Rebuilding finances after divorce can be overwhelming. Now that the legal aspect of divorce is finally over, you might be adjusting to a new financial landscape, perhaps with child support or alimony in the mix, or dealing with a single income after having previously managed joint accounts and investments. It’s a significant shift, and figuring out how to manage your finances effectively in this new phase is not only crucial but necessary.

Key Takeaways

Optimizing Assets through Organization: Bringing order to your assets allows them to shine brighter, providing clarity on what you possess and how best to leverage these resources.
Clarity through Goal Setting: Establishing clear objectives simplifies the pathway to achieving them, aiding in planning and execution.
Budgeting with Purpose: Crafting a post-divorce budget is essential as you embark on your new financial journey. Establishing a budget not only instills discipline but also empowers you by aligning your finances with specific financial goals.
Income after Divorce: Understanding post-divorce income sources, like Social Security benefits, can be complex. To prevent expensive mistakes, consider seeking professional guidance.
Strategic Investments: Align your investments with your future goals and timeline to avoid unnecessary risks and invest purposefully.

1: Organize Your Post-Divorce Finances.

Although you likely sorted through stacks of financial documents during your divorce proceedings, it’s important to revisit and organize your finances anew. Frequently, financial affidavits contain inaccuracies, particularly if they were completed without the guidance of a qualified financial expert. Divorce attorneys primarily concentrate on the legal aspects of the separation, often relying on the financial affidavits submitted by their clients. This reliance can lead to incorrect assumptions due to initial inaccuracies. If you had a Certified Divorce Financial Analyst (CDFA®) on your team, it’s likely your assets are more organized compared to others in similar situations. If not, now is a great time to tidy up your finances and strive for a clearer understanding of your full financial picture. The more organized you are, the better you can optimize what you have. Whether it’s a piece of paper, an excel sheet, or an application that can help you organize your finances, let’s get started.

Key areas to organize:

Investments
Cash Equivalents (High-Yield Savings Accounts, CDs, Checking Accounts)
Real Estate Holdings
Business Interests
Pensions
Annuities
Life Insurance Policies

2: Define Your Post-Divorce Financial Goals.

Guess what? Divorce isn’t the finale; it’s the start of a whole new financial journey. Now, it’s time to focus on your retirement. If financial management wasn’t your forte in the past, consider teaming up with a Certified Financial Planner (CFP ®) or a Certified Divorce Financial Analyst (CDFA ®). A lot of women find that working with a divorce financial planner not only enhances their knowledge and competence but also bolsters their confidence. Additionally, planning for retirement post-divorce can bring immense peace of mind. Instead of uncertainty, you’ll have a clear vision of your financial future, ensuring your money works towards your financial independence, tailored to your terms. If setting goals seems daunting, don’t fret. It’s common. You might simply start sharing things such as ‘I just want more money,’ or ‘I don’t want to lose money.’ From there, you can always go deeper by asking what those mean to you. For example, if you are afraid of losing money, where is that coming from? What could happen if you lose money? Is it for a specific retirement age you have in mind? or to support a cause? Exploring the qualitative aspects of money and your financial goals by asking deeper questions can be incredibly beneficial. Clarifying your objectives is the key motivator to succeed in your financial life.

3: Establish a Post-Divorce Budget.

It’s a common misconception that post-divorce finances split evenly down the middle, but that’s rarely the case. Income might fall short while expenses tend to exceed expectations. While organizing financial accounts is crucial, it’s necessary to set up a budget to align your financial plan with your retirement or other future goals. Creating a budget instills discipline in your spending habits. It also offers a sense of confidence as you spend within predetermined limits based on your income, savings, and retirement goals. When budgeting, it’s beneficial to categorize expenses into fixed and discretionary. This division helps identify areas where you have flexibility versus those necessary for basic living expenses. Understanding this breakdown enables you to assess where you might compromise or save. When diving into budgeting, prioritizing goal setting is important. Defining your future objectives provides a clearer perspective on setting a budget that resonates with your financial targets.

4. Understand Your Income Sources.

Understanding your income sources is essential for effective budgeting and financial planning. It’s especially crucial if you’ve taken a career break and haven’t returned to work or were non-working during the marriage. Are you planning to re-enter the workforce or learn new skills for an entry-level position? How much can you earn and for how long? Having clarity on your present and future income stream facilitates better financial planning. It allows you to determine the funds required to sustain your lifestyle in the short and long term, aligning with your financial goals.

