Nobody plans their married life assuming the marriage will end. Nobody opens a joint checking account with their spouse with the intention of eventually divvying it up the termination of their marriage. Indeed, quite the opposite is true. Most people make life choices about their careers, lifestyles, and even retirement savings, based on the idea that their marriage is a given foundational part of daily lives.
It comes as quite a seismic shock then when we as divorce attorneys eventually tell our clients about the possible financial realities of post-divorce life. Many clients find it difficult to make even temporary financial plans for themselves without their spouse in the picture. The prospect of long-term financial planning for a post-divorce future seems even more foreign and impossible.
However, long-term financial planning for a post-divorce life is an essential aspect of our work with any client going through this inevitably life-changing transition. It is important that our divorcing clients have the tools necessary to make educated choices, not just for their immediate lifestyle, but for a practical, long-term financial picture that works for their actual lives. The tips below are essential to consider when planning for post-divorce future:
- Get your ducks in a row. It is important to gather as much documentation as possible regarding your financial circumstances, both now and in the past. This will help you form a lifestyle analysis to determine how much financial cushion you might have available to you in the future. Scan copies of your tax returns, supporting tax documentation, bank and brokerage statements, retirement statements, insurance documents, mortgage statements, and credit card information. Make an organized and detailed file of your financial essentials and gather anything you can related to the financial aspects of your life. Crucially, make a list of your online banking and/or financial accounts and relevant login information.
- Regardless of your current employment situation, determine how you plan to make a living in the future. Moving from a one- or two-income household to two separate households involving the same financial circumstances can be very difficult. Think about whether your current employment circumstances need to change and what steps you might need to take to ensure your own independent financial future. If a new career or employment situation is in your future, consider your employability and what other financial costs you might incur to possibly continue your education, obtain necessary credentials, or look for a new job.
- Identify sources of savings. Divorce and the “start-up” costs of post-divorce life can quickly mount. Think about whether you have available savings to drawn upon should you need it. If you do not have available sources of funds, consider whether you have financial support available through family and/or appropriate lending. If you are going to need a new residence or to buy out your former spouse’s interest in your current residence, do your research regarding the loaning process and your qualifications for it.
- Start to understand your asset structure. Start to educate yourself about what kind of assets you have versus what kind of assets you are lacking but might need. Many clients, particularly those who may have been homemakers during the marriage, may have foregone contributions to retirement savings, for example, in light of other family and lifestyle considerations in their marriage. These well-intentioned clients may find that they are entering a new phase of life with no retirement cushion to speak of. Others still may find their assets lack liquidity. It is important to identify what kind of assets exist so that you can address your short-term and long-term financial goals. It would be helpful to enlist the help of a qualified financial planning professional to speak about your needs and strategize a path forward. A financial planning professional, in conjunction with your family law attorney, can help you identify the types of financial holdings you might need in your post-divorce life.
- Create a thorough and realistic budget (or three!). It’s often very difficult for clients to construct a budget of their reasonable monthly needs, let alone stick to it. All the more so when a family is dividing one household into two households. Nonetheless, a reasonable and practical budget is critical, not only for your divorce case, but your post-divorce life. Create two or three working budgets. The first should be an accurate depiction of your current marital family budget. This will help serve as an indication of your family finances and marital lifestyle. The second should be your post-separation budget showing what your reasonable needs are during the divorce process and based on your separated circumstances. Lastly, it is imperative to project your reasonable monthly expenses for your post-divorce life. Consider the fact that your healthcare costs may have still been covered by your ex-spouse’s employee health care plan during separation. However, following the divorce, more often than not, you will likely be responsible for your own health insurance coverage and therefore health insurance costs. Projecting your post-divorce budget will help identify unforeseen or hidden expenses that will impact your financial planning and stretch your post-divorce dollar.
- Don’t forget about your taxes. In all aspects of your financial preparations, don’t forget to include taxes you will have as a single person. Remember that you might be in a different tax bracket following your divorce and will be responsible for federal, state, and local taxes.
- Truly consider the viability of keeping your family home. Many divorcing clients (frankly, most clients) have a strong emotional attachment to their family home. This is quite understandable considering that this is where many of our important family events take place. It’s likely the place you hosted your first holiday celebration, brought your kids home from the hospital, and where many other important memories took place. However, expenses related to the family home are typically the single greatest expense on any client’s budget and the most significant use of their post-divorce dollars. Remember that your family home was likely funded through a dual-income household or by a one-income household where the other spouse contributed in non-monetary ways. These circumstances are going to necessarily change following your divorce. Keeping the family home for emotional reasons may be a bad idea for your financial future.
- Mind your credit. Even before a divorce action is initiated, it is important to check your credit score and credit reports. In any aspect of your post-divorce life, you will likely need strong credit to ensure a financially sound post-divorce future. If your credit score is not ideal, now is the time to take measures to improve it and work with a financial professional to accomplish this goal. If you did not have credit of your own during your marriage, open a credit card in your own name so that you can ensure your qualifications based on your marital circumstances and ensure available credit for your post-divorce life.