Financial Planning After Divorce: How to Move From “We” to “Me”
By Joe Dowdall, CFP®, RICP®, CRPC®, CCFC
Even the most amicable divorce can be financially, emotionally, and logistically stressful. If your divorce has just been finalized, you might be left reeling, unsure of what to do next. Getting your life back together can feel like picking up the pieces, especially when it comes to financial planning after divorce.
Moving from sharing your finances with someone to planning your own future can be daunting, but you don’t have to do it alone. Working with a fiduciary, fee-only CFP® professional can help you feel confident the advice you receive is objective and always in your best interest.
Here’s a look at some simple (but important!) steps to help you get started with financial planning after divorce.
Review Your Accounts
Often, financial planning after divorce starts with some financial housekeeping:
- Close joint bank accounts and credit cards and open individual ones.
- Update your will to reflect your new status.
- Update any powers of attorney (if your current ones name your ex-spouse as your agent).
- Update beneficiary designations on retirement accounts, insurance policies, and other accounts.
Don’t underestimate the importance of these steps—especially updating beneficiary designations. In many cases, the beneficiary designation on a retirement account or insurance policy takes precedence over the provisions in your will. This means that if you die unexpectedly, some of your assets could go to your ex-spouse.
Rebuild Your Budget
Once you have updated your accounts, it’s time to start looking ahead. Financial planning after divorce isn’t just about numbers. In many cases, it means envisioning an entirely new future. You and your ex-spouse may have planned to retire abroad or travel the country in an RV. But what are your goals?
You don’t have to decide right away. However, it can be helpful to have a few ideas in mind as you move to another important step in financial planning after divorce: building your budget.
Creating a budget can get complicated, but you don’t have to worry about the little details for now. To begin, record your current monthly income and expenses. Once you have a clear idea of how much you earn each month and how much you typically spend, you can begin planning.
For instance, if your income exceeds your expenses by a significant amount, you might decide to start saving or investing more aggressively. If your expenses are almost equal to your income, you might start identifying areas where you can cut back.
Talking to your financial advisor can be helpful at this stage of financial planning after divorce. Many of my newly single clients are confused, overwhelmed, and grappling with uncertainty, and it might only take a meeting or two to help them get back on track.
Revisit Social Security Benefits
Financial planning after divorce also includes reevaluating your retirement strategy, especially when it comes to Social Security. As a divorced individual, you may be eligible to claim benefits based on your ex-spouse’s record, which can sometimes be more advantageous than your own.
Here’s what you need to qualify:
- You are at least 62 years old
You were married to your ex-spouse for at least 10 years - You are currently unmarried
- Your ex-spouse is eligible for Social Security benefits (meaning they must be at least 62 years old and have earned enough work credits—typically 40 credits, equivalent to about 10 years of work. Importantly, they don’t need to be currently receiving benefits, just eligible for them.)
In most cases, if your ex-spouse hasn’t yet filed for benefits, you must be divorced for at least two years before you can claim on their record. This is commonly referred to as the “two-year rule.”
However, if your ex-spouse has already started receiving benefits, the two-year waiting period does not apply, and you can file as soon as you meet the other criteria.
Keep in mind that you can only receive a benefit based on your ex-spouse’s record if it is higher than your own. But you can’t “stack” the benefits. You’ll receive either your own benefit or up to 50% of your ex-spouse’s benefit—whichever is higher, but not both.
Understanding these rules can help you make a smarter decision about when and how to file for Social Security after divorce.
Need Help With Financial Planning After Divorce?
For more thoughtful steps on navigating your new financial chapter, download my free guide to financial planning after divorce.
All of these steps are a good place to start. However, each person’s financial situation is different, and the best way to shield yourself is to seek out personalized guidance. At Worth Asset Management, as a fee-only CFP® professional, I’m here to offer fiduciary financial advice for any situation. If you’re looking for assistance with financial planning after divorce, contact us to schedule an introductory appointment.
Get started today with a 15-minute introductory call. I can be reached at (469) 423-1989 or by email at joe@worthassetmgmt.com.
Frequently Asked Questions About Financial Planning After a Divorce
What are the first financial steps to take after a divorce?
After a divorce, start by closing joint bank accounts and credit cards, and opening individual ones. Update your will, powers of attorney, and the beneficiaries on your retirement accounts and insurance policies to reflect your new circumstances. These steps help protect your assets and align your plans with your new life.
How do I create a budget after a divorce?
Start by listing all your monthly income sources and regular expenses. This helps you understand your current financial situation and plan accordingly. If your income is higher than your expenses, you may choose to save or invest more. If it’s tight, look for areas to cut back. A financial advisor can help you build a realistic, forward-looking budget.
Can I claim Social Security benefits based on my ex-spouse’s record?
Yes, you may be eligible if you meet these requirements:
- You are at least 62 years old
- You were married for at least 10 years
- You are currently unmarried
- Your ex-spouse is eligible for Social Security benefits
If your ex-spouse hasn’t started receiving benefits yet, you must be divorced for at least two years. However, if your ex-spouse is already receiving benefits, you can apply right away.
Important: You’ll only receive the higher of the two benefits—either your own or up to 50% of your ex-spouse’s benefit. You cannot receive both.
About Joe
Joe Dowdall is a CERTIFIED FINANCIAL PLANNER® professional at Worth Asset Management, a financial services company in Dallas, TX, that provides a wide range of wealth management services. With over 15 years in the financial services industry, Joe is a fiduciary who creates tax-focused financial plans for people nearing or in retirement—to help them build and safeguard their wealth through all life stages. He desires to offer clients the best financial planning experience while developing a friendship based on mutual respect. Joe’s philosophy as a financial planner is rooted in his experience as a teacher, where he learned the importance of explaining complicated concepts in understandable terms. He’s passionate about working with a select group of clients to help them achieve their financial goals with confidence and clarity.
Joe has an education degree from the State University of New York and an MBA in finance from Saint Joseph’s University. In addition, he has obtained the CERTIFIED FINANCIAL PLANNER®, Retirement Income Certified Professional®, Chartered Retirement Planning Counselor℠, and Certified College Financial Consultant (CCFC) designations. Joe resides in Frisco, TX, with his wife, Leila, and their two daughters. During his free time, he enjoys traveling with family, exercising, and hiking the national parks. To learn more about Joe, connect with him on LinkedIn.
The information provided is for general guidance and informational purposes only. Please consult with a qualified tax professional for advice tailored to your specific financial situation.