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Separation and divorce are extremely stressful life changes. But add the challenges of dividing assets and sorting out finances, and the stress level goes right though the red zone, especially for women, who often have greater financial needs when custody of children is involved. To ensure much-needed stability now and into the future, I’ve developed a set of basic principles to help women who find themselves in this challenging situation cope and plan for their future.
Keep in mind that after a divorce, your financial needs will be very different from when you were married. Budgeting, paying the bills, planning for your children’s education, and managing investment and retirement savings, will fall on your shoulders. And you’ll have to do this while coping with legacy items such as mortgages, along with any future obligations specified by the divorce settlement.
The settlement is only the final stage of what can be a long, arduous, emotionally draining process of dividing up family assets. It’s not always a 50/50 split, because many factors can affect the division of assets. This could include, for instance, a consideration of whether one spouse (usually the woman), suspended her career to care for children, thus suppressing future earning potential. Other factors might include the size of assets each spouse brought to the marriage, the length of the marriage, pension plans, inheritances, gifts, and pre-nuptial agreements.
So the first thing to do is to get organized. Itemize and detail the following:
Income and expenses. Income from employment or self-employment, a business, a trust, investments, all should be counted. List all your ongoing expenses, both short-term daily living expenses and longer-term recurring expenses, like taxes, loan and mortgage payments.
Assets and liabilities. List what you own, both jointly and individually. In addition to your principal residence, this could also include property like a cottage or timeshare. Same goes for investments, including funds held in Tax-Free Savings Accounts, Registered Retirement Savings Plans, Registered Education Savings Plans, Registered Retirement Income Funds, and any non-registered brokerage accounts, both full-service and self-directed. As for joint or individual debt, be sure to list mortgages, car loans and leases, lines of credit, credit card balances, personal loans, and so on.
Documents. Make sure you find and keep track of key documents, especially anything that you’ve signed separately or jointly as a contract or agreement of some sort. These relate to ownership of real property, investments, and bank accounts, both here and abroad. Be sure to track down originals of wills, powers of attorney, trusts, and so on. Your lawyer will probably have much of this paperwork. But double-check anyway. And having this information at hand gives you a head start on the rest of the financial planning you have to do.
Once the divorce settlement is finalized, you’ll need to work up a financial plan independent of your former partner. You are likely to experience a change to your income level, at least temporarily, so it’s a good idea to use this list as a guide for post-divorce planning:
Net worth. A clear picture of what you own and what you owe after the dust has settled. This is your new reality, and it’s now time to concentrate on how to grow from here.
Priorities. You’ll naturally have short-term ones, like paying the bills (e.g., mortgage and other debt) and everyday expenses for yourself and your dependants. But you’ll also have longer-term goals, like retirement planning, healthcare, estate planning, and insurance, all of which may have been jointly held when you were married but are now solely your responsibility. Talk it through with your financial planner to get some objective input.
Investments. Work with your financial planner to create a detailed statement of investment objectives, defining the optimal allocation of your investment assets.
Taxes, estate planning, insurance. It’s here you’ll really need expert help. Working you’re your financial advisors, your lawyer should ensure the tax bite is minimized in any settlement. Afterwards, your planner may also refer you to the appropriate qualified professionals to ensure that you and your dependants are protected with the properly drafted wills, powers of attorney, an estate plan, and life insurance.
Your post-divorce objective is to get back on your feet financially as smoothly as possible. Starting with the basics I’ve outlined here, you’ll be able to make that happen a lot faster.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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