I Got My Divorce Settlement…Now What?

December 21, 2019
Jackie Porter

Article written by Jackie Porter

The ink has finally dried on your divorce. You signed the papers just so the whole thing could be over with. You are wondering if you said yes too quickly, especially because you are concerned about your finances and never sought financial advice during the divorce process. The good news is your lawyer was able to negotiate a much larger settlement than previously expected, and now you just want to ensure the funds will provide you and your family with a comfortable lifestyle.

What should you do now? What do you need to think about, and what are the crucial steps you will need to take in order to financially thrive after a divorce?

Crucial Action 1:  Write down your income sources post-divorce.

If you were employed during the marriage, will you continue to work now that you are divorced?  How much will you earn annually? What about your children?  Will you be receiving ongoing spousal and child support on top of your lump-sum settlement? If so for how long? Knowing the answers to these questions will help you make the most of your financial resources before you cash your settlement cheque.

Crucial Action 2:  Identify which assets are “cashable”

Which assets can you sell and invest easily to provide you with a reliable source of income? For example, if you received the family home and chose to live in it for sentimental reasons, ask yourself, how will you pay for the family home?


This is especially important if it was the largest asset you received from the settlement. Chances are, the cash hiding in your home would be harder to access versus obtaining settlement proceeds from a large investment portfolio.

Crucial Action 3:  Consider the tax consequences of your settlement

When it comes to taxes, some assets are more valuable than others. Consider If you were to receive $500,000 in RRSP’s instead of $500,000 in an investment account. Which asset do you think is more valuable? If you said the $500,000 in the investment account, you would be correct. RRSP’s are fully taxable and have penalties associated with early withdrawal of the funds before retirement. On the other hand, investment accounts are typically only 50 percent taxable and often have more flexible withdrawal terms.

Tax efficiency matters when assessing support payments as well. Keep in mind spousal support payments are fully taxable to the person receiving it, while child support payments are tax-free.

Crucial Action 4: Get to know your financial identity

Do you know your credit score? It may have been affected by the divorce settlement, especially if your partner racked up additional debt during the divorce proceedings.


Now is the time to check your score, review all accounts, and close accounts that were once jointly held. It is also a good idea to plan to pay off any remaining debts that need to be tackled post-divorce. Ensure you are taking steps to build your own credit identity by having a credit card solely in your own name. Online credit companies like Credit Karma and Borrowell offer free, instant credit reports.

Crucial Action Number 5:  Protect child support and spousal support payments

Are you worried about what will happen to the child support and spousal support payments if your ex-partner passes away? How will you make up the lost income? The good news is many divorce decrees include a clause that allows you to purchase life insurance on your ex-partner to insure the value of the support payments. Consider this an essential action item on your list. You should also ensure you are either the owner or the irrevocable beneficiary of the life insurance taken out on your ex.

Crucial Action Number 6: Consider what your new lifestyle will cost. Can you afford it?

This is an important time to look at how your lifestyle costs will change and if you are financially prepared to absorb the new expenses.


Can you really afford to stay in the family home? Will you have enough income to maintain your home and the lifestyle you and your family had prior to the divorce?

Crucial Action Number 7: Enlist the services of a Certified Financial Professional

Now is the time to take a long hard look at your income, assets and expenses. A certified financial professional who specializes in divorce will help you look many years into the future and assess if you will be able to support the current lifestyle as well as your retirement years. A six-figure settlement may sound like a lot of money, but you still need to do the math to see if it will really be enough to help you thrive financially after your divorce.