Divorce isn’t pleasant for anyone. The emotional, social and logistical burdens are heavy enough, and when you add the significant financial upheaval to the equation, it’s no wonder that divorce is one of the most stressful events in a person’s life. It’s listed as is No. 2 on the “Life Change Index Scale,” second only to the death of a spouse. Marital separation is No. 3 on the list.
A divorced individual needs an income increase of more than 30 percent, on average, to maintain the same standard of living he or she had prior to the divorce.
Both men and women experience financial loss after divorce, but women generally suffer more financial repercussions than men do. The financial burden is greatest during the first year after divorce. About one in five women fall into poverty as a result of divorce, about one in four lose their health insurance for a period of time after divorce and about one in three women who own a home and have children at home when they divorce lose their homes.
After divorce, most men experience a 10 to 40 percent drop in their standard of living. Child support and other divorce-related payments, a separate home or apartment and the possible loss of an ex-wife’s income add to the financial strain.
Here are four ways to rebuild financial confidence after a divorce.
1. Have a personalized financial plan in place
When we design personalized financial plans for our clients, we build in contingencies for unexpected expenses; that includes financial changes after a divorce. As the saying goes, “Plan for the worst, and hope for the best.”
An important part of planning ahead is setting aside money for this type of costly life transition. Having a plan buffers the financial fallout from divorce, which enables our clients to focus their energy on taking care of their children, making new housing arrangements, getting new health insurance in place and other important tasks.
If you enter divorce proceedings, we will ask you to reframe your long-term goals. With those in mind, as well as your short-term, immediate goals, we will review your portfolio and make all changes necessary to reflect your new marital status. This includes rebalancing and reallocating assets as needed and setting up a new budget.
Another benefit of having a financial plan already in place when divorce becomes a reality is that your finances will already be consolidated with one advisory team. Your financial advisor will already have a list of your debts, as well as the assets you and your spouse own, including checking and savings accounts, retirement accounts, real estate, art and other collectibles, jewelry, vehicles and investments. Having this important information already assembled will save you time and aggravation when you meet with a divorce lawyer.
A third important benefit of already having a financial plan and an advisory team to guide you is that, with all your financial accounts organized and in one place, it will be easier to review your beneficiary designations and to change them, if necessary.
2. Get a copy of your credit report
If you haven’t done so recently, it’s a good idea to order a copy of your credit report to make sure there are no debts you’re not aware of. You can receive a free credit report once a year; it includes your credit scores from Equifax, Experian and TransUnion, the three major credit-reporting agencies.
If you find that any fraudulent expenses have been charged to you, you’ll want to resolve them before your marital assets and debts are calculated.
3. Change your name legally, if applicable
If you want to change your name after divorce — for example, if you are a woman who wants to reclaim her maiden name — there are several steps to take.
First, you will need to either request the change in your final divorce decree or file a separate court-ordered name-change petition after the divorce is final. Once you have the court order, you will need to update your name on your Social Security card first and then your driver’s license, passport and other important government documents.
Next, contact your insurance provider(s) to update your name on your health, auto, life and other insurance policies. Also change your name on all your accounts and credit cards. Close any joint accounts immediately.
4. Explore new employment options
Our clients have experienced a wide range of work-related changes after divorce. In some cases, those who did not work outside the home before the divorce re-entered the workforce afterward. In other cases, one or both spouses changed jobs, and even professions.
Divorce doesn’t always result in a diminished work situation, however. It can be a positive catalyst for reinvention! We have many clients who have experienced positive changes in their work situations — and their lives in general — after getting divorced.
In many cases, leaving a dysfunctional marriage results in more free time and less stress, which enables people to become more engaged in their work. In some cases, people pursue or complete degrees or start new businesses after a divorce. As they redefine their personal goals, they are able to reevaluate their priorities and finally leave work situations that no longer serve them.
Another aspect of getting a fresh start after divorce is meeting new people or getting to know coworkers better. Having the time and capacity to forge new friendships, whether at work or outside the office, leads to a new source of emotional support and potential new social outlets.
Not surprisingly, people who have been unhappy in their marriages are more likely to experience renewed confidence and happiness after a divorce and an increased sense of control over their lives and decisions.
For many people, divorce is a much-welcome fresh start.
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Divorce is one life transition that can arise unexpectedly. We understand the complex changes that often result from divorce, from social and emotional anxiety to financial disruption. We are here to navigate all of it with you and to take steps that will help you restore your financial confidence. Please don’t hesitate to contact us if you want to have a confidential discussion about the ways your financial plan might change if you were to get a divorce.
