7 Tips for Managing Your Money If You’re Newly Divorced
In today’s “Financially Savvy Female” column, we’re sharing advice for women who may be handling their finances for the first time in many years — or ever — after going through a breakup or divorce. According to a report by UBS, just 20% of couples participate equally in financial decisions, with 7 in 10 men taking the lead on long-term financial decisions. However, 90% of women will manage assets on their own at some point in their lifetime. If you are now finding yourself having to navigate your finances without a partner, it can be overwhelming — but here’s how experts say you should start.
Keep Up With the Latest: Sign Up for The Financially Savvy Female Newsletter
Become Educated About Your Personal Finances
Taking a careful look at your current financial situation will enable you to make more sound decisions about your money.
Helpful: How To Handle the Financial Pressure of Being the Sole Breadwinner
Find Out: The Biggest Money Mistakes Women Make in Relationships
“Divorce is a stressful life change and diving into your finances can be overwhelming. Take a deep breath and understand that there are solutions to better your situation — starting with educating yourself,” said Celeste Revelli, CFP, director of financial planning at eMoney Advisor. “Organize your financial information with documents and online accounts. Conduct an asset and debt inventory to track your current finances. If you had a joint account with your partner, establish your own personal accounts — bank accounts, savings accounts, retirement accounts. Even if you start small, make sure to make contributions and build your nest egg.”
Build Up Your Own Credit
Having good credit is often necessary to take out loans for a home or car, so start establishing your own credit ASAP.
“Open your own low-interest credit or loan accounts if your credit is tied to assets and accounts you held jointly with your partner,” Revelli said. “Avoid accumulating debt by paying off these accounts in a timely manner. Watching your FICO score go up can be very rewarding.”
Establish Financial Goals
“Take control of your life by envisioning your ideal future,” Revelli said. “What do you hope to achieve in one year, five years and 10 years? Determine what will make you fulfilled and on the path to your desired retirement.”
Although you might be focused on the short term, it’s vital that you pay attention to your retirement plans.
“It is important to ensure your retirement savings goals can still be achieved after you transition from two incomes to one,” said Kristine Batch, senior vice president and senior regional delivery manager at UMB Bank. “See what percentage of your income you will need to save to cover your future expenses in retirement. It’s important to keep your long-term goals in mind.”
Create a Budget
“Your post-divorce budget should account for the changes to expense lines, inclusive of items that are more or less than before and adding categories that you might not have needed in the past,” said Jody D’Agostini, a certified divorce financial analyst with Equitable Advisors. “These may be work-related expenses, new housing costs, babysitting, and social and entertainment expenses for you to connect with your new life. There are many online apps that will let you track your spending so that you can more accurately assess your situation.”
Pay special attention to your fixed expenses, ensuring that these are still within your budget without your partner’s income.
“The most important decision is what your new housing should look like,” D’Agostini said. “All fixed costs should make sense with your new income — this could be employment income, alimony, child support, etc. If you are paying alimony and child support, then you need to add this to your expense line. Make sure that your new living arrangement fits into your new budget. You should include savings that may be necessary to fulfill your other goals such as education, retirement, etc.”
Find Out: 3 Alarming Ways Women Are Lagging Behind Men When It Comes to Their Finances
Creating a budget can help ensure you don’t overspend right off the bat.
“Generally, in the year after divorce or newly single, there is some comfort spending,” D’Agostini said. “Some of it is to outfit a new home and construct a new life, and other spending is to compensate for the emotional stress of a divorce. In any case, decide what amount you want/can afford to commit towards this and do not overspend.”
Redo Your Will
“It is very important to redo your will, especially if you have minor children, so that your wishes for guardianship are expressed,” D’Agostini said. “It also spells out the disposition of assets. Since you are newly single, you need to appoint someone that can speak for you if you become medically incapacitated at any point. This is accomplished through a healthcare directive. You should also have a durable power of attorney to appoint someone to make legal and financial decisions should you become incapacitated. A living will might also make sense so that extraordinary measures are not taken at the end of life if you do not desire them.”
Update Your Insurance
“As with other life events, it is a good time to revisit your insurances, especially your life and disability insurance,” D’Agostini said. “Make sure you have the right amount of insurance for the desired time needed and for the right purpose. If you have taken on a new mortgage or are responsible for minor children, both are very important to be sure that you and your family are provided for. These amounts and timelines may have changed. You may need to increase your disability coverage if you are now the sole provider.”
Check Out: 2 Major Ways Student Debt Burden Is Robbing Women of Their Freedom
Consult a Financial Professional for Guidance
Navigating your finances can be tricky, especially if you are going through a divorce.
“Divorce can result in complicated decisions and processes including Qualified Domestic Relations Order (QDRO) for 401(k)s, understanding Social Security spousal benefits for those married 10-plus years, selling jointly owned property and assets, understanding alimony, determining estate planning ramifications and more,” Revelli said. “Getting help from a financial professional can decrease confusion and stress.”
In addition to consulting with a financial planner or advisor, you may also want to meet with an estate attorney and/or CPA, said Will Hullinger, founder at Verity Wealth Partners.
“I recommend assembling a team of people to guide and support you,” he said. “An estate attorney [can help you if] any previous documents need to be redrafted due to your new status. [You may also want to hire a] CPA because taxes are a reality and an area of opportunity to achieve or maintain wealth.”
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
More From GOBankingRates
- 8 Best New Items Coming to Dollar Tree in 2023
- What Is the State of Women & Money in 2023?
- Build Your Credit Score with These Simple Strategies
- Experts: 4 Safest Places To Keep Your Savings
