7 Tips to Help Get Back On Your Feet Financially After a Divorce
After a divorce, more than ever, you have to know what your priorities are and how you’ll pay for them.
Your life doesn’t end after a divorce. That sounds like something someone might say to cheer you up after your marriage ends, but it’s not rosy optimism. In fact, it’s a warning. While you’re no longer a married man, you’re still obligated to plan for the future. Now, more than ever, you have to know what your priorities are and how you’ll pay for them.
Taking a sober look at your finances can be daunting. And it may seem impossible after the emotionally draining ordeal of a divorce. Nonetheless, getting your post-divorce finances in order is a necessary part of building your new life.
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Roger Ma, financial planner and founder of the New York City financial advisement firm Lifelaidout said that one of the best things men can do post-divorce is to take stock of what they want and what they value.
“I think a divorce is a good time to take a step back, and build some self-awareness, and think back to your life, your relationship, even your job,” Ma said. “And get a better understanding of who you are, what makes you happy.”
That said, here are seven financial tips to keep in mind as you forge ahead after a divorce.
Refresh Your Budget
It’s crucial, per Ma, draw up a new budget for your post-divorce life. Look at your income and your fixed expenses and determine how much money you have left for your savings goals.
Even if you’re looking at a much different future than you expected, you still need to save for the future. You may want to marry again or buy a new house. Divorce doesn’t change your need to pay for your children’s education or plan for your retirement. Either on your own or with a financial planner’s help, make a new financial plan and expect that you’ll have to change your spending patterns. More on that below.
Manage Your Expectations
When you’re making a new financial roadmap for yourself, unfortunately, you have to count on having less money after your marriage than you had during it.
“Everybody walks away a divorce poorer than from the moment that they were together,” said Scott Trout, the Chief Executive Officer of Cordell & Cordell, a law firm specializing in men’s divorce and family law. “[Divorced men] are not going to be living the same lifestyle. There are no winners in divorce. There’s degrees of losing.”
Those degrees are going to come both in obvious and surprising forms. When you gearshift your life from marriage to post-marriage, you probably expect major expenses like attorney fees and spousal support. But you may be surprised at how much more you spend on day-to-day living expenses.
“If you think about the two people divorcing, their combined expenses are going to go up, since they’ll likely be living in different residences,” Ma said. “They probably were benefiting from economy, the scale of ordering or making food, health care coverage and more.”
Separate Every Account
You and our ex are no longer a couple. While that can take some time to accept, you need to inform your financial institutions as soon as possible. Your first post-divorce financial step is to close all your joint accounts, including banking, credit cards, insurance, wills and estate planning agreements.
“The first thing that I would do is cancel those joint credit cards, because you don’t want to be responsible for the other person’s debts now that they’re not your spouse,” Ma said.
Your ex is probably the beneficiary named in your will, your insurance policies and retirement accounts. The will involves attorneys, requires notarization and could involve witnesses, so it takes the most time, money and effort. Even after your ex is written out of your will, you still need to go through your individual accounts and change the beneficiary designation for each. Clearing his or her name from your insurance policies, annuities, 401-K, IRA and other accounts takes some time but it’s usually fairly straightforward. Just spend an hour or two editing your preferences on your financial institutions’ websites or call their customer service lines.
Pull Your Money Out of Shared Accounts, Fast
Trout said that one of the biggest mistakes he sees men in divorces make is leaving money in an account that their ex can easily access.
“If you choose to leave the money, all of it, in there, either your wife is going to be kind and generous and leave it in there for you both to use, or she’s going to take it all,” Trout said. “And what we typically see is that they take it all. Their attorney says take everything out of there, clean out the account.”
Get Your Name Off The Mortgage
When couples divorce, they often agree to sell the house and start anew. It’s usually the easiest and best option, particularly if you have equity in the home. However, your ex may decide to stay in the house or you may not be able to sell the home. If you agree to pay the mortgage, refinance to make sure your name isn’t on the document.
“Let’s say it’s your ex-spouse that got the house, and is going to take over the mortgage,” Ma said. “You don’t want to be on the hook for that.”
Automate Payments to (or From) Your Ex
We’ve all heard about the divorced guy ducking the ex’s attorney when he’s late on alimony or child support. Don’t be that guy. If you have to pay spousal support, make those payments happen in the most painless and predictable way possible. It cuts down on everybody’s stress, including yours. Ma recommended setting up automatic regular payments through your bank.
“Let’s say your ex-spouse owes you money,” Ma said. “You don’t want to have to waste time tracking them down every month. They might forget, and you might not get paid for several months. And that might severely impact your standard of living. On the flip side, if you’re paying support to your ex-spouse, instead of having to think about writing a check every month, it’ll make your life easier to just automate that process.”
Think You’ll Pay Alimony? Speed Up The Divorce. Receiving Alimony? Wait a Year
Spousal support payments used to have a silver lining. While the person receiving support were taxed on the income, the payments were tax deductible for the person providing support. Thanks to Donald Trump and Paul Ryan, that silver lining expires at the end of this year.
As CNBC reports, under the Tax Cuts and Jobs Act, alimony will no longer be deductible for the payer and taxes don’t need to be paid on it by the recipient for all divorces filed after Dec. 31, 2018. It’s a seismic shift in how shared property is divided up property and assets in divorce proceedings. Attorneys and accountants are scrambling to see how it will impact divorces once it takes effect.
“You know, we haven’t really seen the impact yet, because we’re just getting into it,” Trout said. “But I think it really was a disastrous result for divorced people.”