Adjusting to Life Financially After Divorce

Dolf Dunn Wealth Management, LLCDolf Dunn, CPA/PFS,CFP®,CPWA®,CDFA

Private Wealth Manager11330 Vanstory Drive

Suite 101Huntersville, NC 28078

704-897-0482dolf@dolfdunn.comwww.dolfdunn.com

Adjusting to Life Financially after a Divorce

February 07, 2014

There's no doubt about it--going through a divorcecan be an emotionally trying time. Ironing out adivorce settlement, attending various court hearings,and dealing with competing attorneys can all weighheavily on the parties involved.

In addition to the emotional impact a divorce canhave, it's important to be aware of how your financialposition will be impacted. Now, more than ever, youneed to make sure that your finances are on the righttrack. You will then be able to put the past behind youand set in place the building blocks that can be thefoundation for your new financial future.

Assess your current financialsituationFollowing a divorce, you'll need to get a handle onyour finances and assess your current financialsituation, taking into account the likely loss of yourformer spouse's income. In addition, you may now beresponsible for paying for expenses that you wereonce able to share with your former spouse, such ashousing, utilities, and car loans. Ultimately, you maycome to the realization that you're no longer able tolive the lifestyle you were accustomed to before yourdivorce.

Establish a budgetA good place to start is to establish a budget thatreflects your current monthly income and expenses.In addition to your regular salary and wages, be sureto include other types of income, such as dividendsand interest. If you will be receiving alimony and/orchild support, you'll want to include those paymentsas well.

As for expenses, you'll want to focus on dividing theminto two categories: fixed and discretionary. Fixedexpenses include things like housing, food, andtransportation. Discretionary expenses include thingslike entertainment, vacations, etc. Keep in mind thatyou may need to cut back on some of yourdiscretionary expenses until you adjust to living onless income. However, it's important not to deprive

yourself entirely of any enjoyment. You'll want to buildthe occasional reward (for example, yoga class,dinner with friends) into your budget.

Reevaluate/reprioritize your financialgoalsYour next step should be to reevaluate your financialgoals. While you were married, you may have setcertain financial goals with your spouse. Now that youare on your own, these goals may have changed.Start out by making a list of the things that you nowwould like to achieve. Do you need to put moremoney towards retirement? Are you interested ingoing back to school? Would you like to save for anew home?

You'll want to be sure to reprioritize your financialgoals as well. You and your spouse may haveplanned on buying a vacation home at the beach.After your divorce, however, you may find that othergoals may become more important (for example,making sure your cash reserve is adequately funded).

Take control of your debtWhile you're adjusting to your new budget, be surethat you take control of your debt and credit. Youshould try to avoid the temptation to rely on creditcards to provide extras. And if you do have debt, tryto put a plan in place to pay it off as quickly aspossible. The following are some tips to help you payoff your debt:

• Keep track of balances and interest rates• Develop a plan to manage payments and avoid

late fees• Pay off high-interest debt first• Take advantage of debt consolidation/refinancing

options

Protect/establish creditSince divorce can have a negative impact on yourcredit rating, consider taking steps to try to protectyour credit record and/or establish credit in your own

According to the U.S.Census Bureau, womenwho are recentlydivorced typically haveless household incomethan recently divorcedmen. Source: Number,Timing, and Duration ofMarriages and Divorces,released May 2011.

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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for anyindividual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performancereferenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with aqualified tax advisor.

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name. A positive credit history is important since it willallow you to obtain credit when you need it, and at alower interest rate. Good credit is even sometimesviewed by employers as a prerequisite foremployment.

Review your credit report and check it for anyinaccuracies. Are there joint accounts that have beenclosed or refinanced? Are there any names on thereport that need to be changed? You're entitled to afree copy of your credit report once a year from eachof the three major credit reporting agencies. You cango to www.annualcreditreport.com for moreinformation.

To establish a good track record with creditors, besure to make your monthly bill payments on time andtry to avoid having too many credit inquiries on yourreport. Such inquiries are made every time you applyfor new credit cards.

Review your insurance needsTypically, insurance coverage for one or bothspouses is negotiated as part of a divorce settlement.However, you may have additional insurance needsthat go beyond that which you were able to obtainthrough your divorce settlement.

When it comes to health insurance, make havingadequate coverage a priority. Unless your divorcesettlement requires your spouse to provide you withhealth coverage, one option is to obtain temporaryhealth insurance coverage (up to 36 months) throughthe Consolidated Omnibus Budget Reconciliation Act(COBRA). You can also look into purchasingindividual coverage or, if you're employed, coveragethrough your employer.

Now that you're on your own, you'll also want to makesure that your disability and life insurance coveragematches your current needs. This is especially true ifyou are reentering the workforce or if you're thecustodial parent of your children.

Finally, make sure that your property insurancecoverage is updated. Any applicable propertyinsurance policies may need to be modified orrewritten in order to reflect property ownershipchanges that may have resulted from your divorce.

Change your beneficiarydesignationsAfter a divorce, you'll want to change the beneficiarydesignations on any life insurance policies, retirement

accounts, and bank or credit union accounts you mayhave in place. Keep in mind that a divorce settlementmay require you to keep a former spouse as abeneficiary on a policy, in which case you cannotchange the beneficiary designation.

This is also a good time to make a will or update yourexisting one to reflect your new status. Make sure thatyour former spouse isn't still named as a personalrepresentative, successor trustee, beneficiary, orholder of a power of attorney in any of your estateplanning documents.

Consider tax implicationsYou'll also need to consider the tax implications ofyour divorce. Your sources of income, filing status,and the credits and/or deductions for which youqualify may all be affected.

In addition to your regular salary and wages, you mayhave new sources of income after your divorce, suchas alimony and/or child support. If you are receivingalimony, it will be considered taxable income to you.Child support, on the other hand, will not beconsidered taxable income.

Your tax filing status will also change. Filing status isdetermined as of the last day of the tax year(December 31). This means that even if you weredivorced on December 31, you would, for taxpurposes, be considered divorced for that entire year.

Finally, if you have children, and depending onwhether you are the custodial parent, you may beeligible to claim certain credits and deductions. Thesecould include dependency exemptions, the child taxcredit, and the credit for child and dependent careexpenses, along with student loan interest and tuitiondeductions.

Consult a financial professionalAlthough it can certainly be done on your own, youmay want to consider consulting a financialprofessional to assist you in adjusting to your newfinancial life. In addition to helping you assess yourneeds, a financial professional can work with you todevelop a plan designed to help you address yourfinancial goals, make recommendations aboutspecific products and services, and monitor andadjust your plan as needed.

A creditor has the rightto report negativeinformation about you toa credit reporting agencyif your ex-spouse payslate on a joint account.

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