Tips on proactive post-divorce financial planning
Although emotionally difficult, divorce provides an opportune moment for you to review your independent financial health. There are three central financial pillars that will be fundamentally impacted by a divorce. Naturally, these should be the first port of call in any post-divorce financial review.
Wills and Estate Planning
It is very common for husband and wife to have joint wills which bequeath all assets to the surviving spouse. On divorce the respective separate parties require new wills that, most importantly, specify new beneficiaries. While in most cases these beneficiaries become the children of the divorced couple, it is crucial to remember that if such children are less than 18 years of age, a testamentary trust must be created on death. This requires that trustees be nominated in the will. If this process is not optimally managed, the state will manage the assets as part of its ‘Guardians’ Fund’.
Many of my married female clients insist that they do not require Life or Critical Illness Cover because their husbands will be able to finance them should the need arise. This is a grave mistake. I strongly advise my clients to take out individual life cover. This imperative is pronounced in divorce cases where its is important for the separated parties to leave independent legacies to their children or settle their own personal debts.
Dread disease is another devastating but unavoidable reality. The fact that breast cancer will be diagnosed in 1 in 3 women, means that a newly divorced female is especially vulnerable to the effects of critical illness. Comprehensive medical cover will not be sufficient to absorb the far-reaching financial impacts of this terrible disease.
Another important consideration is the possibility that your ex-spouse may have not have the means nor be willing to pay for the much-needed education of your children. Given this all too frequent fact, I insist that newly divorced people take out policies that fully cover the costs of primary, high and undergraduate education for all children in the event of the death or critical illness of a parent.
Retirement and Savings
The third pillar is your retirement. Many of my female clients do not have a retirement annuity or any form of savings plan as they are entirely financially dependent on their husbands. It is vital that newly independent women have a retirement plan in place. Such a savings strategy also provides important tax advantages that will save you money in the long-term.
Written by Mike Becker CFP®
Independent Platinum Broker with Oracle