What is the payment schedule?
  • How does your post-divorce budget match up to your post-divorce income?

It will be important to keep track of your payment deadlines and to be aware of situations where you can reduce or stop payments. For example, child support typically ends when the children reach a specific age.

Set your new household budget

Keeping track of money can be hard during the best of times. It will likely be even harder in the stressful days after your divorce. By taking charge of your household budget, you may be able to avoid incurring additional debt. Make a list of all the expenses for your post-divorce household. See how this expected spending matches your income. Does it look like you can keep the same lifestyle or are you going to need to scale back in some categories?

Start your own retirement plan

How are you saving for retirement while you are still married? If you have been relying solely on your spouse's retirement plans, you'll need to establish one of your own. A financial advisor will have many options for you. One possible suggestion would be to set up your own Individual Retirement Account (IRA).  These accounts offer tax benefits, including an income tax reduction from contributions and tax-deferred growth.

If your divorce agreement will divide your shared retirement assets, you might want to consider requesting a Qualified Domestic Relations Order (QDRO) as part of the settlement. This document can allow you to transfer assets out of your spouse's retirement account into your own retirement plan without tax consequences.

These are just a few important considerations for rebuilding your new personal financial plan after a divorce. And we know the task can seem overwhelming. Start small. Take stock of your situation. And then find a trusted financial advisor or lawyer to help you tackle the rest. Think of this process as a way to help you get a fresh start on your finances and your new life after divorce.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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