Going Through a Divorce? Here's Your Financial Checklist

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual.

Divorce is a challenging emotional experience that brings significant changes to your life. To help you through the legal process, you probably hired a lawyer. They will focus on working toward an equitable division of property and assets—and custody arrangements for your children (if you have them).

But you may need more than a lawyer’s help. To set yourself up for financial success in the years after your divorce, consider working with a financial professional. They can help you find the long-term solutions that are best for your future.

As you go through the process, here are some key financial considerations to talk over with your Northwestern Mutual financial advisor:

Track your cash flow

If you’ve already created a monthly budget, you’ll want to review it for your new financial situation. If you don’t have one, this is a good time to create one. It should categorize the money coming in and going out each month.

Add new budget items that come up as a part of the divorce itself—things like lawyers’ fees, child support and alimony payments. Remember to include rent or a mortgage payment if you’re moving out. Pulling together realistic numbers will help you set priorities.

Make financial arrangements for your children

If you have kids, you already know that there are significant costs to raising a child. And you’ll see that divorce is expensive, too. You and your former spouse will need to figure out who’ll pay child support. In the months and years ahead, you’ll also have to decide how you’ll pay for activities such as sports or music lessons.

One of the largest costs of raising a child is funding college. Talk about whether you’ll set up a college fund. If you’ve already started one, decide which adult will own it.

Another important step for your kids’ financial future is to have life insurance for your children. It can give them a financial head start.

Understand the tax implications of divorce

Understanding how divorce affects your taxes is crucial for navigating financial changes effectively. That’s because divorce can significantly affect your taxes, altering your filing status and potentially impacting deductions and credits. One major consideration is how divorce affects the tax benefits associated with having children. If you have dependents, determining which parent claims them can influence tax returns through child tax credits and other advantages.

It’s a good idea to consult with a tax professional to ensure you maximize potential benefits and comply with regulations during this transition.

Make beneficiary changes

Getting a divorce is a good reason to reevaluate life insurance beneficiaries. The beneficiaries listed on your policy override information in a will, trust or other estate planning documents. So, it’s very important to make sure these designations reflect your current intentions.

And in many states, divorce automatically nullifies a spousal beneficiary designation—making these updates even more important. The states that automatically revoke the designation of a spouse as a beneficiary are sometimes referred to as “stripping states.” For an ex-spouse to continue as a beneficiary in the stripping states, a new beneficiary designation must be completed after the divorce is final.

You may also consider designating secondary or contingent beneficiaries. This helps ensure that your assets are distributed according to your wishes if the primary beneficiary cannot inherit them. As you make changes, think about policies you have through work and policies you purchased on your own. Consider your other accounts, too, like savings and investments.

Review your will or other estate planning documents

Reviewing your will and other estate planning documents is an essential practice that should be done regularly. But significant life changes—such as divorce—are a particularly important time to review these documents. For example, a divorce may mean that you don’t want your former spouse to make decisions on your behalf or handle your affairs after you pass away.

Ensure these documents accurately reflect your current wishes to help prevent disputes or contests over your estate. On the other hand, overlooking your estate plan can lead to costly and time-consuming probate proceedings for your loved ones.

Review your life insurance coverage

Often a divorce decree will require one spouse to maintain life insurance in a specified amount for the benefit of the ex-spouse. This requirement typically continues as long as there is an obligation to provide child support or alimony. If this is part of your agreement, you should consider who should own it and who should pay for it.

If the person being insured is the owner and payor, provisions should be included in the insurance arrangement to ensure that the beneficiary isn’t changed and that payments for the policy are made on time so that the coverage does not lapse. Your Northwestern Mutual financial professional can help.

Understand how your retirement accounts will be affected

Divorce can significantly affect your retirement savings, often requiring you to divide accounts with your former spouse. If they are ordered to share a portion of a qualified retirement account, you’ll receive a legal document called a Qualified Domestic Relations Order (QDRO). Once you have it, you can contact the company holding the retirement account and manage your part of the account. It also allows you to move money into your own retirement account—essentially as a rollover into an IRA—tax-free and without penalty.

Your Northwestern Mutual financial advisor can assist you with the QDRO transfer process and help you adjust your portfolio. The adjustment can match the amount of risk you want to take (your risk tolerance) and how much time you plan to keep the money invested.

As you navigate the division of retirement assets, it’s also important to reassess your overall financial plan. Divorce often necessitates a shift from a joint financial strategy to individual financial goals and circumstances. Your Northwestern Mutual financial advisor can help you adapt your plan.

Retitle joint assets

When jointly owned assets are divided in a divorce, some assets may need to be retitled so that the spouse who retains the asset is listed as the sole owner. Examples include:

• Mortgaged real estate.
• Vehicles with their loans.
• Joint bank or brokerage accounts.
• Other valuable personal property like fine art, collectibles and jewelry.

Property ownership rules, particularly how assets are divided in a divorce, differ by state. You’ll want to work with a local attorney to understand how your property is being divided and exactly how it should be titled post-divorce.

An attorney can help you understand how any prenuptial agreement will impact you—and talk through a postnuptial agreement, if you’re considering one.

How a financial advisor can help you during a divorce

The right guidance can reduce stress and help you work toward a solid financial future. Your Northwestern Mutual financial advisor can help you divide assets, manage debts and understand tax implications. And because they take the time to get to know you, they can provide advice that matches your goals. Your advisor can even point out opportunities and blind spots that might otherwise get overlooked.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER^®, and CFP^® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.