Divorce is a significant life transition, filled with emotional and logistical challenges. On the upside, however, it presents an opportunity for a fresh start. One crucial aspect of building a new life after divorce is regaining control of your finances. With that in mind, here we are going to explore some post-divorce financial planning strategies.
Understanding your new financial landscape
While every separation is unique, it’s a good idea to start your financial planning after divorce by gaining clarity on your finances. Understand your settlement by reviewing the division of assets and debts. And work out a budget given your new level of income, factoring in employment, spousal support, child support, and investments. Having a thorough understanding of your new financial landscape will give you a sense of control and lay the foundation for informed decision making.
Creating a new financial plan
If you had a financial plan in place before your divorce, the chances are it will need to be restructured. Your assets will have changed after your divorce meaning that you may have to save and invest more going forward to achieve your long-term financial goals. And your attitude to risk may have changed too.
Restructuring your financial plan with the help of a financial adviser is a smart idea. An adviser will be able to tell you whether you are on track to meet your goals, and if not, help you develop a plan to achieve them. They will also be able to assess your new risk profile and make sure that your asset allocation is in line with your risk tolerance.
It’s worth pointing out that this is a good time to reassess your financial goals. After your divorce, they may have changed. For example, your desired lifestyle in the future may differ from your previous plans.
Reassessing your retirement strategy
One part of your financial plan that is almost certainly going to require some modification is your retirement strategy. It’s likely that your situation here will have changed significantly. Take some time to understand the impact of your divorce on your pension accounts. Then, work out how much you still need to save and invest for retirement.
Again, it can pay to speak to an adviser here. They will be able to help you work out how much you’ll need for retirement, factoring in variables such as inflation, taxes, investment returns, and healthcare costs. They’ll also be able to help you explore catch-up strategies, if necessary.
Enhancing your financial security
Risk management is a crucial part of financial planning after divorce. When transitioning from two incomes to one, a safety net can be lost.
Now that you are independent, it’s vital to have cash reserves. So, look to build up an emergency fund with at least six months’ worth of expenses in it so that you are protected from unexpected financial surprises.
It’s also important to have income protection insurance in place. This is designed to replace a portion of your income if you’re unable to work due to illness or injury.
As for life insurance, now is a good time to review old policies and ensure that you have adequate coverage for yourself and any dependants. It’s also a good time to update your beneficiaries to reflect your current situation.
It’s worth pointing out that your home insurance may need to be updated. Look at the list of assets on your homeowner’s policy and see if they’re still relevant. There may be items that your spouse received in the divorce such as jewellery, collectibles, and artwork that you can remove from your policy.
Protecting your wealth for the next generation
Finally, review your estate planning strategy. Look at your Will and other legal documents such as pension ‘expression of wish’ forms and make sure they’re still fit for purpose (an ex-spouse could still be listed as a beneficiary).
And review your Inheritance Tax (IHT) strategy. If not properly planned for, Inheritance Tax could cost your loved ones a significant amount of money. In the UK, the government collected £7.1 billion[1] in IHT for the 2022/2023 tax year, up 36% on the figure five years earlier. With a plan in place, the wealth you have built up is more likely to be preserved for future generations.
How we can help with financial planning after divorce
Divorce is a life-changing event, and amidst the emotional upheaval, the financial landscape can feel treacherous. From asset division to the transition to a single income, the path forward can seem daunting.
However, with careful planning and informed decision-making, you can emerge from the stormy waters of divorce with a secure financial future. The key is to put a plan in place early and seek professional advice where necessary. If you’re going through a divorce at the moment, you might find our other blog on this topic helpful; How to approach financial planning for divorce.
At Bowmore, we have considerable experience in this area of financial planning. We understand the challenges you face, and we can assist you in tackling them.
Want to find out more about how to make the most of the money you have, and how to enhance your financial security? Get in touch with us today.
BOWMORE FINANCIAL PLANNING
PHONE 01275 462 469
[1] https://www.ftadviser.com/your-industry/2023/04/25/iht-receipts-grow-by-1bn-year-on-year/
- Bowmore Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority
- The Financial Conduct Authority does not regulate Cash Flow Planning, Estate Planning or Inheritance Tax Planning
- Bowmore Financial Planning Ltd is not regulated to provide tax advice
