How to Get a Fresh Start – and Start Investing for Your New Future After a Divorce    

Getting financially organized for your new life and achieving your financial goals may seem like a pipedream during and immediately following a divorce. But this is precisely when you should seek out a trusted financial professional to ensure the decisions you make are the ones that will allow you to live the life you want.

Think of it this way: divorce offers you the opportunity to reinvent yourself and your finances. So instead of focusing on “what was,” identify new financial goals, and put a plan in place to achieve your dreams.  Even if you are not comfortable with your day-to-day financial skills, find a financial planner who specializes in divorce , and get your new financial ducks in a row!

4 Tips to guide you on your way to financial success: 

Hire a Specialist.
It helps to find a financial planner with a specialization in the financial issues that arise during and after divorce. A Certified Divorce Financial Analyst (CDFA) will work with you, and with your attorney to ensure you make financial decisions that  protect your financial future.  A specialized financial planner can also help you understand the financial impact of any settlement offer you may receive.   In addition, the CDFA can  provide you with a clear picture of both the current and future value of assets.  Why is this important? Because the  “after-tax value” of an asset offered in a settlement proposal can be much lower than its current represented value.  So a CDFA can work with your attorney to ensure you achieve the best divorce settlement for your future.

Stay Organized & Know your Needs vs Wants
Make the most of your consultation with a CDFA planner:

• Organize all your financial documents.
• Create a budget showing all of your current expenses. Rank expenses as “REQUIRED”  (e.g. rent, food, transportation – ranking the latter as subway or bus, not taxi!), “NEED” (e.g. work clothes),  and  “WANT” (e.g. a latte every day).  Then identify those expenses you feel you can eliminate. This will free up funds for the investment necessary to achieve future financial goals and dreams.
• Next, start by writing down your (not anyone else’s) financial goals. Do you want to start a business? Travel the world? Buy a home? Send your children to college? Retire early?
• Estimate how much money you will need for each goal.  If you don’t know, take a guess, and then write down where that money is going to come from – e.g. salary, savings, inheritance, divorce settlement.
• An important point to bear in mind:  as mentioned, accounts that currently have equal balances do not necessarily have an equal value in the future, or after taxes.  For example, a Traditional IRA and a Roth IRA that both have  a current value of $100,000 will have very different after-tax values.  Your CDFA will be able to convert values so you are comparing “apples to apples” when considering any settlement proposal. This evaluation must take place with respect to all assets, accounts, child and spousal support, IRAs, and stock holdings.

Plan for the Future
To ensure your children are cared for and your assets distributed as you would wish in the case of disability or death, your financial planner can help you prepare for a meeting with an Estate & Trust attorney.  After a divorce, you will need to update your Will, Power-of-Attorney, and Living Will. By working with your financial planner to organize your financial documents and determining your wishes prior to meeting with your attorney, you can minimize costs as your attorney will then be able to focus on preparing the required legal documents. Depending on the stage of your divorce, with the agreement of your attorney, your financial advisor can also assist you with updating the beneficiary on all of your financial accounts and ensuring the accounts are properly titled.

Have the “Money Talk” with your Children
Money may be tighter following a divorce, and it is important you provide your offspring with an understanding of what to expect, especially if you are the parent with fewer  financial resources. A positive  way to look at it: divorce provides you with the opportunity to raise money-savvy children.  Learning to budget, save, and invest early is a  critical life skill that will serve your children well throughout their lives. Some steps  to consider:

• Have your child earn an allowance by completing a chore – e.g. making her bed.
• If you child receives an allowance, be certain to have her divide into “Spend,” “Save,” and “Invest.”
• Set up a savings account in your child’s name (several banks offer significantly higher interest rates on accounts designed to teach children to save).
• Have your child make a wish list of all the things and experiences she wants.  Identify those you are willing to pay for, and those she will need to save up to pay for.
• Then, describe how she can earn money simply by saving in a bank – i.e. by permitting the bank to use her money, she can earn interest. Then explain that while this is a good first step and necessary to have an emergency fund, the only way to grow wealth and achieve financial goals is to invest. If you are not as familiar as you would like to be with the concepts of savings and investing ask your CDFA;  he or she will be able to provide you or your children with age-appropriate materials.

Remember: The goal, after divorce, is to put a financial life plan in place so you are on track to meet both your current needs  and the future goals of you and your children in the money arena.