Tips for Financial Security After a Divorce

Rings A divorce can be emotionally and financially draining. If you and your spouse are headed for a divorce, here are some steps you can consider taking to help protect your financial security — and peace of mind.

Assets: anything you own that has monetary value.

Liabilities: any debts you owe or other payments you have agreed to make or are obligated to make.

Speak with an attorney

Even if you're hoping for a do-it-yourself, no-lawyer divorce, you can still benefit significantly from consulting an attorney who specializes in matrimonial law. An attorney can serve as an objective third party, advising you of your rights, obligations and options and walking you through issues surrounding alimony, child custody and property settlement. During this period of heightened emotions, an attorney will be able to help you focus on critical details.

Estimate what you and your spouse are worth

The court may require a record of all assets and liabilities you and your spouse have jointly and separately. You should:

  • List all financial accounts and assets the two of you have, either individually or jointly. That includes stocks, bonds, real estate, mutual funds and workplace retirement plans.
  • Do an inventory of household possessions, including vehicles, appliances, electronic equipment and furniture.

Once you’ve accounted for all assets, slot each of them under one of three categories:

1.Your belongings, such as things you brought into the marriage.
2.Your spouse’s belongings.
3.Marital property, or property acquired after the marriage. Note: The court will decide how to equitably divide marital property. State laws differ on the meaning of "equitably," but most states do not automatically define "equitably" as "equally." The court and applicable law may also determine the ownership and division of all property and the responsibility for debt incurred during the marriage.

  • Itemize your liabilities — debts like mortgages, home equity loans, car loans, credit card balances, private school tuition contracts, etc. Essentially anything else you and your spouse owe money for. Tag liabilities as yours, your spouse’s, or joint.

As an aside, if your marriage is in trouble, from this point on, it might be a good idea to postpone new and large purchases as well as the assumption of any new debt.

Assess your cash flow

After a divorce, you’ll be a single person and maybe even a single parent. Financially, things will be a lot different from the way they’ve been, so it’s important to estimate your cash flow after the divorce, so you can plan for your new financial reality. You should also try to forecast future income to enable the court to determine child custody and alimony payments.

Give serious thought to creating a post-divorce budget as a tool for managing your money going forward. A budget can help you determine whether you’ll need to scale back your lifestyle.

A budget can also help you focus on the income side of your cash flow. For example, you might realize that after the divorce, you will need to find a higher-paying job, or go to work if you’re not currently employed. You may even decide to go back to school as a way of enhancing your future income potential. To get guidance on such issues, consider seeking the services of a professional career counselor.

Review your insurance

Make sure you will have adequate health, disability, and life insurance coverage after a divorce. If you’re currently covered by your spouse's employer-provided health plan, you can usually keep existing coverage for at least 36 months after a divorce under the Consolidated Omnibus Reconciliation Act (COBRA). You will have to pay premiums for COBRA coverage, and the premiums will probably be steep, so you need to account for them in your post-divorce budget.

If you're employed but don't currently use your own employer-sponsored health plan, consider signing up for it. A group policy at work is typically much cheaper than an individual policy purchased on your own. Employers typically do not permit you to sign up for health insurance mid-year, but if you've experienced a major life event like a divorce, it is usually possible.

After a divorce, remember to review and, if necessary, change beneficiary designations on your life insurance policies and retirement accounts, as permitted by court order.

Consult with a financial advisor

Your attorney may be able to provide limited guidance on financial issues. However, for broader assistance with the financial aspects of divorce, consider consulting with a financial advisor. He or she will also be able to guide you through longer-term financial planning, which might address issues like debt reduction, education funding, retirement planning and estate planning.

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