Suddenly becoming single after a divorce can be overwhelming, both emotionally and financially. Statistics show that women who get divorced typically experience a drop in the level of lifestyle they lead. Whether you are currently in the process of obtaining a divorce or are newly divorced, here are some key mistakes to avoid in order to maintain control over your financial situation.
Not having a good divorce team: For a woman who is still in the process of getting divorced, it is critical to have key professionals as part of her divorce planning team. At a minimum, the team should include a family law attorney and a divorce financial planner. The financial planner should hold the specialized credential of Certified Divorce Financial Analyst™(CDFA). A CDFA™ can help you determine the short-term and long-term financial impact of proposed divorce settlements, offer valuable insight into the pros and cons of different settlement proposals, and help you avoid the common financial pitfalls of divorce.
Not knowing where you stand financially: Before you can move forward financially and put a plan in place, you need to organize and understand your expenses, savings, debt, etc. Understanding where you were prior to the divorce can help you see the whole picture and decide how assets can be potentially divided. This is the first step post-divorce so that you can start the rebuilding process.
Not creating a spending plan: Whether or not you are receiving spousal support, your income will be less than what it was when you were a couple. You need to know exactly what your income and expenses are in order to create a spending plan and set aside money for long-term goals such as retirement.
Not reviewing your insurance needs: Typically, any insurance would be included as part of the settlement agreement. However, coverage may not be adequate or none may be awarded. In either case, review your insurance needs. This includes health, life, disability, and property.
Not having an emergency fund: Since your household income has dropped, you need to build a cushion for emergencies. Typically, you should keep three to six months of living expenses in a liquid account, such as a savings or money market account, for emergencies.
Not reviewing your credit report: You need to know what is on your credit report and make sure you have credit in your own name. It is also important to close any joint credit card accounts. You do not want to be responsible for any additional debt incurred on any joint accounts after the divorce.
Not updating your estate plan: There have been horror stories about a divorcing spouse not changing their beneficiary designation on accounts and in the end their money went to the former spouse. Remember to update your will and/or trust and any beneficiary designations.
Not working with a financial planner: If you feel you need guidance to get on the right track financially, working with a CERTIFIED FINANCIAL PLANNER™ professional can be beneficial. A CFP® professional is dedicated to using the financial planning process to serve your financial needs. A CFP® professional can help you identify and set realistic goals, and then design and implement a plan to help you stay on track to meet your long-term financial needs.
Not taking care of yourself emotionally: This is not a financial step per se, but emotions can affect your decision making. Divorce can be a stressful time. You need to have emotional support to lean on, such as friends, family, or a professional, so that you can keep your feelings out of your financial decisions related to the divorce.
Although suddenly becoming single can be difficult both financially and emotionally, taking these key steps can help you get back on your feet as quickly as possible.
Pamela Plick is a member of the DailyWorth Connect program. Read more about the program here.