There’s no doubt about it, going through a divorce can be an emotionally trying time. In addition to the emotional impact a divorce can have, it’s important to be aware of how your financial position will be impacted.
Assess your financial situation: After a divorce, you’ll need to get a handle on your finances and assess your financial situation, taking into account the likely loss of your former spouse’s income. In addition, you may be responsible for paying for expenses that you were once able to share with your former spouse, such as housing, utilities and car loans. Ultimately, you may come to the realization that you’re no longer able to live the lifestyle you were accustomed to before your divorce.
Establish a budget: A good place to start is to establish a budget that reflects your current monthly income and expenses. In addition to your regular salary and wages, be sure to include other types of income, such as dividends and interest. If you will be receiving alimony and/or child support, you’ll want to include those payments as well. As for expenses, you’ll want to focus on dividing them into two categories, fixed and discretionary. Fixed expenses include things like housing, food and transportation. Discretionary expenses include things like entertainment, vacations, etc. Keep in mind that you may need to cut back on some of your discretionary expenses until you adjust to living on less income.
Reevaluate/reprioritize your financial goals: While you were married, you may have set certain financial goals with your spouse. Now that you are on your own, these goals may have changed. Start out by making a list of the things you would like to achieve and then reprioritize your current goals.
Take control of your debt: While you’re adjusting to a new budget, be sure that you take control of your debt and credit. Try to avoid the temptation to rely on credit cards to provide extras. Keep track of balances and interest rates. Pay off high-interest debt first. Take advantage of debt consolidation/refinancing options.
Protect/establish credit: Because divorce can have a negative impact on your credit rating, review your credit report and check it for any inaccuracies. Be sure to establish a good track record with creditors by making your monthly bill payments on time.
Change your beneficiary designations: You’ll want to review the beneficiary designation on any life insurance policies, retirement accounts and bank or credit union accounts still in place. Make sure your former spouse isn’t still named as a personal representative, successor trustee, beneficiary or holder of a power of attorney in any of your estate planning documents.
Send financial questions you wish to have answered in this column to Dorion-Gray Retirement Planning Inc. Fax them to 815-455-4989, or email email@example.com.
• Paula Dorion-Gray, CFP, is president of Dorion-Gray Retirement Planning Inc., 2602 Route 176, Crystal Lake.