More often than not, women find themselves in dire need of solid financial advice after a divorce. Their ex-husbands generally make more money and have more financial power than they do. This can be quite unfair, particularly when women usually gain custody of the children and naturally incur higher expenses.
After a divorce, a woman’s cost of living can increase dramatically, hence the reason why court-ordered alimony and child support payments most often go to women; even so, experts report that the average woman experiences a 45% decrease in her standard of living after going through a divorce. Meanwhile, the average man experiences a 15% improvement in his standard of living (Long Island University’s National Center for Women & Retirement Research).
What are the top 5 financial steps women must take to protect themselves after divorce?
1. Remove Your Name from All Joint Accounts
Whatever joint accounts you owned while married are no longer marital assets. Mingled finances means trouble in the future if your ex-spouse defaults on a loan payment, goes bankrupt, or becomes disabled. This can ruin your credit. Cut or minimize joint accounts you have with your spouse before the divorce. It might be too late afterwards.
2. Create a New Budget
Chances are that divorce left your budget a little lopsided, with much less monthly income to use in your current lifestyle. Now is the time to re-evaluate your budget, not months later when you’ve gotten deeper into debt and your credit has been ruined. There will be many new expenses you might not have thought about. These expenses can include:
• Household,
• Automobile,
• Children,
• Insurance, and
• Debts and miscellaneous.
Many women often fail to consider household expenses, especially if they are remaining in the house after the divorce. Household expenses can include utilities, mortgage/rent, service and repairs, insurance, etc. To better plan for these:
(a) List all sources of your current income.
(b) Make a list of all of your set expenses and see what you can eliminate.
(c) Look at your fluctuating expenses.
(d) Compare your income to your expenses.
(e) Avoid any new debt.
(f) Avoid extra stress by staying on budget.
3. Build an Emergency Fund
Build an emergency fund from any cash you receive from your divorce. An emergency fund should equal 3 to 6 months of your living expenses. We recommend 6 months, because you are now a single parent. If something were to happen to you and you were not able to work, or if an emergency occurred, such a fund would greatly assist you financially. An emergency fund also helps lessen the dependency of using credit during financial hardships.
4. Invest Assets
Invest a substantial portion of the divorce settlement. Once you have established your emergency fund, invest all remaining cash. As a newly divorced individual, you have a unique opportunity to take charge of your life and secure your financial future. Investing a substantial portion of your settlement may be critical to achieving your long-term financial goals, such as sending your children to college, purchasing a home, or retiring.
If your settlement includes securities such as stocks, bonds, or mutual fund shares, you may need to restructure your portfolio to more accurately reflect your current needs and future goals.
5. Protect against Risk
It is very important to review medical insurance. If your husband works for a company with 20 or more employees, federal law requires the company to let family members continue coverage under the group plan for up to three years after the employee dies or divorces. However, you must pay the entire cost of the premium, which can be surprisingly expensive. If you’re in good health, though, you may find a lower-priced policy on your own.
Just as with any other property, you need to determine who will be the owner of your various insurance policies. The owner of the policy can name a beneficiary. Ideally, you should own a life insurance policy on your ex-husband so that alimony and child support can continue even if he dies. You can consult with your attorney to include a provision for life insurance on the provider of alimony or child support.
