Following a divorce, there is nothing like a new year to start fresh. But while this is the perfect time to turn the page in your new chapter, certain things aren't so easily left behind. Specifically, your post-divorce financial implications.
Whether it be costs associated with starting over, or dealing with surprises in your marriage on your way out; divorce can have a significant impact on your finances. However, that doesn't mean you have to say goodbye to your clean slate. Read on for money conscious resolutions to get back on solid financial footing for 2024.
There are only two ways to increase your net worth. Reduce the debt you are carrying or increase the value of your assets. If you are currently carrying high-interest debt, now is the time to reduce double-digit credit card debt. Replace them with low-interest loans, mortgages or lines of credit. Shop around for the best rates and check your credit rating to get a sense of what you will qualify for. As a bonus, shelling out less cash to interest means more money in your pocket. You can use this to build assets for the future.
Many accountants get bombarded with requests for tax advice during tax time. Unfortunately, you should know that your accountant has very few levers to pull since your taxes would have occurred in the previous tax year. They are also limited in the time they can spend with you on your specific situation. Accountants recommend staying in touch throughout the year so you can get just in time advice and organize your finances to take advantage of tax credits all year long. Now is the time to reach out to your tax professional to ensure you are prepared to optimize your taxes for the new year.
Talking about money is difficult at the best of times. Let alone after a divorce. Unfortunately, if you have children you will need to continue to have money conversations with your ex related to sharing any additional costs that come up associated with caring for your children. Money conversations with your ex can also include enforcing or increasing child support payments. A new year resolution around finance should include committing to having civil money conversations and not engaging in money talks when either you or your ex are already upset.
If looking at your bank account lately gives you cause for anxiety, now is the time to build or rebuild your savings for a rainy day. A financial lesson many people learned this year is you never know when your financial circumstances can change. As you approach the new year, make a list of the expenses associated with your new lifestyle, with an eye for reducing discretionary expenses. This is an important exercise now that you are starting over on your own and may not have access to a secondary income as a back -up.
Some people find it difficult to save for the future. Especially if they have to come up with the cash after paying all their bills. Commit to growing your net worth by paying yourself first. Set up automatic withdrawals from your bank account to help you to stay on track. This process can also make it easier for you to manage what you have left.
If you have finalized your divorce, now is the time to change the beneficiaries on your life and group insurances, RRSP, TFSA, and pension plans. Assuming you want to change the beneficiary to someone other than your ex, what are the implications for your Will and POA? You will need to think through who your executor and POA should be now that you have divorced. If you have never created a will before, not having a will can create unintended consequences for your estate. Speak to a legal or financial professional if you need further information.
Now that you have divorced from your ex, are you more financially vulnerable should you become disabled or critically ill? Are you eligible for income replacement through your employer? Investigate insurance plans that protect your lifestyle and income from a serious illness or disability. Unfortunately, health setbacks can lead to serious financial implications, especially if you are the sole income earner.
It is never easy to start over after a divorce. This is particularly true when it comes to finances. The good news is that committing to rebuilding your net worth in 2023 and practicing good financial habits over time will create a secure and healthier financial future for now and beyond!