Part One: Immediate Needs
There is a great deal of intersection between family and estate planning law. A dissolution of a marriage changes many aspects of life and thoughtful consideration of ones financial status moving forward is essential, especially if you eventually remarry and have minor children. There are many ways you can protect yourself during and after this life-changing transition. Although uncertainty is an inevitable part of divorce, it does not have to be an inevitable part of estate planning. Understanding and being informed of your financial and legal options moving forward is the first step to reestablishing your financial future, post-divorce.
If you have children, your first and foremost priority is taking care of them and making sure they are healthy, mentally and physically. Your lives have changed. Your children now have a parenting plan, and possibly two new homes to adjust to. ou may have moved, or your spouse may have moved out, and your home is different now. During your divorce, all of your joint assets and debts were divided.Maybe you had to sell your home and split the equity or maybe you are now renting. Your furniture has likely been divided up . Maybe you had to open a new individual bank account.Moving forward, everything you purchase is no longer jointly owned with a spouse.
Your household income and cost of living will likely have drastically changed.
To help alleviate all of the change, here are some general ideas to help you with this transition and begin planning for life after divorce.
1. Consider having a cooling-off period where no major financial decisions are made. Although divorce requires many life changes, it may often be advisable to hold off on making any major financial decisions. This gives you time to plan for your future and not rush into decisions based on emotions. Maybe don’t buy a new home quite yet, or use cash to buy big ticket items right away. Sit on these plans and make these decisions when you are fully accustomed to your new financial situation. Before any big purchases are made, be sure to speak to your lawyer.
2. Don’t be afraid to seek expert help. The financial challenges associated with divorce may be a significant cause of anxiety and stress for you. With all the emotional aspects of divorce, it may be essential to get advice from a neutral financial expert to ensure future success. Consider asking your attorney for a referral to a financial advisor who specializes in divorce and take full advantage of such expertise. Make sure you and your children have health insurance and if needed seek out an expert in navigating health insurance plans as well. Our firm has trusted relationships with experts in these areas and we are happy to provide referrals to our clients.
3. Understand your lifestyle changes can impact your finances. Many families struggle to survive on two paychecks. After divorce, you may now be living on yourincome alone. You may not have additional living expenses that you were not accustomed to paying for during your marriage, like taking over the mortgage or leasing a new apartment and the costs associated with moving. If you were out of the workforce during your marriage, returning to the workforce may require additionalexpenses like day care for the children, lunches out, additional car expenses, gas and car maintenance, and maybe the purchase of new work clothes. Consider monitoring your cash flow situation monthly for a while to determine if and how it has changed, and if you need to, adjust your spending habits.
4. And above all, don’t forget about your physical and mental health and self care! Reengage with trusted friends, family and experts you may have lost contact with during your marriage, to help you build a strong support system during this time of transition and change in your life. As important as taking a cooling off period before making any major financial decisions, be sure to take time to assess and evaluate your health and mental wellbeing. Be good to yourself!
Here are some additional financial matters that will require your immediate attention:
Settlement Funds and Retirement Accounts
Perhaps you received a divorce settlement from the marital estate. You may have split retirement accounts, proceeds from the sale of the house, or other marital assets and now need advice on how to invest it. Financial and tax counseling can help you make sound decisions on how to invest your settlement.
Retirement accounts in particular represent an additional “bonus” as split marital assets, because of the tax deferral benefit they allowand therefore require special care. In some circumstances, the IRS may allow distributions from certain types of retirement accounts that are free from the 10% penalty for early withdrawal, if accessed in the correct time period. Income tax is still required to be paid, so if you have to make such withdrawals, be certain to set aside additional funds to pay taxes. It may also be advantageous to roll over a marital-settlement retirement account to another account in your name. Again, it is important to consult your financial adviser and tax professional for advice and assistance on these essential retirement issues.
Establish a Financial Plan
So, if estate planning is a blueprint for when you pass away, financial and retirement planning is the blueprint for your life. Just like a personal trainer, a good financial planner will keep you on track. Start this planning as soon as possible after divorce, especially if your former spouse handled all of the financial planning during your marriage. Now is a good time to engage in planning for your financial future!
Change past relationships
If your financial matters are still in the hands of your former partner’s financial service provider, consider making a switch. It’s good to get a fresh start, not only for yourself personally, but for your finances as well.
Pay attention to your debt and your credit score:
- Consider automatic payments: Auto financing, credit cards, and other large monthly payments will stay on track with direct debit from an appropriate bank account. This will go a long way to preserve or rebuild your credit. Missing a payment can be detrimental to your credit score and may result in additional fees or an increase in your annual percentage rate.
- Check your redit: You probably did this during your divorce case, but confirm that all jointly held credit cards are paid off. Write a letter to those companies disclosing the divorce. You might be tempted to simply close all former accounts and start afresh. Don’t. Closing accounts will actually lower your FICO score as this reduces your available credit capacity. Your credit score should be valued as an integral part of your financial portfolio. It will certainly dictate the interest rates you are qualified for on credit cards and mortgage loans, and it can also aid you in securing lower premiums for car and home insurance.
- Stay alert: Follow up on agreements made in your divorce agreement. If your former spouse was ordered to be paying a debt that your name is still associated with, make sure they are paying that debt. Even though your divorce decree says they are responsible, the creditors will continue to hold you liable until the debt is resolved.
In Part Two of this blog, we will discuss additional financial and legal steps you can take as you move forward with your life after divorce. And as always, The Harris Law Firm is ready to help you during this transition time and provide you with the services you need begin anew!