Divorce Financial Planning Worksheet: Secure Your Financial Future After Separation

Divorce is not just an emotional separation; it's a financial one too. And while emotions run high, the most crucial thing you can do is focus on the financial planning aspect. Failing to plan properly during this transition can lead to financial disaster.

You might think your financial life will continue as usual, but divorce often changes everything—income, expenses, debts, and even your retirement plans. Here’s where a well-structured financial worksheet comes into play. Think of it as a roadmap that helps you understand the long-term impact of your decisions.

Understanding Your Financial Situation: The Starting Point

Before making any decisions, it's essential to gain a clear picture of your finances. Gather all your bank statements, tax returns, mortgage documents, and credit card bills. Ensure you have a full inventory of assets, liabilities, income, and expenses. You can't plan properly if you don’t know what you're working with.

The worksheet should cover:

• Assets: Joint bank accounts, savings, retirement accounts, investments, property, vehicles, and personal belongings of value.
• Debts: Mortgage, car loans, credit card debt, and any personal loans. Don’t forget any unpaid taxes or legal obligations.
• Income: Current income from all sources, including both partners’ salaries, bonuses, business revenue, rental income, or dividends.
• Expenses: Mortgage/rent, utilities, groceries, insurance, education costs, childcare, and any other recurring costs. This also includes variable expenses like vacations, dining out, and entertainment.

Setting Financial Priorities

One of the first things you need to do after a divorce is rethink your financial goals. Maybe before, you planned to save for a larger home, or you and your spouse shared retirement goals. Now, things are different.

Decide what your financial priorities are:

• Short-term priorities: These might include paying off high-interest debt, building an emergency fund, and managing the costs of moving or legal fees.
• Long-term priorities: These are goals like saving for retirement, paying for your children’s education, or purchasing a new home.

Budgeting for Life After Divorce

Creating a new budget can be challenging. Your income might be lower, but some expenses (like legal fees, child support, or alimony) can rise. You need to adjust your lifestyle accordingly.

Let’s look at a typical post-divorce budget:

Category	Monthly Expense
Rent/Mortgage	$1,500
Utilities	$200
Groceries	$400
Childcare/School	$800
Transportation	$250
Health Insurance	$300
Debt Repayment	$600
Entertainment	$150
Emergency Fund	$100
Total	$4,300

Start by cutting unnecessary expenses. If you were living a two-income lifestyle, adjusting to one income means you’ll need to scrutinize your spending carefully. Use a financial worksheet to track every dollar coming in and out.

Dividing Assets: What to Know

During the divorce, your assets will likely be divided based on local laws (community property or equitable distribution). You’ll need to decide which assets you wish to keep and which ones you can let go of. But beware of tax implications!

Some tips for dividing assets:

• Don’t just focus on the house: While keeping the family home might feel like a win, it can also be a financial burden. Maintenance costs, property taxes, and mortgage payments can add up quickly.
• Consider retirement accounts: These can be tricky. Pensions, 401(k)s, and IRAs might need to be split, and there can be penalties for early withdrawal.
• Keep your debt in mind: Both partners should assume responsibility for shared debt. Leaving one person with a significant portion of the debt can lead to long-term financial stress.

Retirement Planning After Divorce

Divorce can significantly affect your retirement plans. If you were married for a long time, you might be entitled to a portion of your spouse's retirement accounts or vice versa. This is typically done through a Qualified Domestic Relations Order (QDRO), which allows the division of retirement assets without incurring penalties.

Start by reassessing your retirement savings:

• Will you need to increase your contributions?
• Will you need to adjust your investment strategy?
• Can you still retire at the age you originally planned?

A divorce financial worksheet can help you outline these steps and create a solid retirement plan.

Tax Implications of Divorce

Divorce can create numerous tax challenges. For instance, who gets to claim the children as dependents? How will alimony and child support affect your taxable income? Working with a tax professional during this time is crucial.

Here are a few tax considerations:

• Alimony: For divorces finalized after 2018, alimony is no longer tax-deductible for the payer or taxable to the recipient.
• Filing status: If your divorce is finalized by December 31st, you’ll file as single for that tax year. Otherwise, you might file as married, but this depends on your living situation.
• Property division: If you sell your home as part of the divorce, capital gains tax might come into play. Understanding the tax implications of asset division is key to protecting your finances.

Building a New Financial Future

While divorce is tough, it's also an opportunity to reinvent your financial life. You may need to rebuild your credit or open new bank accounts. Consider meeting with a financial advisor to help navigate the complexities.

Here’s a checklist to get started:

• Open a new bank account and ensure any joint accounts are closed.
• Get a copy of your credit report and work on improving your credit score.
• Start contributing to a retirement plan under your name, if you don’t already have one.
• Consider buying life or disability insurance if you’ll be financially dependent on spousal support or child support.

Professional Help: Financial Advisors and Divorce Planners

Working with professionals during a divorce can be a game-changer. A Certified Divorce Financial Analyst (CDFA) or financial planner can help you understand the long-term financial consequences of your divorce, and assist with everything from asset division to tax planning.

Here are a few ways a professional can help:

• Assess how your financial decisions during the divorce will affect you long-term.
• Analyze various settlement proposals to determine which is most favorable.
• Help with budgeting and financial planning for life after divorce.
• Assist in creating strategies for dividing retirement accounts and pensions.

Final Thoughts: Taking Control of Your Financial Future

The road ahead may seem daunting, but with the right tools, you can take control of your financial future. A well-planned worksheet can serve as a guide to navigate this complex time in your life. Make sure to update it regularly, and seek professional advice when needed.

Divorce can be a significant financial challenge, but with thoughtful planning, you can set yourself up for a stable and successful financial future.