Aflac: 5 Financial Steps to Take After a Divorce

Divorce can be a drastic shift in one’s life, and one of the most significant changes is the financial situation. After a divorce, one will have a smaller household income and may owe alimony and child support. This can force one to live leaner as they adjust to a single household income and independent financial accounts. However, taking a few steps can help one regain their financial footing and get back on track with their goals. This article discusses five crucial steps to maximize financial security and stability post-divorce.

1. Close joint accounts and open new accounts

After a divorce, an individual should open new accounts and move their funds from joint accounts to those new ones. One must also close those bank accounts and any joint credit accounts promptly. This helps prevent the ex-spouse from withdrawing funds or accruing debt that could affect both ex-spouses. Doing this step first helps one solidify their financial independence and create a clear boundary between themselves and their ex-spouse.

2. Adjust the monthly budget

Divorce can dramatically impact one’s monthly budget, even after any divorce-related expenses, such as attorneys, divorce settlements, and moving, are handled. After a divorce, one has a smaller household income. They may also be responsible for alimony or child support payments. However, outside of those payments, one may also have fewer expenses and more control over how they use their income.

Individuals who have recently divorced should review their budgets and prioritize crucial expenses if their spending exceeds their income. This can help them regain financial control, make a plan to increase income, and continue working toward savings goals.

3. Reassess insurance needs

A divorce can impact insurance needs across almost every policy a policyholder has. For instance, someone with family health insurance may no longer need to cover their ex-spouse. Life insurance is another aspect to consider. A smaller household can mean a lower income and expenses, which may necessitate a different amount of coverage.

A smaller income could also make it harder to pay premiums. Failure to pay premiums is one of the reasons life insurance won’t pay out since the policy lapses. So, one may reduce coverage or find a more cost effective policy to fit premiums into their budget.

If one doesn’t have a life insurance policy, obtaining one may become more crucial in order to provide financial protection for children. In either case, individuals can use a life insurance calculator to estimate their coverage needs.

4. Review credit scores and reports

Divorce does not directly impact one’s credit score, but the financial aspects may indirectly alter one’s score or report. Joint and cosigned accounts are areas of concern. If one closes joint credit accounts that still have balances, both parties could still be liable for paying down the debt. Interest can still accrue as well. Failing to make payments on time could damage one’s score.

If one is an authorized user rather than a full joint account holder, they can contact the card company and ask to be removed. Even if an individual successfully liquidates and closes any joint credit accounts, they may erroneously remain on one’s report and cause undeserved credit damage. So, after a divorce, one should request their free annual credit report from all three bureaus and review them carefully. Dispute any errors promptly to remove them and prevent credit harm.

One final note is to minimize new debt after a divorce. Money may be tighter on one income, so keeping debt low can help prevent credit damage through high utilization and missed payments.

5. Update one’s estate plan

Divorce can dramatically impact how one wants their assets distributed, requiring estate plan updates. They may want to remove their ex-spouse from their estate and leave more to children so that the children have additional financial security. Documents in an estate plan that may need revisions include:

• Last will and testament: One may remove their ex-spouse as an estate beneficiary and reallocate the assets to other parties, like their children. They may also need to name a new guardian for minor children.
• Healthcare power of attorney: One may need to designate a new individual to make medical decisions on their behalf in case they become incapacitated.
• Durable power of attorney: One may need to designate a new individual to make financial decisions on their behalf in case they become incapacitated

Furthermore, one should update beneficiaries for retirement accounts, investment accounts, and similar assets. Beneficiary designations on these accounts supersede one’s estate plan, ensuring one’s wishes are met.

The bottom line

Divorce can be emotionally and financially draining. However, prioritizing finances post-divorce can establish a sense of calm and control. Start by closing joint accounts and moving the funds to new accounts, then review credit scores and reports to ensure none of those accounts inadvertently lead to damage. Meanwhile, adjust the monthly budget, reassess insurance needs, and update the estate plan to account for the new situation. Following these steps can help individuals reestablish their footing and stabilize their financial situation after a divorce.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac’s family of insurers include American Family Life Assurance Company of Columbus, American Family Life Assurance Company of  New York, Continental American Insurance Company, and Tier One Insurance Company.

Aflac WWHQ | Tier One Insurance Company | 1932 Wynnton Road | Columbus, GA 31999.

Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211

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Contact: Angie Blackmar, 706-392-2097 or [email protected]