Tips for post-divorce financial planning
The stress of a divorce, with its hearings over settlements and custody arrangements if there are children involved, can quickly eclipse any thoughts of financial planning for yourself. But it’s something you shouldn’t ignore, because you definitely have to deal with “what comes after.” Working with a number of such clients over the years, I’ve developed a set of basic principles to help those who find themselves in this challenging situation cope with the financial stress. And to ensure much-needed stability now and into the future.
Post-divorce, your financial needs will be very different from when you were married. You’ll have to create and maintain a household budget, pay the bills, plan for your children’s education, and manage investment and retirement savings, all on your own. And you’ll have to do this while coping with legacy items such as mortgages, along with any future obligations specified by the settlement.
Working with the settlement
The settlement is only the final stage of what can be a long, arduous, emotionally draining process of dividing up family assets. For this, you need to get organized:
Income and expenses. Income from employment or self-employment, a business, a trust, investments, all should be counted. Itemize and detail all your ongoing expenses, both short-term daily living expenses and longer-term recurring expenses, like taxes, loan and mortgage payments.
Assets and liabilities. List what you own, both jointly and individually. In addition to your principal residence, this could also include property like a cottage or timeshare. Same goes for investments, including funds held in Tax-Free Savings Accounts, Registered Retirement Savings Plans, Registered Education Savings Plans, Registered Retirement Income Funds, and any non-registered brokerage accounts, both full-service and self-directed. As for joint or individual debt, be sure to list mortgages, car loans and leases, lines of credit, credit card balances, personal loans, and so on.
Documents. Most of the major events in our lives entail a fair bit of red tape. Divorce, perhaps, comes with a bit more than usual. So make sure you find and keep track of those key documents, especially anything that you’ve signed separately or jointly as a contract or agreement of some sort. These relate to ownership of real property, investments, and bank accounts, both here and abroad. Be sure to track down originals of wills, powers of attorney, trusts, and so on. Your lawyer will probably have much of this paperwork. But double-check anyway. And having this information at hand gives you a head start on the rest of the financial planning you have to do.
If you think doing all of this needs expertise with a spreadsheet program, I won’t sugar coat it – it does. Some of the popular money management software, like Quicken, might help. But unless you’re already proficient with these, the last thing you want to do at this point in your life is get on a learning curve. If you don’t already have one, retain the services of a Certified Financial Planner – a professional who’s trained to consult, advise on, and solve all types of financial problems, and who specializes in bringing order out of financial chaos. If you’ve been using one jointly, as is often the case with family assets, you may each want to find a new planner – one who won’t have the inherent conflict of interest that your current one does. Your respective lawyers will definitely need to give input here.
Once the divorce settlement is finalized, you’ll need to work up a financial plan independent of your former partner.
Your plan, your rules
If you’ve engaged the services of a financial planner for yourself, you need to have a frank and open discussion about your life goals, your values, your investment goals, and financial objectives in this new phase of your life. You can then confidently develop an action plan that includes these key priorities:
Net worth. A clear picture of what you own and what you owe after the dust has settled. It doesn’t matter whether you think it’s good, bad, or indifferent, fair or unfair. It’s the reality, and it’s now time to concentrate on how to grow from here.
Priorities. Setting priorities is something you can talk through with your planner. You’ll naturally have short-term ones, like paying the bills (e.g., mortgage and other debt) and everyday expenses for yourself and your dependants. But you’ll also have longer-term goals, like retirement planning, healthcare, estate planning, and insurance, all of which may have been jointly held when you were married but are now solely your responsibility.
Investments. To ensure you never get in “over your head” or outside your comfort zone with your investments, your financial planner will help you create a detailed statement of investment objectives, defining the optimal allocation of your investment assets. And they should provide a detailed written strategy for the investment management team they retain to manage your assets. Continual management, monitoring, and reporting are key functions of the financial planner.
Taxes, estate planning, insurance. Taxes can have a major impact on disposition of assets, especially if there are large investment accounts involved, both registered and non-registered. It’s here you’ll really need expert help. Your lawyer, often working with financial professionals, should ensure the tax bite is minimized in any settlement. Afterwards, your financial planner should be able to call on her network of professionals to make sure your family tax bill is cut to the bone. Your planner may also refer you to the appropriate qualified professionals to ensure that you and your dependants are protected with the properly drafted wills, powers of attorney, an estate plan, and life insurance.
Your post-divorce objective is to get back on your feet financially. Starting with the basics I’ve outlined here, you’ll be able to make that happen a lot faster than you might have thought possible.
© 2017 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.