Everyone knows that divorce brings change. From your social circle to your living arrangements, you’ll spend the next year or more adjusting to this new stage of your life. Your everyday responsibilities may multiply as you suddenly become accountable for running a single household. After you switch names on your utility bills and divide financial accounts, you may find yourself unsure of the next steps. If your previous partner managed the household finances, it’s time to shake the dust off of life skills such as creating a budget, choosing financial accounts, and planning for taxes.
Whether you’re navigating this process for the first time ever or the first time in a long time, The First is here to help. With over half of marriages ending in divorce, we’ve dedicated advisors in our wealth management department to helping customers experiencing this transition. And we hope this guide will serve as a starting point for those who are newly single due to separation or divorce.
Creating New Accounts
Out with the joint accounts. It’s time to cancel possible sources of debt you can’t control such as joint credit cards. A joint credit card without a balance is the best place to start. Simply close the joint account and open a new credit card in your name alone. If you’ve been carrying a balance on your joint credit card, you may want to use marital funds to pay off the card, so it can be closed. Even if you still trust your ex, you don’t want to be vulnerable to his or her spending. You’ve got a new, single life to manage and a credit score to protect. If your ex won’t agree to pay off the debt, place an alert or freeze on the card until the debt is divided in your divorce settlement. Don’t stop making minimum payments on joint accounts as this will negatively affect your credit.
Joint checking, savings, and retirement accounts need to be closed as well. You can’t stop your ex-spouse from withdrawing money from a joint account, so consult a lawyer and financial analyst as soon as possible. The First offers Certified Divorce Financial Analyst services and will look closely at your marital finances to help negotiate the best divorce settlement possible.
Now that you’ve closed or at least frozen your joint accounts, it’s time to build your new financial portfolio. You’ll need the basics like a credit card, checking account, savings account, and retirement account. It may have been a long time since you researched banks and financial accounts, and you may feel overwhelmed by the choices. Start by visiting a local community bank like The First National Bank and Trust Co. Our friendly and knowledgeable staff will work to find the best accounts for your current situation and help you get back on your feet. Going through a divorce can be emotionally draining. At The First, we’ll treat you like family and assist in setting up your new, independent finances. From our friendly teller line to our specialized CDFA services, we’ll take the worry out of this stage of your divorce or separation.
Developing a Financial Plan or Budget
During a divorce, your financial situation will change. You may lose a household income, change residences, or take on greater financial responsibility. How are you going to pay your new bills, invest for retirement, or save for your kids’ college? You need a plan.
Any financial plan or budget starts with an understanding of your current income, expenses, and debt. This may be complicated. Will you receive monthly child support, spousal support, or alimony as a result of your divorce? Perhaps your divorce resulted in the sale of a primary or vacation residence and you received a lump sum payment. Figuring out how to balance these assets and debts is an important part of getting your new life under control.
Take a Sunday afternoon to sit down with your new financial information. Make a list of your current income and expenses. Decide how much you want to save each month for retirement; experts suggest saving 10-15% of your income each year if you start in your 20s. If you’re starting from scratch later in life, you’ll need to save more. You may have other savings needs or goals like a child’s college fund or a dream vacation. It may take some time, but don’t give up until you have a clear picture of your finances. Once you’ve got the numbers, you’ll be able to see where you have room for discretionary spending or where you need to cut back on your expenses.
Monitoring Your Credit
Now that you’re financially single, it’s time to check the health of your credit. Run a free credit report from AnnualCreditReport.com and check closely for any inaccuracies. Start building good credit by using a credit card regularly and paying off the balance on time every month. TheBalance.com points out that your credit score affects how much interest you pay on loans, what kind of car and home you can afford, potential job searches, the ability to start your own business, and even whether you can receive utility services like electricity and cable. For many, divorce is a time of financial upheaval. Protect your credit and prioritize your debt payments and you’ll come through this transition on the right foot.
Considering The Impact On Your Taxes
Unfortunately, your taxes just got even more complicated. Whether you’re paying or receiving alimony, spousal support, or child support, it’s going to affect your taxes. You and your ex may have to decide who gets the exemption for Head of Household status. If you have children, who gets to deduct them as dependents? Now that the legal battles are over, can you deduct your attorney’s fees? There are many new questions to be answered, and the financial impact can be thousands of dollars. Here at The First, we not only offer our Certified Divorce Financial Analyst services, but we also have a full-time dedicated tax professional on staff to help you with these questions. As your community bank, we’re happy to help you navigate these confusing times and get you back on your feet.
Open the filing cabinet and dig deep. Whatever wills, trusts, medical directives, and powers of attorney you’ve had made over the years need updating. You’re not likely to be granting your ex-spouse power to “pull the plug” anymore. If your spouse was the primary beneficiary of your assets, you’ll want to remove your ex and name someone else. The items in your will may have changed with the divorce and division of property. Reassess what is yours and see a professional to draft a new will. Any financial accounts that remain with you following the divorce need to be updated as well. Life insurance, 401k’s, IRA’s, and pensions all have named beneficiaries. Check in with all your accounts to make sure your money goes where you want it to.
It’s going to take time to sort through the financial fallout of your divorce or separation. Unfortunately, there is the potential to lose a large amount of your financial security in the process. We at The First don’t want to see that happen. Our Certified Divorce Financial Analyst services are here to make sure you start the next chapter of life in a strong financial position. Whether you’re looking for the best financial settlement, help with your taxes, or assistance opening new bank accounts, The First is on your side. We’ve been your community bank for over 150 years and, although our name has never changed, we’re here to support you when yours does. Stop by your local branch in Bucks County or give us a call today – we can help!