Divorce is often a significant life event with far-reaching consequences, including comprehensive financial implications. The consequences can vary greatly depending on the age of the divorcee, as various stages of life bring with them different opportunities and challenges.
This article offers advice and insights into the financial issues that divorcees typically face during each stage of their lives. Take a look at this summarized breakdown of the financial effects of divorce by age, including tips to help you lessen the effects:
20s
- Building credit: If your former spouse’s financial habits had a negative influence on your credit score, concentrate on repairing your credit by making on-time bill payments and staying out of debt.
- Debt management: It’s common for a divorce to result in a debt division. To effectively manage your debt, it’s a good idea to evaluate your financial situation and create a plan.
- Creating financial Independence: You might need to do this quickly if you were not the primary breadwinner for the family. This could involve changing careers, earning more money, or cutting back on spending.
Tip: Learn how to clean your digital footprint to retain privacy.
30s
- Review financial objectives: Divorce can cause long-term financial arrangements to fall apart. Review your objectives and modify your spending plan as necessary.
- Division of assets: Wealth Manager Mallory Kretman explains, “Your attorney will help you pursue a fair division of assets, such as real estate, retirement funds, and investments. Consulting with a financial advisor can help you understand how the settlement fits into your financial plan.”
- Child custody and support: If you are a parent, your financial situation can be greatly impacted by the terms of your child custody and support agreements.
Tip: Learn the significance of keeping separate vs. joint financial accounts.
40s and 50s
- Housing costs: Divorcees often have to sell their house or restructure their mortgage if they were joint owners with their ex-spouse.
- Health insurance: Verify that you and your kids are adequately covered by health insurance. “Typically, the divorce decree will specify which parent is responsible for providing health insurance coverage for your kids,” Mallory adds. “Thanks to COBRA, you may remain insured on your spouse’s work health plan for up to 36 months after the qualifying event (divorce). In some cases, it may be more cost effective to enroll in a new plan.”
- Retirement planning: Your retirement planning can be significantly impacted by a divorce. According to Mallory, “After divorce, individuals often have a reduced household income, making it harder to contribute to retirement accounts. One partner may also lose access to spousal benefits or pensions if they relied on their partner’s income or employer plans.”
Tip: Learn what your lifestyle costs you to sustain and spend less than you earn.
60s and Beyond
- Estate planning: Mallory advises, “Review all elements of your estate plan, including your Will/Trust, Financial Power of Attorney, and Healthcare Power of Attorney. Since spouses are often named throughout these documents, you will need to work with an estate planning attorney to modify the individuals named in your estate plan. It’s also important to review and modify your beneficiary designations. If you have a beneficiary designated on an account, that designation overrides any instructions in your will.”
- Medicaid eligibility: If you were dependent on your spouse’s income or assets, a divorce could affect your Medicaid eligibility.
- Social Security: “If the marriage lasted 10 years or more,” says Mallory, “you may be entitled to file for a spousal Social Security benefit based on your ex-spouse’s earnings. A spousal benefit can be up to 50% of the primary worker’s full retirement benefit if you claim at your full retirement age. If claimed before full retirement age (as early as 62), the benefit is reduced. It’s worth noting that if you are entitled to your own Social Security benefit, you will receive whichever amount is higher: your own benefit or the spousal benefit, but not both.”
Tip: For tax purposes, learn the cost basis of every asset, and know how much risk you can afford to take on for the kind of assets you want.
The Bottom Line
Regardless of age, it’s wise for divorcees to get professional advice from a financial advisor to help manage the financial complexities of divorce. They can provide guidance on managing debt and wealth, dividing up assets, retirement planning, and other important financial issues.
Comprehending the financial consequences of divorce and addressing them proactively can significantly support your efforts as you pursue financial stability post-divorce.
Reach Out for Help
Financial challenges for divorcees are hard to overcome.
Over two decades, Laurel Wealth Planning LLC has provided financial advice for those going through a divorce. The LWP team helps divorced or divorcing clients move toward confidence, control, and freedom, with a goal of thriving after divorce.
Having a guide who puts your needs first can help you move away from confusion and uncertainty and onto the path you want for yourself.
To schedule a complimentary meeting, email laurel.wealthplanning@laurelwealthplanning.com or call (952) 854-6250.
Find out if Laurel Wealth Planning is the right financial advisor for you based on your wants and needs. Even if they are not a good fit for you, they can assist you in the next step of finding someone who is.
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Mallory is a Wealth Manager and Shareholder. She listens deeply and helps simplify complex financial situations to help clients move into an easier, clearer future. She aims to give financial advice that is compassionate, wise, and easy to understand.
