How can I take control of my financial life after a divorce?



Divorce is seldom easy for anyone involved. Still, certain steps you can take now may make the process less stressful and help simplify your life when the divorce is finalized. The more you know about the divorce process and your legal and financial options, the better equipped you will be to pursue your goals and protect your interests. The information here can help you start to think through key issues. Remember, though, that a competent attorney is essential, and a knowledgeable Financial Advisor can help you deal with the intricacies of planning, both for short-term realities and long-term possibilities.

What to focus on first

Throughout the divorce process, keep clear answers to these questions in mind as you weigh alternatives and make decisions:

• What is most important to you?
• What are your short-term and long‑term goals regarding your work, home and children?
• How can you reach these goals?
• How can you control your financial future?
• What legal path makes sense for your divorce

Q: What avenues are open to me in getting a divorce?

A: There are three approaches to the divorce process. The first, litigation/ representational, requires extensive court involvement, as well as the greatest level of involvement by attorneys representing you and your spouse. It is also, generally, the most expensive way to get a divorce. Another route is mediation, in which you and your spouse negotiate in the presence of a third-party mediator and then consult with your attorneys outside of these sessions before you sign a final, legally binding agreement. Or you may choose collaboration, in which you and your spouse agree not to litigate. Instead, you attend sessions with your attorneys, and sometimes with mental health professionals and financial planners, to work out an agreement as a team. Mediation and collaboration require minimal court involvement.

Q: What financial steps can I take prior to divorce to simplify my situation later?

A: you may want to:

Open accounts in your own name including your own credit card, checking and savings accounts. Also, have your paycheck deposited directly into your checking account.

Contact creditors to explain your situation and, if appropriate, to ask to stop any future charges by your spouse.

Be aware that late payments or liens related to jointly owned assets may remain a legal obligation to you as a co-owner of the property.

Check your credit report by using an Internet site like, a free federal government site.

Open an interim account to manage interim family expenses during the period between separation and divorce.

Q: What important financial information will my attorney need?

A: Planning your financial life after a divorce begins with an analysis of your predivorce financial situation and holdings. Critical information includes how much you have earned as a couple over the past five years and how much debt you have. You should also: determine how much money you have in all of your financial accounts; understand how the money is allocated among stocks, bonds and cash; and know who owns each account if they are in separate names. Equally important is an understanding of how much it costs on an annual basis to maintain your lifestyle: monthly bills, homes, vacations and other expenses.
Family-owned businesses warrant careful consideration and may require consultation with an attorney specializing in that area.

Q: Should I retain my house?

A: When it comes to your home, you will likely confront three options: sell the house, buy out your spouse or have your spouse buy you out. The best solution will depend on both personal and financial considerations. You may not be comfortable remaining in your current home. On the other hand, staying may offer your children a sense of continuity. On the financial side, you should evaluate the tax consequences of selling your interest in the house. Longer term — after the marriage is dissolved — you need to determine if you can manage the costs of the home, such as mortgage, taxes, utilities, maintenance and general upkeep. There is another, lesser used alternative: Rent out the house. This option could boost cash flow to help you meet mortgage payments — or it could “buy time” for the housing market to improve, while building further equity in the property. This avenue might be particularly useful if the house is “underwater” — a situation in which the home’s market value is less than the balance owed on the mortgage.

Q: What financial support can I count on for my children?

A: Laws vary by state, but typically a judge will determine the financial resources that you will receive if you are the custodial parent. Some states base these payments on the parents’ combined income and the number of dependent children. Keep in mind that your respective contributions to college expenses will need to be addressed in the divorce agreement.

Q: What long-term issues should I focus on?

A: Although your current situation may demand most of your attention, it is important not to lose sight of your long-term goals and financial needs, particularly as you negotiate a settlement. For example, your retirement goals are an important and valid concern. The terms of your settlement also may trigger financial changes if you remarry. In the area of estate planning, you should review your will as well as any trusts that you have established with your spouse. Certain trusts can protect your children’s inheritance if your former spouse should remarry. If you have done any irrevocable charitable planning, you may be able to divide your charitable trust or family foundation between you and your former spouse.

Q: How are retirement plan assets handled during a divorce?

A: A Qualified Domestic Relations Order, or QDRO, will specify the terms under which you or your former spouse can receive an interest in a qualified retirement plan, such as a 401(k) or pension. To avoid mandatory withholding, make sure the transfer is made directly from one qualified, tax-exempt account to another.

Q: What insurance issues should I be aware of?

A: One of the most important issues is the designation of a beneficiary on your insurance policy. If your former spouse is your life insurance beneficiary, it may make sense to change that — perhaps to your children, parents or siblings. Keep in mind, too, that if your former spouse is going to pay child support and/or alimony, he or she will usually maintain life insurance naming you or your children as beneficiaries to provide support in the event of his or her death. You may also face new life, disability and long-term care insurance needs after your divorce — costs you may have to bear yourself.

Q: What effect will my divorce have on health care coverage?

A: You should be sure to research the coverage of your current plan, especially if you are part of your spouse’s plan. You may have important options for future coverage, including COBRA eligibility, so investigate these costs and coverage’s as well. Your children are typically eligible for coverage under a parent’s plan until the age of 26, even if the child is living away from home, is not a student or is working. If one parent has access to health insurance at a reasonable cost, most states will permit or require that the children be covered by that plan. If you will bear the expense of coverage for your children, make sure it is factored into any child support award. Your divorce agreement should also specify how any unreimbursed medical expenses will be covered.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and its Financial Advisors do not provide tax or legal advice, are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein, and this material was not intended nor written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan or to understand the tax, ERISA and related consequences of any investments made under such plan and to understand the tax and legal consequences of any actions, including implementation of any estate planning strategies, or investments described herein. Morgan Stanley Smith Barney LLC offers insurance products in conjunction with its licensed insurance agency affiliates.

Since life insurance is medically underwritten, you should not cancel your current policy until their new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy will require a medical exam. Surrender charges may be imposed and the period of time for which surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding any potential tax liability on surrenders.

Since life insurance is medically underwritten, you should not cancel your current policy until their new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy will require a medical exam. Surrender charges may be imposed and the period of time for which surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding any potential tax liability on surrenders. Long term care insurance is medically underwritten. As such, your actual premiums are not guaranteed and may vary from any initial quotation you receive. You should not cancel your current coverage until your new coverage is approved and in force. A change in contract may be subject to additional insurance fees as well as increased risks, and may also require a medical exam.

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