Divorce and My Financial Future

Divorce often comes with financial surprises. We offer suggestions on how to prepare yourself and what to fight for (or possibly let go), as well as ways to help make sure you have enough money for retirement.

By Kate Ashford

Susan Carter,* 44, was married for 17 years before she made the decision to separate from her husband. Things haven't gotten easier since then. “I'm a strong, independent woman,” she says. “But I'm surprised at how much there is to deal with.”

One unexpected jolt: learning that she might have to sell the house she lives in with her two sons, 11 and 12, and her daughter, 14. She never realized that her husband could ask her for cash for her half of the house, and she doesn’t have enough on hand if it comes to that. “You watch TV and you always see the mother in the house, don’t you?” says Carter, who works in marketing. “I just assumed that was a given.”
In divorce proceedings, some would be better off asking for assets that could be more useful than the house.
Divorce is never pleasant, but it helps to be prepared for what’s ahead — especially since the outcome of your divorce agreement is likely to affect your budget and retirement savings. Below are considerations for anyone who finds themselves in this situation:

  • Tackle finances during the divorce process, not after
    It may be tempting to figure you’ll get your decree and confront money issues later. Resist the temptation. To be sure you’ll have enough money for your own retirement, you need to deal with the disposition of IRAs and 401(k)s now.

    You also need a realistic idea of what your cash flow will be as a single person. Otherwise you won’t know what to press for in the final divorce agreement.

  • Don’t focus exclusively on the house
    Some people try to get the family home to the exclusion of all else. But there are costs to consider beyond the mortgage, including upkeep and taxes. “You have to analyze whether it makes sense to maintain the house or whether it’s a better idea to get the proceeds and possibly downsize,” says Veronica P. McLeod, a Wells Fargo Advisors Financial Advisor in Palm Beach Gardens, Florida.

    In addition, a house is not a liquid asset and could go down in value, leaving you with much less capital than you expected. In divorce proceedings, some would be better off asking for assets that could be more useful than the house — such as a portion of the ex-spouse's retirement portfolio.

  • Consider college expenses
    Even if you’re sure your ex-spouse will agree with you on the importance of college, you can’t force them to help pay tuition if it’s not part of the divorce agreement. Get it in writing.

  • Ask for your fair share — and it may be more than 50%
    If your ex-spouse makes more money than you, a split of assets right down the middle isn’t necessarily the fairest way to divide things. Why? They’ll have more income to put toward retirement.

    Every divorce is different, and the outcome of yours may depend, in some measure, on the laws in your state. So talk to a financial advisor and an attorney to help you determine an equitable arrangement.

  • Be cautious about your post divorce budget
    Clearly, your lifestyle is going to be different after the split. You’ll be paying household and child care expenses — and you can’t always count on your ex-spouse to pay his or her share, even if it’s in the divorce agreement. Susan Carter makes a comfortable salary, but with three kids, she was counting on regular child support payments. Now, though, her former husband is unemployed, making her financial situation more difficult.

    You also may find that you and your ex prioritize things differently: “In my mind, braces are something you automatically give your children,” Carter says. “You might find your spouse does not agree.”

  • Don’t forget Social Security
    If you were married for at least 10 years, you’re entitled to 50% of your spouse's benefits — if that amount is greater than your own benefits — once you reach full retirement age. That applies even if your ex remarries (but not if you do).

    Once you’re 62, you can apply to the Social Security Administration for benefits even if your former spouse hasn’t started collecting yet. That doesn’t reduce his or her benefits or the benefits of anyone else they marry.

  • Think about your estate
    You’ll want to adjust important documents — your will, power of attorney, and health care directive, for example — to reflect your new reality. If you find yourself in the hospital with serious injuries, for example, you probably don’t want your ex in charge of health care decisions.

  • Revisit your beneficiaries
    Take heed: If you don’t remove your former spouse as your primary beneficiary on retirement and investment accounts, they will get all the money when you die. Changing your will is not enough. Your designated beneficiaries on investment accounts and insurance policies override those in your will.
Other resources
If you need help as you go through the divorce process, try any of these groups:

American Academy of Matrimonial Lawyers
The Association for Conflict Resolution
American Society of Appraisers – Business Valuation Committee
Internal Revenue Service (Use keywords “Separated or Divorced Spouses/Parents” to find topics on taxes and divorce.)

*Name changed to protect privacy. This person is not currently a client, employee or affiliated with Wells Fargo & Company. Her story is presented for informational purposes only.

Key Points:

  • Make sure you handle financial matters during the divorce process, not after.
  • Figure out if it’s practical for you to keep the house.
  • In your settlement, be sure your ex agrees to help pay college tuition for the kids.
  • Think about your estate and updating your beneficiaries.
Kate Ashford writes about personal finance and health. Her work has appeared in Money, More, and Good Housekeeping, among other publications.

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