Divorce and Finances: SMART Money Moves for Women AFTER Divorce
Stephanie McCullough, Founder and CEO of Sofia Financial, has seen a lot of clients who are dealing with divorce. In the article below, Stephanie shares tips on how women can make smart financial decisions after divorce.
You’re through it. You’re coming out the other end of what may have been a painful journey. It’s natural to feel a bit of trepidation about what lies ahead. The good news is: YOU are in charge now! You may still have to deal with joint custody or ongoing squabbles with your ex. But keep your eye on the positives. YOU get to choose what is most important to you. YOU get to make your own decisions in your own way.
What comes with that? You get full responsibility for yourself. Where you used to share decision-making, now it’s up to you. One the money side, for many couples it is still common for the man to take charge of long-term financial matters. Women may manage the household budget and make day-to-day buying decisions, but men often oversee things like retirement savings, investing, and life insurance.
Now all those things fall to your oversight. I want you to see this as a positive. Do not see these obligations as a burden. Instead, realize that they are opportunities to take constructive steps to secure your future financial well-being.
Quite possibly this is not your favorite topic. Money is always emotional because it’s intertwined with every aspect of our lives. Maybe you are convinced you’ll never have enough. You may feel you don’t know enough to make smart decisions. It can feel overwhelming and easier to just ignore.
No matter what the situation and how you’re feeling about it, please do not take the head-in-the-sand route. Your financial independence is a gift you do not want to squander. I’m here to help you through.
DO THESE THINGS FIRST
Here are five practical, tangible steps to take to set yourself on your path to financial security and controlling your future after your divorce.
1. UPDATE YOUR LEGAL DOCUMENTS
Be sure to update your will and other end-of-life documents. You probably need to name new people to key roles, including beneficiaries, executor, powers of attorney, designated healthcare decision-maker, and guardian of minor children if that applies. Don’t forget the beneficiary designations on life insurance and retirement accounts. These may be through employee benefits or items you own independently.
Doing some of this may mean writing a check to your lawyer (or finding a new one). No one likes to think about the end of their life. But it is so very important. Life is unpredictable, but with advance planning, we can avoid some unpleasant possibilities.
2. HAVE ENOUGH INSURANCE
If you are receiving support or alimony payments, hopefully, your divorce settlement includes a requirement that your ex maintains a life insurance policy with you as beneficiary. (Without it, if he dies before the time of your support payments is up, you could lose out.) However, many women miss the importance of their own insurance.
If you have minor children, you provide care (likely more than half even with joint custody!) and financial support if you’re working. Make sure they are protected if something happens to you. In your newly updated you will name a guardian for your kids: life insurance proceeds can make sure that guardian has the means to give your kids everything you would wish.
Think carefully about who to name as beneficiary. Insurance companies will not write a check to minor children, so you need to name an adult as custodian for your kids. This could be the person you named as guardian, or someone separate to oversee the money.
Don’t forget disability insurance. If your family depends on your paycheck, you need to protect that income. Do you have long-term disability insurance through your job? Good start, but you should have more. An individual policy usually has better contractual terms than group insurance, and you can keep it if you leave that employer.
3. KNOW YOUR BUDGET
If you are receiving a lump sum settlement, get a realistic picture of what that dollar figure can do for you. Will you need to use that money to cover your living expenses? If so, be sure you have a realistic idea of what level of income that lump sum can support, and how long it may last. Are you planning to use the money for retirement? Will that be sufficient, or will you need to save more?
Think carefully about how you will put the settlement money to work for you. Get good, objective advice and be wary of pushy salespeople. Know that you don’t have to do anything immediately. It’s perfectly fine for money to sit safely in the bank until you feel comfortable with a path forward.
4. FOCUS ON YOUR CAREER
If you’ve been working, continue your career development efforts. Think about options to increase your earnings. The greater your income, the greater your options – and the greater your Social Security benefits and chances to save for retirement.
If you’ve taken a break from the world of paid work, do not despair. While you may feel you can live on support and investments, I still advocate pursuing some type of career. Having your own income gives you options.
5. UNDERSTAND SOCIAL SECURITY
If you were married for more than 10 years, your benefit will be the larger of your own amount, or one-half of your ex’s, whichever is larger. (Note this is only if you do not remarry.) You can find out your Ex’s estimated benefit by calling the Social Security Administration with his SSN and proof you were married for over ten years. (more information available here. )
No matter your benefit level, your benefit amount will go up the longer you wait to take it. While you can claim as early as age 62, you would be foregoing an 8% annual raise each year between then and age 70.
YOU DON’T HAVE TO DO IT ALONE
Get good advice! Remember – your situation is not exactly like anyone else’s. So while your cousin and your neighbor mean well, as they share their stories and make their recommendations, do not assume the same actions they took are right for your situation. And AVOID anyone who is pressuring you to make big decisions right now.
Be sure you are working with people you trust. If you and your spouse worked with a financial advisor, think about whether you’d like to stay with that person or make a switch. How did he or she treat you as a client? Were they responsive and respectful of your questions? Did you feel heard? In many cases, if your ex is staying with the old advisor, it may make sense for you to find someone new so you’re getting advice specific to you.
Now that you’re through it, take pride in your financial independence. Embrace the opportunity to set yourself up for a strong future!