Planning Financial Issues Before and After Divorce
There are steps you can take to keep yourself financially afloat while you prepare to go it alone after a divorce or death of a spouse.
By Adriane G. Berg
Suddenly single sounds like a new TV sitcom, but for a person recently divorced or widowed, it’s an emotional -- and financial -- trauma.
Becoming single makes you the sole proprietor of what used to be a partnership. And whether or not that partnership was a success or a failure, it had its own style. Now, it's time to find your own way.
Allow yourself the freedom to leave your investments alone for at least three months. Haste in investing, whether buying or selling, is dangerous at this emotional time. Those who never handled their own money can become prey to an onslaught of well and sometimes ill-meaning advisers.
As soon as you feel up to it, start to plan your financial future. The steps outlined below should be followed as closely as possible in the order presented. It keeps things orderly, and it leaves the tough life choices for last, when you have put some distance between yourself and the pain.
Identify what worked and didn't work in the past
You can start with a clean slate. Stay the course with what worked; create your own system for what didn't. If the bills were always paid on time, keep it up. Perhaps that computer software made it all possible. If you never learned it, learn it now.
Find all important documents
The most important task is record-keeping. Don't lose track of your financial life. Once again, the computer is invaluable. Record-keeping includes bills, outstanding balances, investments and bank statements. Files must be kept up to date.
Start by gathering the 20 most important documents. Here are some of the documents you need to be able to get your hands on at a moment’s notice:
| Documents you need available | |
| Birth certificate | Social Security card |
| Life insurance polices | Other insurance polices |
| Stocks | Bonds |
| Mortgage documents | Deeds |
| Leases | Your will |
| Trust documents | Pension, profit-sharing and other retirement plans |
| Cemetery deeds | Employment contracts |
| Partnership agreements | Corporate buy-sell agreements |
| Divorce or separation agreements | Marriage contracts |
| Marriage certificate | Funeral arrangements |
Create a new income, expense and net worth statement
Compare income to expenses based on your new circumstances. If there is a shortfall, it's time to make a budget. If the picture looks rosy, its time to systematically save what you can in a money market fund, until your final investing strategy is set.
Write down (or preferably, enter into a spreadsheet) your assets and liabilities for an accurate view of your net worth. Once you have a picture of your assets and income, take a practical look at the daily tasks of money management.
Make a list of financial tasks
Most CEOs don't delegate a task until they know how to do it well themselves. It's fine to have your adult child, accountant or best friend balance your checkbook, if you're lucky enough to have the help. But don't pass off this task until you first understand what’s in your finances.Walk yourself through your financial week. Determine a procedure to pay bills, make deposits and withdrawals, pay taxes, and get weekly cash.
Clean up your credit
Get copies of your credit report. Clean up any errors in the reports. If an ex-spouse has credit problems, write a 100-word (or less) letter of explanation to the reporting agency as allowed under the Federal Fair Credit Reporting Act. Tell the service your situation, explain your hardship and that the credit problem was not caused by you.
Retitle your property
If you’re divorced, there was probably a distribution of property made either by agreement or ordered by the court. Either way, it should be clear who now owns the home, the accounts and other assets. Similarly, if you are widowed, a will probate may have made ownership clear. Hopefully, you planned the inheritance together.
Your attorney will likely change the title on deeds. But when it comes to brokerage accounts, insurance and other securities, you’ll probably have to do it. Go back to your asset list and gather the pertinent documents. Have at least 10 copies of the death certificate, letters testamentary or divorce order ready. You may also need a tax waiver, proving that all estate taxes were paid, if you are widowed.
Systematically contact all the institutions and custodians of accounts, and get the paperwork they require to transfer title.
Set your individual goals
All this work introduces you to your own money story. Once you realize how much you spend, receive, own and owe, it's time to make some lifestyle decisions. Do you want to move? Go back to school? Retire? Travel? Set your own financial goals.
Reassess your risk management needs, a code word for insurance
A much-neglected matter for the suddenly single is how much and what type of insurance you should have. You may have too much, if you're carrying life insurance. Or you may want to change beneficiaries. On the other hand, if you are now the sole supporter of a child, you'll want to increase your life insurance. If you support yourself by working, check out disability policies. It's the only way to remain independent if you can't work.
Consider professional help
Once you're sure you can cope with it all alone, think again. Financial advisers sometimes can find issues and help you achieve your goals in a more systematic approach than you can by yourself.
