By: Sentient Wealth Group
Divorce is one of life’s most challenging transitions—emotionally, mentally, and financially. When you add financial uncertainty to the mix, it can quickly feel overwhelming. Taking a proactive approach to managing your finances during a divorce can help you regain control and move forward with confidence.
Here are six key steps to help you preserve your financial well-being during and after your divorce.
1. Assess Your Finances and Create a New Budget
Before you can make smart financial decisions, you need a clear picture of where you stand. Start by assessing your income, expenses, assets, debts, retirement accounts, and insurance policies.
Next, create a realistic post-divorce budget that reflects your new financial situation. Include projected monthly expenses, potential support payments, and any one-time legal or relocation costs.
A solid budget provides a foundation for stability and helps you make informed choices as you transition to independent financial life.
2. Prioritize and Eliminate Shared Debts
One of the biggest financial pitfalls after divorce involves joint debts. Even if your divorce decree assigns certain debts to your former spouse, creditors can still hold both of you responsible.
If possible, pay off or refinance shared debts into individual accounts before finalizing the divorce. This protects your credit and prevents future issues if your ex-spouse misses payments.
Managing debts early can make a significant difference in your post-divorce financial recovery.
3. Divide Assets Thoughtfully and Strategically
When dividing marital assets, it’s about more than just splitting things 50/50. Each asset may carry different tax implications and liquidity considerations.
For example, a retirement account and a home with similar values aren’t equal in terms of accessibility or tax impact. A financial advisor can help you evaluate these differences to ensure your settlement is fair and supports your long-term goals.
Careful asset division can help you maintain stability and avoid unexpected financial burdens later.
4. Reevaluate Your Retirement Goals
Divorce can significantly impact your long-term financial plan. With assets divided and household income potentially reduced, your retirement strategy may need a fresh look.
Revisit your retirement accounts, contributions, and investment approach. You may need to adjust your savings rate or timeline to stay on track toward your goals.
A financial advisor experienced in retirement planning after divorce can help you create a realistic path forward based on your new circumstances.
5. Update Your Estate Plan and Beneficiaries
After a divorce, updating your estate planning documents is critical. In most cases, divorce does not automatically remove your former spouse as a beneficiary.
Review and update your will, trusts, power of attorney, and beneficiary designations for life insurance, annuities, and retirement accounts. This ensures your assets go where you intend—and prevents unwanted legal complications later.
6. Prepare a Financial “Plan B”
Divorce often comes with financial uncertainty, so it’s essential to plan for the unexpected. Maintain an emergency fund that covers three to six months of living expenses, including childcare and housing costs.
Ask your attorney about adding provisions in your divorce agreement to protect against missed support payments, such as wage garnishment or insurance requirements. Having a backup plan provides clarity as you rebuild your financial foundation.
Moving Forward: Financial Confidence After Divorce
While divorce can feel like starting over, it’s also an opportunity to rebuild your financial life on your own terms. By taking these steps, you can begin to create a plan that supports your short- and long-term goals.
If you’re navigating a divorce or have recently finalized one, let’s talk about how to preserve your finances and plan for your future with confidence.