Financial Considerations After Divorce
As a firm that specializes in family matters and divorce, we strive to ensure our clients understand their options. Here are six important steps to ensure your finances are in order, so you can move forward after divorce.
The heartache and tension from divorce can have a negative effect on the choices you make. After the divorce has been finalized, there are financial key points that need to be addressed. With a clear mind and knowledge about the following considerations, you should feel that you’re in control of the situation instead of your divorce being in control of you.
- Update your estate documents. Amending your will and living trusts is necessary at this time. Any power-of-attorney documents will also need updating. You should have two powers of attorney, one for medical situations and the other for financial matters. If you have powers of attorney that give your former spouse authority to make decisions on your behalf, create a document revoking those powers and sign it. Send it to your former spouse and request that they return the outdated POA document. Implement new documents thereafter.
- Check your beneficiary designations. After your death, assets for which you designated a beneficiary will go directly to that person. It is vital to take a second look at financial instruments such as your 401 (k), transfer-on-death accounts, pay-on-death bank accounts and life insurance policies.
- Review tax withholdings. Following divorce, it is important that you update your taxes accordingly. This means changing your marital status as well as the number of exemptions you claim. You will need to complete a new W-4 and IRS Form as well. If you have money from an investment portfolio, alimony, rental income or capital gains, you may need to make quarterly estimated tax payments to avoid a penalty for the underpayment of tax.
- Take a look at your credit report. All joint accounts (this includes credit cards, bank and brokerage accounts, car loans, mortgages and home equity lines) should be closed. Review your credit report to see if any accounts have remained open. If so, make sure to close them immediately. In the case of an outstanding balance, ask the lender to suspend the account to prevent future charges and confirm that the account cannot be reopened.
- Plan an investment strategy. The ultimate goal of dividing your investment assets is to obtain an equitable distribution. Unfortunately, that does not always happen, so having an investment portfolio of your own can be beneficial. Does it meet your current and future needs? You may find that you are now in a new income tax bracket as well, and this could mean that your current portfolio needs to be adjusted. Create an appropriate asset allocation and develop an investment plan to better suit your goals and your new circumstances.
- Compare past and present finances. Now that you’ve reached your post-divorce life, a comparison of your financial circumstances from pre-divorce times is in order. Check financial targets at least every six months. Those who have been ruled by emotion through a difficult time may be tempted to avoid facing a new reality, and those experiencing a new state of freedom may overspend and suffer negative consequences. Both are situations to avoid.
Divorce can be life-changing in ways good and bad. Once the dust has settled, do your best to set emotions aside and analyze your financial situation. Where are you? Where do you need to be? By following these six tips, you may have a better shot at a happier post-divorce life. For more information, contact the family law attorneys at Dolina Hobbs.