After Divorce: Building Your New Financial Roadmap

Finalizing a divorce may feel like reaching the finish line after a marathon. But once the legal process is complete, another important phase begins: building a financial life that works for you as an individual.

The way you managed money while married may no longer fit your circumstances. Your income may have changed, assets may have been divided and financial responsibilities that were once shared may now belong entirely to you.

Creating a post-divorce financial roadmap can help you understand where you stand today and prepare for the years ahead.

Start With Your New Budget

One of the first steps is understanding what it costs to support your new household.

Divorce takes the resources that once supported one household and divides them between two. That may require adjustments to spending and lifestyle, even when a settlement provides substantial assets.

Review your income and expenses and determine what you realistically have available to spend. A clear budget can provide the foundation for many of the other financial decisions you'll need to make.

Have a Plan B for Support Income

If part of your monthly income comes from spousal support, you are relying on another person for that portion of your cash flow.

Consider building a financial buffer and developing a backup plan in case those payments change or stop unexpectedly. 

Understanding how dependent your financial plan is on support income can help you determine how much you should keep in reserves and how other assets may need to be managed.

Reevaluate Your Investment Strategy

An investment strategy that made sense while you were married may not necessarily be appropriate after divorce.

You may now be relying more heavily on investment assets to generate income or cover significant future expenses. That could affect how much investment risk you're comfortable taking. 

A post-divorce investment strategy can consider the income you need, your tolerance for risk and the tax consequences of selling or repositioning assets. Capital gains and other tax implications should also be considered before making significant changes.

The goal is to create a strategy that can provide a reliable source of income while maintaining an appropriate level of risk for your new circumstances.

Update Your Estate Plan

Divorce can also make existing estate planning documents outdated.

Review your will, trust and other estate planning documents to make sure they reflect your current wishes and circumstances.

Insurance policies may need attention as well. Beneficiary designations and other arrangements established during the marriage should be reviewed as part of the broader post-divorce financial process.

Make Sure the Settlement Is Fully Implemented

A divorce decree may be final even though some financial matters remain unfinished.

For example, a Qualified Domestic Relations Order, or QDRO, may be required to divide certain retirement plans. Other assets or compensation may not be available immediately.

Future events could include:

• A bonus that will be divided at a later date
• Restricted stock units that have not yet vested
• Retirement accounts that still need to be divided
• Insurance matters requiring follow-up
• Other financial obligations established in the settlement

Creating a timeline of these outstanding items can help prevent important deadlines or financial
assets from being overlooked.

Plan Beyond the Next Few Months

Post-divorce financial planning isn't only about getting through the immediate transition.

Consider what your financial picture could look like five, 10 or even 20 years from now. That means bringing your budget, investments, taxes, income needs, estate planning and outstanding settlement matters together into one coordinated strategy.

Divorce may have changed your financial circumstances significantly, but it also provides an opportunity to build a plan specifically around your needs and priorities.

With a clear understanding of what you have, what you need and what financial decisions are still ahead, you can begin creating a roadmap for the next stage of your financial life.

This article is based on the Paths Through Divorce podcast episode “Post-Divorce Financial Roadmap,” from EP Wealth Advisors.

EP Wealth Insights Podcast Disclosure

The speakers featured in this podcast are employees and/or Investment Adviser Representatives of EP Wealth Advisors. The information discussed is provided for educational and informational purposes only and should not be considered personalized investment, financial, tax, or legal advice.

The views expressed are those of the speakers as of the recording date and are subject to change. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.

Before making financial decisions, consult your financial, tax, or legal professional. EP Wealth Advisors is a registered investment adviser. For additional information, including our Form ADV, please visit www.epwealth.com.