Top 7 Financial To-Dos After a Divorce

You have just signed your divorce papers, and you are now ready to put all the stress of the long and complicated process behind you. Emotions ranging from relief and peace to sadness and anger, and likely fear and uncertainty, may be running through you. You know that you need to take steps to begin planning for the next chapter of your life, but where do you begin? What are the top priorities?

Here are our top seven financial to-dos after a divorce. Tackling these items will empower you to get started on a path toward financial confidence and independence.

Build Your Balance Sheet

First things first, you need to know what assets you have. This begins with building your personal balance sheet. Doing so will help you track what assets you own now and how they can serve to meet your long-term financial goals. It can be empowering to see the big picture of your net worth and think about how it will grow over time.

The best resource to compile your balance sheet is the marital separation agreement that you just signed. This document should include every asset and account (marital or individual) along with who is keeping it post-divorce. These assets include bank accounts, investment accounts, individual stock, retirement accounts, real estate, business interests, personal property and so much more. Remember to include any debt that you have taken on too, such as a mortgage, auto loan or credit card debt. Feel free to use our Women of Clarity™ resources to complete your personal balance sheet.

Retitle Assets

As part of the marital settlement, you may have received a portion of what was previously held in a joint bank account or investment account or even a portion of your spouse’s retirement account. Do not delay in moving these accounts/investments to new accounts opened in your individual name, preferably at a different financial institution to give yourself a fresh start. When you transfer the assets, make sure to keep records of the cost basis of your investments for income tax purposes.

If half of your spouse’s 401(k) is granted to you, consider rolling it over to an IRA instead of leaving it with your ex’s employer. You may also need to retitle other property such as automobiles, real estate, and partnership or business interests. The sooner you begin this process the less likely it is that something will be left behind. Once the assets are in your name, it’s ideal to work with a financial advisor who understands your needs and who can help you update your financial plan so that you aren’t relying on stale investments that may not suit you post-divorce.

Establish a New Budget

To begin designing your future, you should better understand your financial parameters first. In order to understand how much you can (or should) spend, assess all sources of monthly income available to you such as your earnings (net of all taxes), alimony, investment income, retirement income, etc. It is also important to identify which sources are fixed, such as salary and alimony, and which might fluctuate, such as commissions.

Once you have compiled your sources of income, determine the amount of your fixed monthly expenses (mortgage/rent, utilities, auto payments, insurance, etc.) as well as your variable monthly expenses (such as entertainment, dining out and travel). Be sure to factor in a monthly savings amount to help you continue to grow your wealth. We have a detailed cash flow worksheet that can assist with this exercise. If you would like us to send it to you, please reach out.

Rebalance Your Investment Portfolio

As you review your new balance sheet, you will likely notice that your account values are different than what they were before the divorce. You are now in control to make decisions on how to grow these assets while protecting your future. This can be intimidating at first, especially if your ex-spouse handled the investments in the past. It is helpful to have a professional financial advisor guide you through this part to incorporate current economic and market conditions in your decision-making.

When reviewing your investments, ask yourself the following: Do you know what investments you now own in the various accounts? What percentage of the portfolio is invested in stocks? Did you somehow end up with riskier investments than you would normally like? Are your accounts fully invested, or are they mostly in cash? After setting up a budget, rebalancing your investment portfolio is probably the most important step to get back on track for the long term. Depending on your stage of life, having an overly aggressive or overly conservative portfolio can put you at serious financial risk. Your financial advisor can help you identify how much risk you can afford to take.

Update Your Long-Term Financial Plan

With your budget now in place and your investments with just the right allocation, you should be all set, right? Not necessarily. You could have a five-star portfolio and a strict budget, but if your goals are not clearly identified, you are the equivalent of a ship in the ocean without a compass or a destination. If you have never developed a long-term plan, try reflecting on the purpose of your money and what you envision your future to be.

Having a long-term financial plan will let you know whether your expectations are attainable or whether some changes need to be made (i.e., change your retirement date or adjust your expected retirement lifestyle). The plan can be revisited every few years to see if any additional changes are needed or if circumstances have changed, making it necessary to revise your goals.

Review Your Beneficiaries/Estate Plan

As you start this process of getting your finances organized, now is the time to make a concerted effort to review your estate plan. Your last estate plan most likely named your ex as the beneficiary of your estate. This would need review and updating along with all your retirement accounts, pension benefits and life insurance policies. You should also work with an attorney to update your other estate planning documents such as your will, any trusts, health care proxy and power of attorney.

You may have already begun to make some changes as part of finalizing your divorce decree. However, now is the time to set up an appointment with a professional to help you see the whole picture, including any insurance, income tax and estate plan changes. Making these decisions can sometimes take longer than expected, so they should not be put off. It is wise to begin discussions now.

Check Your Personal Credit

Being independent can be very exciting, but part of being independent is having established credit for when you need a loan. It is possible that you do not have established credit because you were previously only an authorized user on your spouse’s credit card. That scenario is very different than having a card in your name, which contributes to your credit history and score over the years.

Not sure where you fall? Request a copy of your credit report with one of the three largest credit reporting agencies: Equifax, Experian or TransUnion. See which accounts are still reported as open and which have been closed. If you don’t have a credit history and need to start building one, make it a gradual process in obtaining credit. Don’t rush to apply for several credit cards at once, because this can have the opposite effect and actually reduce your credit score. Try waiting about six months between credit card applications.

What’s Ahead

Each of these areas play an important role in securing your financial future. Try not to let yourself get overwhelmed; take it one step at a time. Use this outline to create your detailed to-do list that includes specific items to address, then begin checking them off one by one. If you get stuck, have questions or need assistance, recruit the help of a professional financial advisor (look for the CFP® credential) to help you focus on the whole picture as well as help you navigate the more complicated details. The wealth advisors at Cerity Partners, as always, are here to help.

Perhaps the most important item is to not procrastinate. There is nothing more empowering than completing tasks that initially feel so daunting and require time and patience such as these—especially when it provides a clearer focus on what matters most and all that is ahead for you.

If any of these tasks seem too difficult to handle alone, recruit the help of a professional. Partner with someone you will trust to have your back in the future and get started today in planning the next chapter of your life.

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