Tips for financial security after a divorce

Assets: anything you own that has monetary value.

Liabilities: any debts you owe or other payments you have agreed to make or are obligated to make.

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A divorce can be emotionally and financially draining, but you can relieve some of the stress by paying attention to the details and planning ahead. If it appears that you and your spouse are headed for a divorce, here are some steps you can take to protect your financial security and peace of mind.

Speak with an attorney
Even if you're hoping for a do-it-yourself, no-lawyer divorce, you can still benefit significantly from consulting an attorney who specializes in matrimonial law. An attorney can serve as an objective third party, advising you of your rights, obligations and options and walking you through issues surrounding alimony, child custody and property settlement. During this period of heightened emotions, an attorney will be able to help you focus on critical details.

Estimate what you and your spouse are worth
The court will require a record of all assets and liabilities you and your spouse have jointly and separately. List all bank accounts, yours and your spouse’s, plus any other assets the two of you have, such as stocks, bonds, real estate, mutual funds and workplace retirement plans. Do an inventory of household possessions, including vehicles, appliances, electronic equipment and furniture. Once you’ve accounted for all assets, slot each of them under one of three categories: your belongings (such as things you brought into the marriage), your spouse’s belongings and marital property (property acquired after the marriage). (Note: The court will decide how to "equitably" divide marital property. State laws differ on the meaning of "equitably," but most states do not automatically define "equitably" as "equally.")

Next, itemize your liabilities – a mortgage, a home equity loan, car loans, credit card balances, private school tuition contracts and whatever else you and your spouse owe. Tag liabilities as yours, your spouse’s or joint.

As an aside, if your marriage is in trouble, from this point on, it might be a good idea to postpone new and large purchases as well as the assumption of any new debt. 

Assess your cash flow
After a divorce, you’ll be a single person and maybe a single parent. Financially, things will be a lot different from the way they’ve been. So it’s important to get an idea of what your cash flow will be like after the divorce so you can plan for your new financial reality. Also, you need to forecast your future cash flow to enable the court to determine child custody and alimony payments.

Give serious thought to creating a post-divorce budget as a tool for managing your money going forward. A budget will help you think about whether you will need to scale back your lifestyle. (For more information, read our article Budgeting basics.)

A budget will also help you focus on the income side of your cash flow. For example, you might realize that, after the divorce, you will need to seek a higher-paying job or go to work if you’re not currently employed. You may even decide to go back to school as a way of enhancing your future income potential. To get guidance on such issues, consider seeking the services of a professional career counselor.

Review your insurance
Make sure you will have adequate health, disability and life insurance coverage after a divorce. If you’re currently covered by your spouse's employer-provided health plan, you will typically be able to keep the same coverage for at least 36 months after a divorce under the Consolidated Omnibus Reconciliation Act (COBRA). You will have to pay premiums for COBRA coverage, and the premiums will probably be steep, so you will need to account for them in your post-divorce budget.

If you're employed but don't currently use your own employer-sponsored health plan, think about signing up for it. A group policy at work is typically much cheaper than an individual policy purchased on your own. Your employer may not typically permit you to sign up for health insurance midyear, but it will if you've experienced a major life event, including a divorce.

After a divorce, remember to review and, if necessary, change the beneficiary designations on your life insurance policies and retirement accounts.

Consult with a financial advisor
Your attorney may be able to provide limited guidance on financial issues. However, for broader assistance with the financial aspects of divorce, consider consulting with a financial advisor. He or she will also be able to guide you through longer-term financial planning, which might address issues like debt reduction, education funding, retirement planning and estate planning.

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© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017