Managing Your Finances after Divorce

One of the best websites I have found on family law issues is Rosen.com, which is from North Carolina. While there are some differences in law between North Carolina and Texas, the web site is still an excellent all-around resource with current news and common sense information about family law topics, so I recommend it as a resource. Connected to the web site is a blog called "Kramer Vs". Most of you can figure out the clever name. A recent post there dealt with finances for people going through divorce. They reprinted an article that originally appeared at divorce360.com, which is another good resource. The post raised some important points about financial matters and I have taken their main points and added my comments below. You can see the original post at divorce360 here. The original post was titled: "Finances: Tips to Protect You and Your Assets after the Divorce is Final".

"Divorce is as much about starting a new life as it is about ending a relationship. One of the most important things you can and must do for yourself when starting new is to make good decisions about your finances. Whether or not you handled the finances in your marriage, now that the divorce is finalized the decisions are all yours to make. Here are some expert opinions about what to do and what not to do when it comes to your financial future.

1. Know what you have: “One of the most immediate things is to get a good handle on your assets, your income and your expenses,” says Craig Hyldahl, Financial Advisor with AXA Advisors and a Certified Divorce Financial Anaylst. “It’s easy to figure out income, what’s a little more difficult to figure out are expenses. You have to understand you’re not going to have the same lifestyle as prior to the divorce and things are going to keep changing. What may make sense today might change drastically over time, so keep meticulous track of your expenses.” In the process of your divorce, hopefully you began keeping photocopied records of all your bank statements, credit card accounts, tax returns and other financial information. It’s important to hold onto all these records and stay in the habit of keeping meticulous financial records so you know how much you spend, how much you owe and how much you make at any given time."

In most divorces with significant assets, we prepare a detailed, sworn inventory of the assets and liabilities of the two parties. You should come out of the divorce with good knowledge of your financial situation. It takes a lot of work by you (gathering information) and your attorney (organizing the information) to get the inventory, but it is a valuable document for the future.

2. Think about where you're going. "If your divorce was just finalized, you may want to get a jumpstart on your financial decisions, but this isn’t necessarily the best approach. 'Rushing is one of the worst things you can do,' says Hyldahl. 'Oftentimes rushing means making decisions one at a time, when actually you shouldn’t make isolated decisions when it comes to your finances. There are so many intertwined areas it makes more sense to take your time and then take action all at once.' Hyldahl also advises taking your time when hiring a financial advisor, since doing your finances is more personal than just numbers. 'You really need to trust your advisor, so interview several before making a decision to go with one.'"

It is important from the outset to assess your needs and goals. This is really emphasized in Collaborative divorces, but it's also true in litigated divorces as well. When you are proposing a property division plan, it helps to know what you need and to decide what you want to be able to do once the divorce is over.

3. Keep track of your credit rating. "Another important financial tip is to stay informed about your credit rating. 'Do a credit check both during and after your divorce to make sure there are no surprises,' says Barbara Shapiro, co-owner of HMS Financial and a Certified Divorce Financial Analyst. 'Also, be sure to change your beneficiaries, update your will and always keep your divorce decree close at hand as you will refer to it regularly over time (especially if you have kids).'"

Checking your credit records is helpful in discovering what credit cards and loans might be in your name which you are unaware of or which you have forgotten about. You can also look for mistakes. One's credit rating is becoming more and more important in many different ways.

4. Save something every month. "Co-author of 'On My Own Two Feet: A Modern Girl’s Guide to Personal Finance,' Manisha Thakor says anyone going through a divorce should remember that good personal finance does not have to be difficult. 'When you boil it all down, every single piece of personal finance advice falls into one of three buckets (1) save, (2) invest, (3) protect.' Try not to become overwhelmed. Remember to keep putting something into savings each month, try and invest 15 percent of your income in simple, stable funds and protect yourself with adequate insurance."

Actually, most people coming out of a divorce are not in position to be adding to savings right away. It is great if you're able to, but usually for a while, the parties are still learning to stretch a limited income over greater expenses. They are also sometimes dealing with debt and some refinancing. For those able to save, it is helpful to start a habit of regular saving, even if it is a smaller amount for a while.

5. Close all joint accounts. I didn't really agree with the original article's explanation of this point. I do agree that joint accounts should be closed, but that really should happen (by agreement or court order) during the divorce. The original article mentioned selling off some assets, but that should be done only if it does not violate a court order or legal responsibility; in other words, check with your lawyer before doing that. A prudent person would also check with a financial advisor to consider tax consequences of the sales.

6. Educate yourself about money. " Remember that managing your finances is an ongoing process. Another useful tip from Barbara Shapiro is to 'empower yourself by reading, taking classes and talking to your financial advisor, especially if you weren’t the one managing your finances before the divorce.' Craig Hyldahl agrees that there must be 'ongoing monitoring and constant contact between clients and financial advisors.' By keeping track of how your expenses, income and investments grow or change over time, you’ll be in a better position to make financial decisions."

This is good advice. There are lots of free resources on the Internet which can be helpful, but using a local financial professional will be a good investment.

7. Don't panic. "Probably the most important thing to keep in mind is don’t panic. 'You’re probably dealing with the largest lump sum you’re going to get along with the most stressful time in your life,' says Hyldahl, so avoid the tendency to feel overwhelmed. Take your time; make sure you have all the financial records you need; don’t hire a financial advisor until you’ve asked a lot of questions and established mutual goals and trust. Try not to spend more than you need to until you’ve got a firm financial plan in place."

The comment about a lump sum only applies in a limited number of cases. Whatever your situation, the advice to not panic is still important. Take your time. Take a deep breath. Think before you act. Get professional help. You need to come up with a comprehensive financial plan, but keep in mind that it will change over time, so be flexible.

"And finally, it’s important to remember you’re not alone. 'While it's natural to fear whether you'll be able to take care of yourself financially speaking, don't for a minute think you are alone in that concern,' writes Manisha Thakor. 'A whopping 70 percent of Americans live paycheck-to-paycheck and that cuts across income spectrums.' As you begin your new life, stay informed, positive and proactive when it comes to your finances and your situation will most likely continue to improve."