establishing their own budgets and financial accounts. Here are some pointers on where to start.
Your client’s divorce is finally over. The marital assets—including home
equity, personal possessions, and retirement accounts—have been divided, and
alimony and/or child support may be part of the settlement. Now you can help
your newly divorced client focus on the issues that will help him or her move
into the next phase of life.
Post-divorce checklist
Each item on the following checklist will not be applicable to every person
that divorces. However, having a comprehensive list will show your client that
you have a plan to help start his or her new financial life. These are some of
the major items that need to be done as soon as the settlement is written and
signed:
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Retitle the house and automobiles if necessary |
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Refinance the house |
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Remove ex-spouse from joint credit cards, brokerage, and bank statements |
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Open a checking/savings account in the client’s own name |
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Establish individual credit history, including opening a credit card in the client’s name |
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Transfer retirement assets to the client’s own retirement account per the settlement agreement |
There are other items that need to be part of the post-divorce checklist that
may not be as immediate but are important to your client’s future welfare. These
items include:
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Change the beneficiary on IRA and retirement accounts |
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Change the beneficiary on insurance policies and life insurance annuities |
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Update or originate a will |
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Update living wills, health care powers of attorneys, powers of attorney, revocable trusts, and other estate-planning documents |
Even after the divorce, the client may still be very emotionally fragile. The
newly divorced have had to deal with so many financial details that the last
thing they want to do is make more decisions. A gentle conversation on your part
can help your client understand the importance of making and implementing these
decisions and having the appropriate documents amended. (You can print out the checklist to help clients stay on track
and feel the tasks are manageable.)
Budgeting
Another area where clients will probably need help is setting up a new
budget. This is especially important for the spouse that was not familiar with
paying the bills or handling income.
With some people, you might have to start with the basic steps of how to plan
a budget. The more the client recognizes the importance of establishing a
budget, the easier the task will be to actually get started. Here are the four
major steps of the process:
- Determine actual income. First the client must realize how
much after-tax income will be available for the budget, whether it is income,
alimony, or child support. He or she needs to separately list what money is
coming in, from what sources, and when the money will be available, whether at
the beginning, middle, or end of the month. Encourage your client to set up an
appointment with an accountant to figure out how much money should be held back
for federal and state taxes. Without this information, creating a budget will be
impossible. - Assess actual spending. Now for the detailed and tedious
part—fleshing out the budget. What is your client spending money on each month?
It will be easier to establish a budget or revise it if the client is staying in
the marital home and is familiar with the cost to maintain it, including
utilities, insurance premiums, taxes, and repairs. - Use the provisional budget as a basis. During the divorce
process, most individuals will establish a budget of anticipated expenses for
the home and personal needs for the family. This is what determines the levels
of child support and/or spousal maintenance. The true budget might be completely
different after the divorce, but start with the budget developed during the
divorce. - Separate the fixed and the flexible. Next, the client
should differentiate which expenses are fixed and which are flexible. Clients
who are just beginning to learn about budgeting may be under the impression that
money always comes in on a regular basis and will continue to do just that. What
they may not understand is that they will have to form new spending patterns and
habits—especially if there is less money coming in.
It will be to your advantage to have a comprehensive budget
spreadsheet or list available to your client. If your client has not had to
worry about a limited amount of money, help him or her realize that the money
going out for expenses can’t be more than what is coming in.
As the budget is established, quarterly, semiannual, or annual payments—such
as property taxes and insurance premiums—need to be averaged out on a monthly
basis for the benefit of the client. This process will need to continue on a
monthly basis, with adjustments being made as needed.
Emergency and investment needs
Another immediate goal is to establish an emergency fund that can cushion the
family against the potential of the child support and/or spousal maintenance not
being paid on a regular or timely basis.
During the budgeting process, you can determine what disposable income is
available for investments. That money should be used in a manner that is thought
out and deliberate. Help the client think ahead about whether there are major
purchases or school tuition that need to be planned for. How long will it be
before a car will have to be replaced, a child begins college, or they go on a
major vacation? This helps the client think about the future and not just dwell
on the present.
Establishing a new budget, changing the names of personal property, and
making choices about beneficiaries for retirement accounts and insurance
policies will be decisions that the newly divorced client has to make. Gently
remind them of the importance of checking off each item on your post-divorce
checklist. It will not only benefit everyone in the short term but also
consolidate your long-term relationship with your client.
