Divorce has Occurred, yet Financial Duties Continue: A Step-by-Step Guide to Five Financial Chores to Tackle Immediately
**Rebuilding Financial Independence After Divorce: A Comprehensive Guide**
Divorce can be a challenging time, and managing finances is no exception. To navigate this period effectively and secure a solid financial future, it's crucial to take deliberate steps. Here's a guide to help you through the process.
**1. Conduct a Full-Scale Financial Audit**
Start by inventorying all assets, including real estate, businesses, investments, executive compensation, pensions, and other financial assets. To ensure complete transparency and accuracy, consider engaging a forensic accountant or a divorce-focused financial analyst.
**2. Assemble a Financial Advisory Team**
Building a strong team is essential. This may include a divorce financial planner, a family law attorney, a private wealth advisor, a tax strategist, and a Certified Divorce Financial Analyst (CDFA). These experts, who never pay for inclusion on the site, have certifications such as CFP®, ChFC®, IAR, AIF®, and more.
**3. Reassess Lifestyle and Liquidity**
Analyze your sustainable lifestyle, taking into account your new income or settlement terms. Factor in alimony, trust income, or portfolio withdrawals in your financial calculations. Assess whether keeping large assets (e.g., homes, art) is practical and financially sustainable.
**4. Create a Comprehensive Financial Plan**
Develop a tailored budget, set financial goals, and manage debt effectively. Consider hiring a financial planner who specializes in working with divorced individuals to avoid potential financial missteps.
**5. Update Estate Planning and Beneficiary Designations**
Ensure your wills reflect your new marital status and update life insurance and retirement accounts to maintain their separate status.
**6. Implement Key Financial Practices**
Avoid overspending, manage cash flow, and close joint bank accounts after the divorce is finalized. Establishing a new routine takes a couple of years post-divorce, so it's important to maintain a budget and keep track of all financial obligations.
**7. Divide Qualified Retirement Plans**
QDROs are required for dividing qualified retirement plans governed by ERISA, such as 401(k)s and 403(b)s. Submit the QDRO to the plan for review and approval before it is submitted to the judge. QDROs help avoid a 10% penalty on early withdrawals and give the alternate payee full control of their portion. Hiring an attorney who specializes in QDROs is highly recommended.
**8. Consider Additional Financial Strategies**
Consider leveraging online bank accounts for higher yields, and if you choose to move forward with a new financial adviser, you will need to transition your accounts under their management.
Remember, approximately 41% of first marriages end in divorce, and studies suggest women's household income generally drops between 23% and 40% in the year after a divorce. A recent study found that almost 95% of women in the U.S. do not consult a financial professional during divorce. By following these steps and seeking professional guidance, you can build a solid financial foundation for the future.
- In the context of rebuilding financial independence after divorce, it's advisable to seek the assistance of a financial planner specializing in working with divorced individuals, to help avoid potential financial missteps as you create a tailored budget, set financial goals, and manage debt effectively.
- To further secure a solid financial future post-divorce, consider leveraging online bank accounts for higher yields and exploring additional financial strategies, such as consulting with an attorney who specializes in QDROs for dividing qualified retirement plans, like 401(k)s and 403(b)s.
