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You’ve Received Your Divorce Settlement – What Next?


The divorce is final, and you are fortunate. You have received your share of your marital assets. What do you do next? Did you know that many divorcing people may burn through their settlement money at a rapid rate? Without up-front thought, many individuals may end up with almost none of the settlement remaining after two years. Worse yet, some may accrue even more debt than they started single life with. And these financial concerns are just one part of many common personal challenges associated with divorce.

The reasons for such financial challenges may vary. A divorce can be stressful, and some individuals may use money to help them with the emotional turmoil. Others may struggle to budget and afford a similar lifestyle without two marital incomes. Regardless of how good the divorce settlement may be, it is expensive to transition from one household to two. How can you avoid the financial struggles that burden many divorcing families?

Take the time to review the following areas and begin planning for you future.

  • 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 the individuals time to plan for their future and not rush into decisions based on emotions.
  • Don’t be afraid to seek expert help. The financial challenges associated with divorce may be a significant cause of anxiety in many divorcing individuals. With all the emotional aspects of divorce, it may be essential to get advice from a neutral financial expert to ensure that you are set up for success. Consider asking your attorney for a referral to financial advisor who specializes in divorce and take full advantage of such expertise.
  • Understand your lifestyle changes can impact your finances. Many couples have found that it is difficult to live on two paychecks, and with a divorce, each will be living on a single paycheck, with some duplicated living expenses (two mortgages or rent payments, two telephone bills, etc.) Returning to the workforce may require day care expenses for the children, lunches out, additional car expenses, and purchase of additional work clothes. Consider monitoring your cash flow situation monthly to determine if it has changed, and if you need to adjust your spending habits.
  • Taxes can play a large role in finances. You will want to contact your tax consultant to determine if your income tax withholding should change, based on your marital status, credits for children (if any), etc. Discuss how much you will owe with your tax consultant and be certain to set aside an appropriate amount to cover this expense.
  • Retirement accounts represent an additional “bonus” because of the tax deferral benefit. These are very valuable assets and because of the tax implications, 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 made such withdrawals, be certain to set aside additional funds to pay taxes. It may also be advantageous to roll over the retirement accounts to another account. It is important to consult your financial adviser and tax professional for advice and assistance on these essential retirement issues.
  • Growing your money is even more important after the divorce. Because you likely have only one income on which to rely, it is important to ensure that your current funds are working for you. Additionally, most agree that planning for your retirement is critical. While it is natural to be concerned about the short term, planning for your future is at least as important! If you don’t have the knowledge about investing, take classes, read books, do research, or ask for help from your financial advisor.

Getting a divorce entails a significant amount of work and financial assessment. Do not hesitate to ask your attorney for referrals to a financial advisor who specializes in divorce. Using your attorney’s legal expertise and advice from your tax and financial specialists will ensure that you are now on the path to a successful future and make the best our of your divorce settlement!