If you are someone who bought into the concept of “ happily ever after” and your relationship has ended, you are likely still reeling from the shock of your divorce.
Chances are you never planned to be single. Many of us don’t. However, more than 38 per cent of marriages will end in divorce, and the financial and emotional implications for a person who did not plan on such an event can be particularly devastating. So what now? Read on to find out what 5 steps you should take immediately.
Urgent Short-Term Considerations
There are a lot of decisions to make, but focus on the urgent matters first.
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Your To-Do List:
1. Change ownership and beneficiary information on bank accounts that were previously jointly held with your spouse. You will need to provide the divorce decree that outlines the legal arrangements associated with the accounts you have assumed.
2. Verify that all joint credit cards, loans and lines of credit are now closed, notwithstanding any joint debt that is still being paid off.
3. Life insurance needs – Is there a life insurance plan in place to ensure payments for yourself and your children? Are you the irrevocable owner and beneficiary of this policy, and was this negotiated as apart of your divorce settlement? If not, look at your options to secure this valuable coverage on your former partner either through your divorce settlement or on your own.
4. Health Insurance Needs – If you previously had coverage under your partner’s health plan, you may be surprised to learn you are no longer covered after your divorce, even though your children are likely covered until 25. Contact your current provider and seek out quotes for individual coverage. You will need to compare the costs with other providers that offer the coverage most important to you (such as dental and drug coverage).
5. Rewrite your will and Power of Attorney documents. A divorce will mean your current will and Power of Attorney documents are invalid. Consider who will manage and inherit your assets and who will make decisions about your property and your care if you are unable to.
Important Long-Term Financial Considerations
What is your life plan? Where will you live, how will you provide for yourself and how well you maintain yourself and your finances as you age?
Your To-Do list:
1. Establish a financial identity if you don’t already have one.
This includes getting a copy of your credit score and maintaining credit in your own name. Websites such as CreditKarma or Borrowwell provide free instant reports. You should also set up a credit card or line of credit in your own name based on the strength of your credit score. A credit score of 650 and above will allow you to obtain credit.
2.Create a spending plan. You will need to make a list of your expenses and income to determine if you will have enough to cover your costs and monthly debt repayments. Start with your fixed expenses such as house bills, groceries, and transportation. Once you have added up your expenses, factor in your discretionary spending and then use this information to build your plan. If you do this exercise and don’t have enough income to cover your bills, what are your options? Is it possible to reduce your discretionary costs, debt costs, or will you need to consider downsizing?
3. Identify what sources of income will be available now and in the future. This could include child support, spousal support payments, a lump sum from your settlement, TFSA, RSP, or cash accounts. This could also include employment and pension income if you are a senior. An important question to ask yourself is how long can you rely on this income and how much of your lump sum and savings will you need to set aside for the future to ensure you will have a comfortable retirement?
4. Create an emergency fund to pay for expenses should income stop unexpectedly, or if a large expense comes out of nowhere.
What if spousal or child support payments are delayed by your spouse? Or if you are hit with a large home or car repair? Do you have cash you could draw on without going into debt? It is also a good idea to have at least 3 to 6 months of your lifestyle costs set aside in case of an emergency.
5. Don’t be afraid to ask for help. You have a lot of important decisions to make, and making them alone can be especially overwhelming. Seek out the services of a professional planner who has a certified financial planning designation (CFP), and who has experience working with individuals who have become suddenly single. It is also a good idea to improve your confidence around the subject of finance by committing to becoming a lifelong learner in this area.