Financial Planning After a Divorce: Your Comprehensive Checklist

There's no doubt about it — going through a divorce can be an emotionally trying time. Ironing out a divorce settlement, attending various court hearings and dealing with competing attorneys can all weigh heavily on the parties involved.

In addition to the emotional impact a divorce can have, it's important to be aware of how your financial position will be impacted. Now, more than ever, you need to make sure that your finances are on the right track. You will then be able to put the past behind you and set in place the building blocks that can be the foundation for your new financial future.

Immediate Steps After a Divorce

Dealing with finances after divorce can be daunting. Here are five steps you can take immediately to ease the burden of divorce and finances. 

Close Joint Accounts

Joint bank accounts can become a financial liability. You may have combined finances in ways you’ve forgotten about. Consider closing your joint bank accounts, credit cards and any other combined finances you have and opening new, independent accounts. 

Request Your Credit Report

Your credit report can be a great way to get a look into your financial health. Getting divorced may have a negative, or positive, impact on your credit score. Pulling and analyzing your credit report is recommended to check for any inaccuracies and evaluate the impacts of divorce. This is also a good time to change passwords and PINs on any remaining credit accounts and to protect your identity and information, such as your social security number. 

Change Your Beneficiaries

After a divorce, you'll want to change the beneficiary designations on any life insurance policies, retirement accounts, and bank or credit union accounts you may have in place. Keep in mind that a divorce settlement may require you to keep a former spouse as a beneficiary on a policy, in which case you cannot change the beneficiary designation.

This is also a good time to make a will or update your existing one to reflect your new status. Make sure that your former spouse isn't still named as a personal representative, successor trustee, beneficiary or holder of a power of attorney in any of your estate planning documents.

Update Your Insurance Policies

Typically, insurance coverage for one or both spouses is negotiated as part of a divorce settlement. However, you may have additional insurance needs that go beyond that which you were able to obtain through your divorce settlement.

When it comes to health insurance, having adequate coverage is a priority. Unless your divorce settlement requires your spouse to provide you with health coverage, one option is to obtain temporary health insurance coverage. Another option is to purchase individual coverage or, if you're employed, coverage through your employer.

Now that you're on your own, you'll also want to make sure that your disability income and life insurance coverage matches your current needs. This is especially true if you are reentering the workforce or if you're the custodial parent of your children.

Finally, make sure that your property insurance coverage is updated. Any applicable property insurance policies may need to be modified or rewritten in order to reflect separate property that may have resulted from your divorce.

Raise Cash

The divorce process can bring out expenses such as legal fees and debts. If needed, consider using funds from sources such as your retirement accounts, your life insurance policy, a home equity loan or your savings account. Additionally, if you have the means, consider starting an emergency fund to save for the unexpected. 

Short-Term Financial Tasks After Divorce 

Looking at the next few months after this life-changing event, consider doing divorce financial planning in these three areas. 

Update Your Budget

Chances are your budget has been affected by your divorce. Creating or updating a budget that reflects your current income without your spouse’s contribution, any alimony or child support payments, living expenses and other bills can give you a good look into making financial decisions within your means. 

Settle Legalities

If you are planning on pursuing a legal name change after your divorce, it’s important to update your name on all bank accounts, real estate and mortgages, your license and mail. 

Consider Tax Implications

After a divorce, filing your taxes will look different. Your sources of income, filing status and the credits and/or deductions for which you qualify may all be affected.

In addition to your regular salary and wages, you may have new sources of income after your divorce, such as alimony and/or child support.

Your tax filing status will also change. Filing status is determined as of the last day of the tax year (December 31). This means that even if you were divorced on December 31, you would, for tax purposes, be considered divorced for that entire year.

Finally, if you have children, and depending on whether you are the custodial parent, you may be eligible to claim certain credits and deductions. These could include the child tax credit and the credit for child and dependent care expenses, along with college-related tax credits and deductions. Ask a tax professional for information on your individual situation.

Ongoing Financial Planning After Divorce

Financial experts estimate that it can take up to five years to recover financially from a divorce. Once the dust settles from your divorce and you can relax a bit, there are ongoing financial decisions that you can consider to take care of yourself financially after divorce. 

Cash Flow Planning

There’s a chance that your finances will look different after your divorce. Looking for ways to adjust your cash flow can help you when you review and update your financial plan. This could include increasing your cash reserves, replacing funds used during the divorce, strategizing based on your income or payments you have. 

Reprioritize Your Financial Goals

Prior to your divorce, you likely had long-term financial goals. Don’t give up on those! With financial planning, you can look at your current situation and what room you have to invest in your future. 

Reevaluate Your Investment Strategy

While you reprioritize your financial goals, this is a good time to reevaluate your investments as well. There are resources available to help you if you’re looking to get started, including how to invest to achieve financial goals. No matter how involved you’ve been with your investment goals in the past, rest assured that leaning on a financial advisor can help you achieve what you want. 

Help When You Need It

Sorting through your finances after divorce can be daunting. Although it can certainly be done on your own, you may want to consider consulting a financial professional to assist you in adjusting to your new financial life. In addition to helping you assess your needs after divorce, a financial advisor can work with you to develop a plan designed to help you address your financial goals, make recommendations about specific products and services, and monitor and adjust your plan as needed