Financial Steps To Take After A Divorce, #213
What steps should you take to get your financial life in order after a divorce? In this episode of Retire with Ryan I lay out, step-by-step, the checklist of things you’ll want to look over, everything from calculating your net worth to designating beneficiaries. There’s a lot to consider. My aim is to simplify the process so that you can focus on what really matters—rebuilding your life.
You will want to hear this episode if you are interested in...
[0:45] Recap of the last two episodes
[1:15] Organize your net worth and budget
[4:27] Review insurance coverage
[6:28] Review overall debt
[8:27] Consider hiring a financial advisor
[9:32] Review your retirement plan
[10:38] Review your estate plan
How to get organized post-divorce
Taking over your finances might be new to you. If it is, one of the first things you must track is a balance sheet of your net worth. You list your assets on the left-hand side (checking accounts, savings, investment accounts, retirement accounts, real estate, valuables, etc.).
On the right-hand side, you want to list any debt you have (credit cards, mortgages, student loans, lines of credit, etc.).
You’ll want to update this annually so you know how you’re doing. Your net worth should increase over time as you’re saving and growing assets. When you move into retirement, your net worth will likely decrease as you spend your assets.
You also need to put together a budget to track your income and expenses. You can do this in an Excel spreadsheet or use a budgeting app. You’ll want to list fixed expenses (home, insurance, etc.) as well as wants, i.e. what you want to spend on luxury items.
Review insurance coverage
Once you’re divorced, you’ll also need to consider whether or not you need more insurance. You’ll want to look at:
Life insurance: Do you need to retain life insurance? If you have minor children, or it was specified in the divorce, you’ll need to look into your options.
Health insurance: Do you need to remove your ex-spouse or children from your plan? Do you need to add your children? How are you and your spouse sharing coverage?
Disability insurance: Maybe you didn’t have disability insurance before but now that you’re single, you need to consider it. You could potentially get this through your employer.
Long-term care insurance: This is expensive and isn’t for everyone. But maybe you don’t have family or friends who could care for you in the event of a long-term illness or disability.
What else do you need to look at?
Review overall debt
Will you have to take on more debt after a divorce? Where does your credit score stand? Equifax, Transunion, and Experian all offer one free credit report per year. If your score is lacking, are there things you can do to improve your credit score?
If you go to borrow money to buy another home or car, knowing your credit score is important. The better your credit, the lower your interest rate will be.
Secondly, there’s a certain amount of debt-to-income that lenders will allow, generally around 43% of your gross income. So if you're making $100,000 the most lenders would allow you to borrow is a debt payment of $43,000 a year. I suggest you keep it closer to the 30% range or lower but knowing where it stands can give you an idea of what you could borrow.
Do you have a retirement plan? How long do you need to work? What do you need to save to retire? I cover a few more things you need to consider in this episode.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Get a free copy of my net worth statement and budget spreadsheet
Use my “I love you letter” template