5 Tasks to Help You Start to Rebound Financially Post-Divorce
A few critical steps will help you start getting your life back together. Forgetting or delaying these tasks will cost you precious time and money, and add to your headaches.
Rethink Your Retirement Planning
Money is typically tight after a divorce: Both partners' monthly budgets will almost always take a hit as one set of household expenses becomes two. But that's not an excuse to forget about saving for retirement. You need to assess your new budget and make the adjustment required to allow you to continue to set aside money for your golden years.
You may find you have a hodgepodge of investments after your divorce. Or, just as likely, half a hodgepodge. Do you have a 401(k)? Or did your spouse have the 401(k), while you put your money into a Roth IRA? Did your spouse invest in stock index funds, while you played the more conservative role and went with bond funds? Now that you're flying solo, you may need to rebalance your portfolio.
%VIRTUAL-article-sponsoredlinks%"A good amount of investors look through their investment and retirement accounts [after a divorce] and realize that they have no overall strategy for their portfolio," says Grant A. Webster, certified financial planner and investment consultant at AKT Wealth Advisors in San Diego. "To correct this, think about all of your accounts as one investment vehicle. Make sure that your portfolio is diversified and all of your investments are working together."
You may take a short-term investing pause while you get a handle on your new financial situation. It's vital not to let that retirement-planning hiatus last too long. As soon as you get your household's monthly budget worked out again, get back to investing each month. Delays could do serious damage to your long-range plans. Time and compound growth are your two greatest allies in investing, and you shouldn't let a divorce sidetrack you.
Joshua Austin Scheinker, senior vice president of Scheinker Investment Partners in Baltimore, recommends taking advantage of dollar-cost averaging to rebuild assets while at the same time while paying down any debts.
Start to Rebuild Your Credit
In many families in America, one spouse does the bulk of borrowing. Maybe one partner has a better credit score and can get lower interest rates. Or perhaps when they divvied up household tasks, one ended up handling most of the money matters, including applying for credit. Either way, it's not unusual to see joint debts rest official in only one spouse's name.
If you didn't have a strong credit history while you were married, or had a low credit score, you'll need to build your credit up after a divorce. Be careful to ease into this and don't take on new debt. You might be able to build your credit history with a secured credit card or specialized credit starter loan from a credit union.
You may also consider asking your landlord to report your on-time rent payments to the credit bureaus to help you build a positive credit history that's not tied to your former spouse. Laying the groundwork now will pay dividends later when you want to apply for a car loan or mortgage.
Update Your Estate Planning
Who are your beneficiaries? Who is your executor? Who will take care of your children if you die while they're still minors? These are all things that you should have designated in your will -- and your answers will almost certainly change after a marital split.
"One of the most important things to rebuild [after divorce] is your estate plan," says Jason Sheinberg, an attorney at the San Diego Law Firm. "The marriage may end, but your children will always need to be protected. The kids still need to be protected from probate and other pitfalls that can come from a lack of an estate plan."
You should update your will -- plus any trusts, living wills, powers of attorney, health care proxies and other estate planning documents. It is important that you have an executor who will carry out your last wishes exactly as you want.
Update Your Beneficiary Designations
In the event of your death, you certainly won't want to have some of your assets go to the "wrong" person -- your ex, for example. So make sure your current wishes are known.
"Update the beneficiary designations on your retirement accounts, such as 401(k)s and IRAs, and on your life insurance policies, since your spouse is typically listed as your primary beneficiary," says Shomari Hearn, certified financial planner and vice president of the Palisades Hudson Financial Group in Ft. Lauderdale, Florida. "You want to avoid having these assets and benefits passing to your former spouse upon your death. Also [you should] retitle any assets you received in the settlement, such as bank accounts, your home and your vehicle, that were owned jointly into your sole name."
Life insurance policies and retirement plans skip probate because they are legal agreements with beneficiary designations. But you still must update your wishes by naming new beneficiaries, if that is what you choose. If the wrong person is named on those papers, it can be a costly and time-consuming mistake for your executor to fix.
Review Your Insurance Policies
In a similar vein, review all of your insurance policies to make sure your insurance covers the people and things you want, and that payouts will be made to the correct beneficiaries. It's unlikely you'll want your former spouse collecting your life insurance.
You should also make sure that you are not paying for health, disability, life and long-term care insurance on a former spouse, if you don't have to do so. Many of these policies are prepaid months in advance and are set to auto-renew.
The Financial Responsibility Is Now All Yours
In many families, one spouse typically pays the bills, invests for retirement and manages the accounts. The other is called the "out spouse," and they often have only a limited knowledge of where the household stood financially. But after a divorce, out spouses have to assume those responsibilities for themselves.
"Whether or not you were part of the financial decisions during the marriage, you are now 100 percent in charge of your financial future," says Wayne Zussman, founder and president of Triton Wealth Management. "Take control by developing the knowledge and skills to manage your finances effectively for the remainder of your life. Since you will now be 100 percent in control of your own finances, take ownership of what you have and protect those you need to, such as your children."
Your finances are like an onion. There are many layers that you have to peel. Don't forget these critical financial tasks after a divorce. It could cost you time, money and energy that you didn't need to waste if you take care of theme right away.
Are there other key money tasks to complete after a divorce? What other financial responsibilities are we forgetting?
Hank Coleman is the publisher of the personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter@MoneyQandA.
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