As you can imagine, different life stages and circumstances can have a big impact on your financial plan. Sometimes life brings the unexpected and it can help to be aware of the different ways this can impact your financial picture, so you can adjust your plan accordingly.
Today, we’ll look at divorce and the financial implications that can come along with dissolving a marriage. Not surprisingly, divorce can be both emotionally and financially difficult for all parties involved, so being aware of the various ways it can impact your financial plan can help to prepare for the impact. As with any big change, we recommend discussing this with your financial advisor as soon as possible.
New Financial Obligations: Child Support or Alimony
For some, a divorce settlement may include the paying or receiving of child support or alimony payments. These regular payments may impact both your monthly budget as well as your long-term savings plan. The specifics of these payments should be communicated to your financial planner and considered when re-adjusting your financial plan.
Division of Property
Because a divorce or separation will most likely include the division or selling of joint property, it is important that you take an inventory of individual and joint assets, such as bank and brokerage accounts, retirement accounts, property, and insurance policies. Depending on whether you have a prenuptial agreement or not, much of how this is done will be determined by the laws of your states and the proceeds/losses or resulting property will need to be considered in your financial plan.
Updating Paperwork and Documents
Similarly, make sure to update your financial documents, accounts, and property titles to reflect your new situation and appoint a new proxy or signatory where relevant. Your financial planner and other professional services providers will be able provide guidance on how to make these updates.
If you are changing your name, take the necessary steps to legally make the update and prepare a checklist of all of the places that you need to notify including your employer, government agencies such as the DMV and Social Security, your personal accounts, and creditors.
Estate Planning, Insurance, Beneficiaries
Upon the dissolution of your marriage, you will also need to consider the impact on your long-term plan when it comes to estate planning, your trust and will, insurance policies, and the beneficiaries of your retirement accounts (IRAs, 401ks, etc.). It is important to update your estate plan to take into account your new situation and reflect your wishes.
Monitoring Your Credit Report
Additionally, be aware that closing accounts and opening new ones may also impact your credit score in the short-term. We recommend keeping an eye on your credit score to gauge the impact. Make sure that your credit report and the accounts reflected on them are accurate. As an example, you do not want an account that you are no longer affiliated with to still be reporting on your report.
Adjusting Your Short and Long-Term Goals
Once the changes that will happen to your finances and assets are known, you will want to refocus or your short and long-term financial goals. Although this change in marital status may not be a pleasant time, it is important that you do not to lose sight of yourself and discuss the financial implications and changes with your financial advisor. You should review everything from the effects address in entirety the ramifications this life change will have on your budget and emergency funds to the impact it will have on your long-term goals, such as retirement. Your financial planner will help you adjust your plan accordingly, so that you will stay on track for your goals.
Your financial advisor can help you plan for the many of the financial implications that you may face if you are going through the transition of a divorce.