Starting Over: Financial Planning for the Divorced Woman

21 May Starting Over: Financial Planning for the Divorced Woman

Divorce is expensive, particularly for women. Even women who worked throughout their marriages commonly see their income can drop as much as 20% in the immediate aftermath of a divorce.[1]

If nothing else, your budget may have to change. The same income that used to support one household will now need to support two households, and women typically feel the effects of this more than men do. In addition, you won’t be able to rely on your spouse to care for you in an emergency, so you’ll need to make appropriate plans to protect yourself.

Money Matters

It’s common for married women to leave the financial planning to their spouse. But if you’re in the beginning stages of a divorce, it’s critical to understand your financial circumstances so you can better plan for the future.

Consider these tips:

• Gather paperwork (i.e., bank statements, tax returns, retirement savings balances) to get a clearer picture of your current financial situation.
• Establish your own credit, including opening a credit card in your own name.
• Set money aside in an emergency fund, just in case.
• Consider any existing insurance coverage designed to protect you in case of an emergency, and make sure to take that into account going forward.
• Create a new budget, taking into account your income and anything else you expect to remain yours, as well as any expenses you already know about that cannot change.

Future Planning

As a divorce becomes final – and even before – it’s critical that you update any planning you did with your former spouse. For example, it’s unlikely you’ll want to leave your estate to your ex-spouse if you die. Reconsider anything that references your partner, including:

• Powers of attorney for finances and care: In the event that you are unable to make your own decisions, your ex-spouse may not want the responsibility of managing those decisions. Update these documents to designate a new power of attorney for finances and care.
• Disability planning: Similarly, your ex-partner may not want to look after you in a time of need once you are no longer together. It’s critical to select someone who will be willing and able to perform this duty, as well as securing appropriate disability insurance to support you (and any children) in case you can’t work for a period of time.
• Will: In some jurisdictions, if your ex-spouse is still the representative and/or beneficiary in your will, the court will consider him or her to have predeceased you and will appoint another person to represent you. In other jurisdictions, that ex-spouse may simply inherit your estate. Either way, it’s a good idea to update your will to reflect your new circumstances, particularly if you have young children. In many cases, setting up a trust may be the best way to protect them.
• Beneficiaries: Ensure all beneficiary designations have been updated, including RRSPs, RRIFs and any insurance plans. Beneficiaries don’t change automatically upon finalizing a divorce. If you don’t make the change yourself, your ex-spouse could receive the money in your RRSP – and your estate will be required to pay the taxes. In some cases, it’s a good idea to designate the estate as the beneficiary.

The specifics of going through a separation and divorce are complicated and painful. Working with a lawyer or a financial planner can help ease the burden, but it’s important to educate yourself so you know what questions to ask.

To learn more about preparing your estate, contact us.

[1] https://www.fool.com/the-ascent/banks/articles/x-financial-challenges-women-face-in-a-divorce/

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.