For every woman there is a different divorce story. Some have relatively amicable splits while others experience heartache at every turn. One piece of your own story that you can control is determining what your financial needs will be after the divorce. Decide what you need from your settlement and use tools, resources and a team of professionals to assist and support you in the process. This is one part you don’t have to face alone.
- have a budget
- work with an expert on a cash flow and a net worth projection
- understand tax consequences
- negotiate spousal support
- ensure you have both liquid and illiquid assets
- keep assets you can’t afford or maintain
- forget to protect your interest
- ignore estate planning
- fail to negotiate college planning
- assume that health insurance won’t be an issue
The best way to determine your financial needs after divorce is to have a detailed budget. Try to anticipate every expense that you might face in the coming years. Is your car starting to wear down? Are your children entering into the teenage years? These minor life events can spell big money, and it makes sense to be prepared. It will also help you establish during the negotiations whether you need more alimony, child support, or assets in order to remain financially stable.
A qualified Certified Divorce Financial Analyst (CDFA™) can create different cash flow scenarios based on proposed settlements and your current budget. In addition, they can offer projections on how your net worth will be impacted over time, depending on the settlements you are presented. Cash flow and net worth reports are excellent tools for seeing where you stand financially now and in the future.
When you are being presented with a financial settlement, ask questions and work with an expert to understand what the tax implications are of each proposal. For example, spousal support is generally taxable to the recipient and tax deductible to the payer. Don’t be surprised by a hefty tax bill at the end of the year that can take you backwards financially.
If you feel like you need time post-divorce to get yourself back on your feet financially, try to negotiate some support. Rehabilitative alimony often will look at what it costs for you to upgrade skills or go back to school. You can also work with a vocational counselor to help you transition into a new field. This type of alimony is usually time specific but is important if you need help in becoming financially self-sufficient.
Liquid assets are those that you can turn into cash quickly (retirement plans, brokerage accounts) and use to pay financial obligations and emergency costs as they arise. Illiquid assets such as homes, cars, and jewelry usually take time to convert into cash. Even if the division of marital property seems equal, don’t get stuck with assets that put you in a bind financially.
As you set about determining your financial needs post divorce, really look at the costs associated with assets that might need on-going upkeep or maintenance. Any financial shortfalls you can foresee now will allow you to either negotiate a different settlement or eliminate it from your list of wants.
Life insurance is critical in ensuring that any financial interests you have are protected – these interests include spousal or child support. Ensure that you are either named as the owner or irrevocable beneficiary of any life insurance policies. You can also request that duplicate statements be sent to you each month. You wouldn’t want your spouse to stop paying on a policy only to find out after their death.
As a single mother moving forward, you need to protect your children’s interests in case anything were to happen to you. This is the perfect time to take a look at your will and designated beneficiaries on accounts. Talk to an attorney about the options you have in making sure you can maintain control and that your wishes are carried out. It also makes sense to review your own life insurance policies and ensure that there is adequate coverage in place.
Your children’s future financial needs need to be analyzed and an agreement should be reached so that you aren’t scrambling later on. The more both parents can agree ahead of time, and develop an outline for saving, will help your children financially in their college years.
Most women lose their health insurance after divorce even if they qualify for COBRA. The cost of paying out of pocket for coverage can be prohibitively expensive. Check out your options, including the new state health exchanges, the Affordable Care Act, and factor in any costs out of pocket that you will need to pay for once your divorce is finalized. If you need dental or vision care, plan for those costs as well
Determining your financial needs post-divorce is a multi-step process, but can be made easier with the help of a team of professionals. Ask questions, ask for advice, and be open to different options. You are a strong woman and landing with a financially solid footing will make your transition into your new life a whole lot easier.