Throughout the divorce process, you’ll likely be busy reviewing everything from financial documents to court filings. You may be consumed with tasks like finding a new place to live or going through various evaluations. It’s easy to lose track of the financial next steps you must take to protect yourself and your financial future during this time.
That’s why we created this post-divorce financial to-do list and we hope it helps you organize the necessary tasks you must complete to start this part of your life off on the right financial foot.
- Close joint accounts and credit cards
For financial protection, it is imperative that all joint accounts are closed. If you attempt just to remove your ex-spouse and leave accounts open, you risk potential future mishaps, whether intended or unintended, from a disgruntled ex-spouse. It’s best to close all accounts and credit cards that have previously been joint, and start over. However, before you do so, check your credit score because closing accounts could impact it. Take note of your current credit score, which should not be affected directly by your spouse’s credit history, and work with a financial professional to make a plan to improve it if needed. Getting professional input to improve your credit score is especially important if you need to qualify for a new home or auto loan on your own. Speaking with a mortgage lender who specializes in divorce is also very important before closing accounts if refinancing or a new home purchase is on the horizon.
- Open new accounts and credit cards
Of course, after your close accounts, it’s time to open new ones. Be sure not to use any previous passwords from any old accounts (including passwords from insurance policies, retirement accounts, cell phone plans, email accounts, etc.) to guarantee that your ex-spouse cannot access your accounts. As you open new accounts, it is a great time to begin saving six months of expenses as an emergency fund since you’ll no longer be part of a dual-income household.
For financial protection, it is imperative that all joint accounts are closed. If you attempt just to remove your ex-spouse and leave accounts open, you risk potential future mishaps, whether intended or unintended, from a disgruntled ex-spouse. It’s best to close all accounts and credit cards that have previously been joint, and start over. However, before you do so, check your credit score because closing accounts could impact it. Take note of your current credit score, which should not be affected directly by your spouse’s credit history, and work with a financial professional to make a plan to improve it if needed. Getting professional input to improve your credit score is especially important if you need to qualify for a new home or auto loan on your own. Speaking with a mortgage lender who specializes in divorce is also very important before closing accounts if refinancing or a new home purchase is on the horizon.
- Update information on insurance policies wills, titles, and trusts
Of course, after your close accounts, it’s time to open new ones. Be sure not to use any previous passwords from any old accounts (including passwords from insurance policies, retirement accounts, cell phone plans, email accounts, etc.) to guarantee that your ex-spouse cannot access your accounts. As you open new accounts, it is a great time to begin saving six months of expenses as an emergency fund since you’ll no longer be part of a dual-income household.
Just like your credit and bank accounts, be sure to update all insurance policies and remove your spouse. This includes home, life, and auto policies. This change might afford you the opportunity to renegotiate costs as you reduce the liability of two people on these policies to just one. As you agree to new policies, it’s also a great time to update assets on your home insurance policy consistent with the division of property.
It’s crucial to update beneficiaries on insurance, retirement accounts, or any ‘payable on death’ instructions. This can also be done earlier in the divorce process as proactive protection. You also must update titles on cars and homes aligned with your property settlement. Auto titles can be changed at the DMV and your home can be retitled at the county recorder’s office. Other critical, related tasks include:
- Choosing a new financial power of attorney
- Updating wills, estate plans, trusts, etc.
- Updating medical directives and living wills
As you are reviewing insurance policies, it’s important to consider disability insurance since you no longer have dual incomes. Inquire about options with your life insurance policyholder. As a reminder, protect your account logins with new passwords to ensure your ex-spouse cannot access your accounts.
- Split and update retirement accounts
Based on your settlement agreement, ensure new retirement accounts are set up in your name and take time to meet with a financial advisor to reallocate investments according to your age, risk, and retirement goals. We encourage you to find a different advisor than the one you used with your ex-spouse for privacy reasons and to ensure that your financial team is truly aligned with your interests. Once again, don’t forget to update all account credentials to ensure your ex-spouse cannot access your accounts.
- Review tax withholdings
Your tax obligations will likely change post-divorce and now is a perfect time to review your tax situation with a professional. Often adjustments need to be made to minimize taxes owed. This, more than other post-divorce financial to-dos, can be a headache if not addressed sooner then later. Make sure to reevaluate your tax liability, withholdings, and changes to investments so you don’t end up with a surprise tax bill during tax season.
- Create a budget
Taking control of your new financial reality is empowering. Financial concerns and uncertainty can be alleviated by outlining income and obligations in a budget. Knowing what to expect and putting limits on your spending can help you build confidence in your new financial reality. There are dozens of programs out there that make this easy and your financial planner can share more about budgeting strategies based on your unique financial goals.
- Establish a new financial team
Chances are that your ex-spouse had a say in choosing your financial planner and investment strategy. Now is the best time to start fresh with a new financial team that better aligns with your current needs, goals, and who understands the financial complexities of post-divorce issues. Interview a handful of financial advisors to understand their experience working with clients just like you and choose one you can trust with your future financial success.
At A.M. Financial, we can help you build a new financial picture and work alongside you to understand your best financial situation, now and in the future. We specialize in post-divorce financial support. Contact us for a free consultation.