Getting a Divorce? Take These 5 Steps to Protect Your Financial Future

A woman sitting at one end of a couch with her hands covering her face while a man sits with his arms crossed on the other end.

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It is never easy to go through a divorce. Even if it is amicable, the process can be emotionally and financially draining. But there are some steps you can take to protect your financial future after a divorce. Let's discuss what those steps are and how you can prepare for them in advance.

1. Get back to the financial basics

The first step is to start decoupling your money from your spouse and get back to the financial basics. It is also important to create a budget and stick with it during this difficult time. This will help ensure that you have enough money to pay bills and living expenses while still leaving room for savings or investments for the future.

During a divorce, both parties are typically responsible for certain debts such as credit cards and loans. Make sure you know which debts are yours so that they can be paid off in full before the divorce is finalized. Organizing your financial information and documents will get your finances on track as you start the next phase of your life.

2. Update your financial goals

While married, you may have set financial goals as a couple. Now that you are moving on with your life, it is important to create your own financial goals. Financial goals boost your financial well-being and as you move on, this is a good time to focus on becoming financially independent. You want to set both short-term goals like saving an emergency fund and long-term goals such as saving for retirement. This will help you map out a financial plan to meet them.

3. Understand the laws in your state

It's important to understand the laws surrounding divorce in your state. Depending on where you live, the division of assets may be handled differently. Knowledge of these laws can help you plan for and protect assets, as well as prepare for any financial upheaval that may occur during or after the process.

Do you live in a community property state? Then you are entitled to 50% of nearly all assets like a home and debts acquired in marriage. From safeguarding spousal support to dividing existing debt, familiarizing yourself with local regulations protects you from loss of income or assets down the line. Gaining an understanding of your rights and responsibilities early in the process acts as a life preserver when emotions run high and decisions become difficult.

4. Update your estate plan

It is important to update your estate planning documents after a divorce. Chances are that you have your spouse in your will, medical directives, trusts, estate plan, and as a beneficiary. Here are documents that should be updated or considered after a divorce.

  • Will: This document determines who receives your assets in the event of your death.
  • Healthcare proxy: This document gives permission for someone else to speak for you if you are medically incapacitated.
  • Update beneficiaries and powers of attorney: These will determine who will receive your assets and can trump a will.
  • Trust: A trust can handle alimony, child support, and direct funds to your heirs.
  • Guardianship: If you have minor children, a judge will review your recommendations on who will take care of them should anything happen.

5. Consult a professional

A divorce can be emotionally taxing and following these steps alone can be very intimidating. If you had a financial advisor who was helping you and your spouse, it makes sense to find someone else to help you. This advisor can help you through each of these steps and provide customized advice to meet your needs as a newly single person. You should also check with an attorney or financial advisor to make sure that all legal documents are in order before proceeding with any paperwork related to the divorce proceedings.

Divorce can be a difficult process both emotionally and financially but taking proactive steps now can help you protect your financial future down the line. From researching state laws regarding asset division to creating a budget and updating your estate plan, these strategies will help ensure that you're able to move forward confidently after your divorce has been finalized. With proper planning, you can successfully navigate this challenging period in life and come out stronger than ever on the other side!

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