Divorce is an emotional process and a complicated financial transaction. The decisions you make about separating accounts, liquidating real estate and negotiating spousal and child support can have long-term financial impacts. To achieve financial security post-divorce, prioritize these six money moves.
1. Establish an after-divorce budget
Splitting the household means losing an income. In many cases, women earn less and are forced to stretch their dollars further. Research shows that women experience a decline in income when their marriages end. Each person will likely be responsible for their individual living expenses, including mortgage or rent, utilities, loans and other living expenses. If you’ve not actively managed the finances in the past, work to create a budget and, if needed, make adjustments to your lifestyle to help you stay within your budget.
2. Open new accounts
Forty-two percent of couples have joint bank accounts. Joint credit card accounts or lines of credit are also common. You’ll need to close joint accounts and open new checking and savings accounts in just your name. Compare different accounts for fees, minimum balance requirements and interest rates before opening a new account.
3. Check your credit report
Although marital status has no impact on credit score, your ex could still impact your credit score, which affects everything from your ability to qualify for a loan to your interest rates. Close all joint accounts and order your credit report to make sure no new accounts are opened in your name. The three major credit bureaus (Experian, TransUnion and Equifax) are required to provide one free credit report every 12 months. Address any issues, including inaccuracies or unauthorized new accounts, immediately to maintain a good credit rating.
4. Confirm insurance coverage
Families often share a single health insurance plan. In fact, 24 percent of women and 14 percent of men are covered as dependents through their partners. A divorce could cause you to lose coverage. How much longer your coverage will last following divorce will vary by insurance provider, so be sure to check with yours. You will want to sign up for new insurance before losing your current plan. Make sure to secure auto and homeowners (or rental) insurance, during this life change. Also, consider changing your life insurance if necessary, perhaps altering your beneficiaries to children, other family members, guardians or even a charity. Talk to your Farm Bureau agent about changing your coverage.
5. Evaluate your estate plans
You’ll need a new will, durable power of attorney and healthcare power of attorney to ensure that all of your assets are divided according to your wishes. The beneficiaries on investment accounts, such as your 401(k), should also be updated. If you have children, you’ll need to discuss new guardianship designations with your ex-spouse.
6. Get professional advice
The financial implications of divorce range from losing a second income and dividing savings and finances to establishing new accounts — and that can be overwhelming to tackle solo. A financial planner can help take the guesswork out of managing your money and help you make sound financial decisions after your divorce. Talking with an accountant is also important. After a divorce, your tax status changes to single, and that can trigger new deductions. It may also require changes to your current withholdings. Though you may be single now, that doesn’t mean you have to fly solo when it comes to your finances.
The money choices you make following a divorce can help set you up for financial security on your own terms. Set aside the time to tackle a financial to-do list now and reap the rewards long into the future. Your Farm Bureau agent can help you navigate through the insurance and financial implications when you and your spouse part ways.
Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.