Getting a divorce often signals huge changes in your short-term and long-term financial goals. Planning to retire early? You might need to delay that. You also might have to downsize or change your lifestyle to adjust to living on one income and paying spousal or child support.
That's why a pre-divorce and post-divorce evaluation of your finances and your financial goals with the help of a Scotia advisor is critical. Here's how to handle planning for your financial future during your divorce.
Why financial planning should be part of your divorce
Doing a pre-divorce and post-divorce evaluation of your finances is critical to helping you better understand both how to navigate your divorce and how to reprioritize your finances once the divorce process is finalized and your finances are split.
Head into your bank’s branch to work with an advisor who can help you evaluate your shared assets, accounts, and property to help you optimize your divorce settlement. You can work together to navigate potential tax implications and understand better how dividing your assets will affect the net worth of yourself and that of your soon-to-be ex-spouse.
For example, if you're considering keeping your marital home, an advisor can help you understand your future post-divorce cash flow and figure out if you can afford your mortgage payments on one salary. They can also help determine how you can pay out your ex-partner's portion of the equity in the property.
Once your divorce is finalized, an advisor will help you create a plan that fits your needs – from reinvesting your money, refinancing and repaying your debt, and adjusting your budget now that you're on your own.
Shift your lifestyle
Living with a partner can have financial benefits, in that you may share expenses and often have two incomes that allow you to have more flexibility in your budget. Post-divorce, you'll likely have to scale back. Working with an advisor can help you map out your financial decisions while you're separated and post-divorce. For example, they can help you understand whether you can afford to refinance your car or if you should sell the family cottage.
Prior to your divorce settlement, they can also help you create a budget to help you cover expenses like attorney fees and child support and spousal support.
Reinvest your money
Some people come out of a divorce with a lump sum of money due to payouts from shared assets that were sold off or divided. Working with an advisor to figure out how you want to reinvest that money, in what kinds of investment vehicles, and toward what goals is key to setting you up for financial success post-divorce.
While you might want to buy similar assets, your financial risk tolerance might be different than your partner's or you might have different financial goals. This is the perfect time to re-evaluate your financial plan so you can invest for your future.
Watch the video: Reviewing your investment strategy
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Re-evaluating your short-term and long-term goals
Divorce can have a significant impact on your net worth and that will affect both your short-term and long-term goals. For example, if you were saving up to buy a home, it might take longer to save for your down payment, or you might need to purchase a place that's less expensive since you'll be working with the one income to qualify for a mortgage.
If you are working on reducing your debt, an advisor can help you find ways to reduce your interest and pay down your debt faster by setting up a repayment budget that works for you.
For many people, a significant financial issue they face post-divorce is being behind on their retirement savings. That could mean that you might need to retire later or increase your retirement contributions. Talk to your advisor about your current financial situation and your retirement goals and how to reach them. Your ideal retirement might look different that your former partner’s so it’s important to make sure your plan matches up with your current goals.
Make or update your estate plan
While you are re-evaluating your finances, this is a good time to look at your estate plan and how you want your assets transferred after you pass away. If you don’t have an estate plan, now is the time to create one to give clear direction to your loved ones on your wishes. If you already have one, you'll likely want to make changes to it post-divorce to update your beneficiaries.
Get the help of an expert
While you might think you can handle your finances on your own during your divorce, enlisting an expert will help you navigate your divorce better and ensure you're set up for financial success. Even if you typically handle your own finances, divorce is a stressful time and having someone with experience guiding you will give you peace of mind.
Advisors, certified divorce financial analysts, and certified financial planners who are experienced in working with divorcing couples are all able to help you optimize your finances and recalibrate your financial plan during and after divorce.