Divorce has significant implications for day-to-day details and long-term plans.
Many marriages end in divorce and when they do, fairly dividing investments and finances is typically more complicated than it was to combine them. It can be easy to get caught up in the numbers or emotions and forget about the other things in your life that may be affected. This is a moment to review your will, your insurance policies, your 401(k) and your brokerage and bank accounts in an endeavor to make clear where you stand financially. It is important to have good advice about the value of what you have, how liquid certain assets are and any new risks you may be facing, just to name a few things.
Avoid common mistakes. The experience of others can be a good teacher. Here are some common pitfalls that divorced people say you should try to avoid.
- Overestimating retirement assets by failing to take into account the taxes you will pay on these assets at withdrawal.
- Overemphasizing both the value and longevity of alimony. (If a former spouse passes away prematurely, or if you remarry, could you replace this income?)
- Overlooking Social Security as you may be entitled to spousal benefits if you do not remarry.
- Assuming that your former spouse will take care of your children as intended. (Consider that a new spouse or new children can change priorities and may have negative repercussions for your children.)
As with other major life changes, divorce will almost certainly impact your wealth planning objectives. It’s especially critical now to review where you are and to create new goals and new savings and investment strategies to help you secure your new future.
Review your estate plan. If you have custody of your minor children, consider taking these steps for their financial security and your peace of mind. Designate a guardian so a court won’t have to in the event of your death. You also may want to consider putting your assets in a living trust. This way, you can retain control over your assets in your lifetime. After your death, funds will be distributed according to directions in the trust’s document. That’s important, because a guardian — even one you designate — may not make decisions as you would like. Depending upon the trust’s terms, assets can also be protected from your former spouse, creditors and even spendthrift children.
A new lease on life insurance. If you and your former spouse have children together, consider purchasing an insurance policy on the life of your former spouse. Remember, if he or she remarries, it’s likely that the new spouse will become the beneficiary of an existing policy, making it wise for you to own a policy outright.