Couples starting the new year with a divorce may find untangling finances is no easy feat. Data from the University of Washington found that divorce filings start to pick up in January — a trend researchers theorized could be fueled by a rough holiday season. Filings peak in March and then again in August, they found, before declining in the fall. Many people try to time a major change like a divorce with periods in their children’s lives that are most stable. such as the start of a school semester, or the end of summer.
If you’re in the midst of a divorce, or thinking about initiating a divorce, here’s how — and when — to update your financial plan.
Remove your spouse from power
Close joint accounts
Prior to divorce, you may wish to review your accounts and ensure that there are not large sums on account for bills that might be removed by the responding spouse. Try to protect cash in a fair and harmless way, such as placing a lump sum in a sole account so that the funds are not wasted. After a divorce, you want to be sure the account institution understands you have gone through a divorce and that money transfers are controlled by the language of the divorce judgment. Often temporary and final court orders will guide how to divide and/or close accounts.
Monitor any joint debts. While your name is on that credit card account, mortgage or car loan, you still share in the liability, even if your divorce agreement stipulates your spouse is responsible for payments. A spouse’s bad payment behaviors on those debts could hurt your credit.
Tweak your portfolio after divorce
When you’re married, it’s common to have a strategy based on your collective investments, says Sam McPherson, a certified financial planner and president of McPherson Financial Advisors in New York. Once your accounts have been allocated by the court — by agreement or court order — check to make sure your asset allocation is on target for your risk tolerance and timeline as an individual.
Revisit cash flow
What was affordable as a couple may not be as an individual. Take a hard look at how your budget and cash flow needs will change going forward. Tackle this task as soon as possible after filing for divorce. That knowledge might influence decisions during the proceedings — such as whether you can afford to pay the mortgage if you wish to keep the marital residence.
Update your estate plan
Update beneficiaries on life insurance policies and retirement accounts, which pass automatically to the named beneficiaries, regardless of what’s in your will. But read your divorce agreement before making changes — you may not be allowed to change beneficiaries, for example, if the court has ordered you to maintain life insurance as collateral for support obligations, such as child support or maintenance.
Adjust insurance coverage
Update your homeowners, auto and health policies to reflect your new single status. You may also want to revisit your life and disability insurance coverage needs. If you’re going to need new health coverage, mind the deadlines. Most plans give you just 60 days from the divorce to enroll for COBRA coverage.
CNBC Credit: Kelli Grant, CFP.