Financial Planning for the Recently Divorced

You have just gone through one of the most challenging and difficult periods that an individual can experience – a divorce. While many things may still be up in the air, one aspect of your life that you should make sure you’re in control of is your finances.

Financial planning for the recently divorced is not that much different than financial planning for married couples. Several basic elements are the same. However, the differences offer both good news and bad news. The good news: you can make plans and decisions based solely on your needs and goals. There won’t be miscommunication or conflicting ideas. The bad news: it’s all in your hands. Any mistakes will be your own and a poor decision can’t be salvaged by the income or assets of a partner.

The following post-divorce action plan offers a few things worth considering:

One way to counter the bad news is to find a trusted advisor to seek advice from.

After a divorce, friends are often split between spouses. Financial advisors can be the same way. If you lost yours in the divorce or never had one to begin with, it’s a good time to consider finding a professional who can help you make sound financial decisions for your new life.

To find one, start simply. Ask friends or acquaintances who it was that helped them when they went through a divorce. The attorney who handled your divorce may also be a good source for a referral.

Selecting the right financial advisor for you is a critical step. After all, this person will be helping you with the important financial decisions you now have to face.

Long-term care insurance may become even more important post-divorce.

Long-term care policies are designed to cover the costs of care if you are unable to care for yourself because of age or if you become ill or disabled. Long-term care is especially important for women because they typically pay more for it than men do. The reason is simple: women typically live longer than men and usually require longer care during those additional years.¹ 

A woman’s retirement is usually more expensive than a man’s.

The reason that women usually need long-term care insurance more than men is the same reason that retirement income planning for women may be more important. Women live – on average - 5 to 10 years longer than men. Eighty-five percent of people over 100 are women.² This means a woman’s retirement savings must, on average, be stretched out over a larger number of years.

While, in general, retirement planning for a single person is easier in many ways than for a couple, remember … you can no longer rely on a spouse's financial resources if a mistake is made. It’s important to review your social security estimates, any pensions you have and your retirement assets. You can then compare that to the kind of lifestyle you would like to have during retirement.

Because retirement may be more expensive, you may want to make an employer-sponsored retirement plan a larger deciding factor in any job search. Also, you may decide that you must retire at a later date than you had originally planned.

Update your beneficiaries and consider using a trust to help manage your assets. People often forget to update the beneficiaries of their life insurance and retirement accounts after a divorce. If not changed, your ex may stand to inherit a large portion of your assets. Also, the estate laws give certain breaks to married couples that are not available to a single person. Establishing the proper type of legal trust may be a way to pass along more of your assets to your heirs, rather than to the IRS.

Finally, after you have moved on from your divorce there may come a time when you consider remarriage. It’s important that you understand the financial effects this may have. If you were married longer than 10 years you may be collecting or entitled to 50% of your ex’s social security benefit. If you remarry you will no longer have that right. While you will become entitled to your new spouses benefit, you must know if your new spouses benefit will be lower or higher, and how that will affect your retirement.

Remarriage can also lead to blended families, blended assets and blended income. Your new spouse may have their own family from a previous relationship. We can help the two of you prepare for this blending that satisfies the financial needs of each of you, as well as your new family.

While it’s all in your hands, partnering with an advisor at Merit Wealth Management can help you move on to the next phase of your life with a more solid plan for your financial future.

1. http://www.wife.org/long-term-health-care.htm (2008)  

2. http://www.time.com/time/health/article/0,8599,1827162,00.html (August 6, 2008)

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. Copyright © 2011, Merit Wealth Management, LLC