Finances: After the Divorce, Financial Tips for Now, Tax Time and the Future
When a woman is in the middle of a divorce, she — or the professionals she hires to protect her financial interests — spend a lot of time with a calculator. Alimony is figured, and maybe child support, too. The value of property and other joint assets are reviewed and divided. Plans for satisfying debts are created.
The signing of the divorce papers, however, doesn’t mean this focus on money should end.Paulette Smith, who teaches personal finance classes for the Delaware Money School, recommends that single-again women assess their financial goals. While they should leave room in the budget to do things that are personally rewarding, they also must manage their money properly to cover expenses.
That might mean adjusting spending patterns. “Eating dinner out a few times a week might have been affordable when there were two incomes supporting the habit. But eating that many restaurant meals might not be realistic once the woman becomes responsible for covering household expenses alone. You’ve got to take stock of things and modify your behavior,” says Smith, a retired executive manager for global management consulting company Accenture.
Tax season puts money on everyone’s mind, so why not take time to review those finances? Here are 12 pieces of financial advice for divorced single women to consider now, at tax time and for the future.
FINANCIAL TIPS FOR YOU NOW
1. Understand your cash flow.
Joan L. Sharp, a certified financial planner who runs Life Strategies LLC in Wilmington, Delaware, says women need to know where their money comes from and how long they can rely on income streams with time limits, which is sometimes the case with alimony. This knowledge helps with money management decisions.
2. Avoid competing with your ex-spouse over who spends more money on your children.
“Quality time and activities with children are less expensive and more meaningful,” Sharp says.
3. Set aside money from every alimony check in a high interest bearing savings account.
“Because alimony is a form of income, some women may have to pay taxes on it every quarter. The account ensures there is money to cover this debt to the government and brings in a little extra income from interest,” Sharp says.
4. Make sure you’re covered.
Purchase health insurance if you previously had coverage under your ex-spouse’s policy.
5. Review stocks and other investments with your broker or financial advisor.
Sharp says changes in your financial situation might change your tolerance for risk, making some old investments inappropriate. Also, determine what types of decisions your broker is authorized to make on your behalf and decide if they are still appropriate. There’s no better time than now to make changes to your investment portfolio.
FINANCIAL TIPS AT TAX TIME:
6. If you are newly separated or divorced, review copies of tax returns filed with your ex-spouse for three to five years.
This review might uncover assets and sources of income that you did not know you had, said Carol E. Arnott, a certified financial planner and certified divorce financial analyst with Greenville Financial Group in Greenville, Delaware. Also, make sure outstanding tax bills have been paid.
7. Think about your filing status.
If you are not legally separated or divorced at the end of the tax year, you and your ex can file jointly or separately but married, said Linda T. Tabeling, a certified public accountant who runs Tabling & Company LLC in Wilmington, Del. A joint filing usually nets a lower tax bill. However, it might not be the best course if you suspect your former spouse is not reporting all income or expenses or cannot pay his share of a tax bill, she said. Once you are divorced, you can file as a single, unless a dependent is involved.
8. If you have dependent children, consider your filing options.
Tabeling said if possible, consult with your former spouse to determine who would get the best financial benefit from claiming dependent deductions. High-income earners, for instance, might not get a tax advantage from claiming a dependent. The decision about which parent makes a dependent claim can be changed annually.
9. Make sure there are not discrepancies between your and your ex-spouse’s tax returns.
Tabeling said the IRS matches some information between returns, such as alimony payments and dependent claims.
FINANCIAL TIPS FOR THE FUTURE
10. Make sure your estate documents reflect your desires.
Sharp, of Life Strategies, says updating wills, trusts and beneficiary forms for retirement plans and life insurance policies ensures your money transfers to the people you want when you die. Family disagreements over unresolved estates cost heirs time and money in higher probate fees. Also, prepare for the time when you might not be able to make your own decisions. Durable power of attorney and healthcare power of attorney documents name a person who can speak for you if you are incapacitated.
11. Prepare for your retirement.
Sharp says if you work, contribute to the 401(k) or other plan offered by your employer. If you don’t work, consider an Individual Retirement Account or Roth IRA.
12. Consider long-term care insurance.
Sharp said this type of insurance protects your assets if you become ill enough to require ongoing care. However, if you do not have a lot of assets and you are likely to receive Medicaid, it might not be worth the expense.
If all this advice feels overwhelming, do not feel discouraged. Smith says even women who have to start over financially after divorce can still create a stable future. “Do not be afraid to seek guidance from professional advisors. Just get the help,” she advises. “Don’t lose hope.”
Charlotte Hale is a freelance writer in Wilmington, Delaware. She has a journalism degree from Boston University and more than 17 years of experience as a writer and editor for newspapers and magazines in Delaware, Louisiana, Maryland, London, and Amman, Jordan.