Let’s look into these income sources that are specific to post-divorce circumstances:

Spousal Support (Alimony)

Alimony serves as temporary financial assistance to bridge the gap for a lower-income or non-working spouse post-divorce. It’s intended to help until they become self-supporting, not to sustain the same pre-divorce lifestyle. For marriages lasting over 20 years, there might be the possibility of long-term support, but it’s not guaranteed. Court decisions can modify or terminate alimony at any time. In addition, depending on your state of residence, spousal support (alimony) received at the state level might still be taxable, even if it’s not taxable at the federal level.

Another significant post-divorce income source is Social Security benefits, yet navigating these benefits can be complex. Consulting a divorce professional who understands Social Security rules is crucial to avoid missing out on potential benefits. Check out our blog post, “a comprehensive guide to social security benefits after divorce”, if you want to gain deeper insights into Social Security benefits after divorce.

Ex-Spousal Benefit

You have options when it comes to Social Security after divorce. You may be entitled to half of your ex-spouse’s Primary Insurance Amount (PIA) at your full retirement age if it’s higher than your own worker’s benefit. It’s important to note that unlike your worker’s benefit, the ex-spousal benefit doesn’t increase past full retirement age, so there’s no need to defer it until age 70.

Certain criteria must be met to claim ex-spousal benefits:

Your ex-spouse must be alive.
The marriage lasted over 10 years.
You have not remarried, and any change in marital status must be reported to the Social Security office as benefits cease upon remarriage.
You are over the age of 62.

Survivor Benefit

If your ex-spouse has passed away, you may be eligible for their survivor benefit if you meet specific criteria. You have options regarding your own worker’s benefit and the survivor benefit accrued from your late ex-spouse.

One option is to switch to your own worker’s benefit once it becomes higher, typically at age 70, after receiving a stream of income from the survivor ex-spousal benefit. Alternatively, you can start receiving your own worker’s benefit as early as age 62 and then switch to the ex-spousal survivor benefit at your full retirement age.

Criteria for claiming survivor benefits from your late ex-spouse include:

Your ex-spouse is deceased.
The marriage lasted over 10 years.
You have reached age 60 (or 50 if you are disabled).
You have not remarried, or if you have, it was after you reached age 60. Note that this doesn’t apply if you applied for the survivor ex-spousal benefit before reaching age 60, even if you stayed with the same person.

5. Start Investing for Your Financial Future.

Women post divorce often lean towards being more risk-averse due to the emotional toll. This inclination might lead them to favor keeping their funds in cash, feeling overwhelmed and unsure amidst numerous choices and opinions. Collaborating with a Certified Divorce Financial Analyst (CDFA®) who grasps your situation is vital. If you weren’t previously handling the finances, navigating these decisions might seem daunting. Remember, investing doesn’t inherently mean high risk. Staying invested in a vehicle aligned with your long-term financial goals can help protect against consistent financial losses due to inflation. It’s possible to invest without engaging in speculative ventures, provided your divorce financial advisor such as a CDFA® understands your financial values and objectives. Consider inquiring about socially responsible portfolio options with your advisor if that aligns with your interests.

Final Takeaways

Empowerment in Financial Decision-Making: Embrace the journey of aligning your financial decisions with your values and goals. Identifying your own financial goals can feel empowering. Navigate your post-divorce finances with confidence and clarity.
Seek Professional Guidance: Look for a divorce financial planner with designations like CFP® or CDFA® for specialized expertise in post-divorce financial planning. Be sure to ask a lot of questions because qualified divorce professionals should be your advocates, who are willing to help you every step of the way.

Navigating finances post-divorce can feel overwhelming. When it all seems like too much to handle, seeking guidance from a competent professional can alleviate some of those worries. Divorce is undoubtedly challenging, but it’s also a chance for a new beginning where your voice and values take the lead in shaping your financial journey. If you’re seeking guidance for financial or retirement planning post-divorce, consider working with a Certified Divorce Financial Analyst (CDFA®). They are professionals with specialized knowledge in divorce matters, equipped to guide you through financial planning in this new phase of your life. These experts have undergone rigorous education, training, and significant experience, adhering to the highest ethical standards and acting as fiduciaries, prioritizing their clients’ needs above all else. Let’s work together to rebuild wealth after divorce.

Stay empowered and financially aligned.

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