Make sure your finances are in good shape after you divorce


Going through a divorce will bring big changes to your life, including, for many, having to readjust to managing expenses on one paycheck and rethinking long-term plans such as retirement. Below is a to-do list to help ensure your finances are in good shape after a divorce.

Build a cash reserve fund

Emergency repairs and other unexpected expenses may be more difficult to pay for with just one income. Generally, you should have enough rainy day fund cash to cover three to six months of living expenses in the event of an emergency, which can also include job layoffs or medical costs.

Rebuild your retirement savings

Savings held in an employer-sponsored retirement plan are often split up between the parties as a result of a divorce settlement. For many divorcees, especially those nearing retirement, that means that a comfortable nest egg (or not-so-comfortable) may need to be rebuilt in a hurry. Keep in mind that funding retirement can often be more expensive for two single people than for a married couple.

If you're 50 or older and retirement assets represent a sizable portion of your wealth, losing part of your nest egg to a former spouse could impair your financial security throughout all of retirement.

After a divorce, you may need to save more aggressively for retirement. Creating a household budget can help you find ways to free up cash to set aside for the day you stop working. Remember that saving for retirement can often bring tax advantages, whether through a workplace retirement savings plan, an Individual Retirement Account (IRA) or an after-tax annuity. Take advantage of catch-up contributions if you're 50 or older, which allow you to contribute up to $6,500 a year to an IRA or $23,000 to a workplace retirement plan.

If saving more money is not an option or won’t rebuild your assets quickly enough, you may also need to scale down the retirement lifestyle you've been planning for or even consider delaying retirement by a few years. To free up money for savings, cut back or eliminate nonessential expenses such as cable television or eating out. Another consideration could be working a second job to boost the amount of money you can save toward retirement.

For more information on how to catch up on retirement savings, see our article, Starting Late on Saving for Retirement? Take Five Steps Forward.

Rethink insurance coverage

If you were previously covered by your spouse’s workplace healthcare plan, you and any dependent children may continue that plan coverage for 36 months after the divorce under the Consolidated Omnibus Reconciliation Act (COBRA). Note that you will have to pay premiums for COBRA coverage. Another consideration, if available, is to sign up for your own employer-sponsored health plan.

Also review and update your other forms of insurance. For example, you may want to update life insurance beneficiaries as well as obtain your own automobile insurance if you previously had a joint account with your spouse. You may also want to review your disability insurance coverage. Protecting your income may become more critical now that only one income is available to pay bills and save for the future. A financial advisor can review your life insurance coverage to ensure that your coverage levels are appropriate under your new family dynamics.

Update asset and beneficiary documents

After a divorce you will likely have to update your will, asset titling and named beneficiaries. Without a valid will, state law will determine how your assets are distributed, and without appropriate asset titling and up-to-date beneficiary designations, assets might not pass to the heirs of your choice.

Also remember to review and, if necessary, change the beneficiary designations on your retirement accounts. For more information on estate planning basics read our article, Asset titling and beneficiary designations.

Check your credit

Many married couples have joint financial obligations, such as credit cards. Consider closing all joint accounts and reopening accounts in just your name to avoid being responsible for your ex-spouses debt.

A divorce doesn’t change your financial obligations to your creditors. What about debt you jointly held before the divorce? Even if your former spouse agreed to pay the debt as part of the divorce settlement, you are still legally liable for the debt. It is your responsibility to see that your ex-spouse pays debt obligations mandated by the divorce decree.

Meet with an advisor

An advisor can help you build an overall financial plan based on your changing circumstances, including determining whether you are on track to retire, and if not, what specific steps you can take to help get there. To learn more about working with an advisor see our article, Choosing and using a financial planner. Also remember that you may have access to financial advice through your workplace retirement plan.

Explore further

Visit for broader Financial Education, including a variety of resources to help you improve your financial well-being.