Unless you have a bulletproof prenup – which I have been told does not exist – your finances after divorce change drastically. You either have to divide your assets, sell those that are illiquid, or change your residence. You have to revamp your budget, adjust your expenses and/or create new inflows. In short, getting through a divorce requires many personal and financial adjustments.
For those contemplating or in the midst of a divorce, stop for a second and think about the time before you were married: what were your hopes, dreams, goals and desires? How have they changed today? List these on a piece of paper and take your time evaluating each of them.
The key to a recovering successfully and achieving your current goals is to stay focused and have clarity. This can be achieved by taking the following steps:
Create a fresh new plan.
Start with a few realistic goals in mind for the next 12 months that will improve your life personally and financially. Next, break them down into a detailed action plan which must contain steps to toward their achievement and a deadlines. Now update your new net worth statement, listing your assets and liabilities with the new numbers and titles. After preparing the current net worth statement, update your cash flow with all the transition and non-transition expenses in the next 12 months. This task will be challenging but it will be a great opportunity to redefine your new personal and financial life to match your exciting new objectives.
Turn experiences into learning opportunities.
Evaluate each of your expenses – recurring and non-recurring – and determine if they need to be modified or eliminated. Some likely changes will be amount paid for the cell phone service, the car insurance and any automatic payment expenses. The less obvious and often overlooked tasks like cancelling joint credit cards (I recommend running a new credit report), updating life insurance beneficiary information and retirement beneficiary information should be undertaken. Also, don’t forget to review and, if necessary, update your healthcare coverage, employee benefits and estate planning documents. This is a great opportunity to organize and revamp your finances.
Surround yourself with a supporting financial team.
Next, match your goals to your net worth statement and cash flow planning. For example, if financial freedom at age 60 is your goal, evaluate how much you need, how much you have and how much can you put aside. It is essential to understand the universe of alternatives in your new financial world. Surrounding yourself with a supporting team of friends, family and advisers will be a key ingredient to your success. An important adviser who will help you tremendously in this time of transition is a Certified Financial Planner™ professional. You can go to LetsMakeaPlan.org to find a CFP® professional near your home.
The question of which ex-partner fares better or worse should not be focused on the dollars; it should really be focused on keeping the integrity of the family, and ideally at the end neither of the parties fares worse. Worse may be the person who fails to plan financially for the new life and opportunities that lie ahead.
Elaine King CFP®, CDFA™, partner and director of WE Family Offices, is an international author of two award winning books and Founder of Family and Money Matters Inc., http://www.ifaydi.com - a Latin America focused -socially responsible entity whose mission is to help families achieve financial well-being.