Money and Financial Planning for Divorced Women

By
Shari Rash
March 31, 2023
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Divorced women and money

A divorce can turn your financial plans upside down. Once feeling financially safe, you are now questioning how not only to plan for the future but live day by day.

By choice or circumstance, according to a recent Prudential study, 95% of women will be the family’s primary financial decision maker at some point in their lives. At least 80% of women will be the sole financial decision maker.

These percentages probably sound high, but the main reasons why are due to death and divorce.

Women are likely to be the sole decision makers because women outlive men. Life expectancy combined with the US divorce rate, makes being a sole decision maker the only option.

Unfortunately, this sole decision maker hat is usually placed upon our heads when we are least prepared.

Many women don’t handle the finances in their marriage, making the entire process that much more daunting. When working with my clients, I make sure each partner is involved in the financial decision making progress. They don’t have to make every decision, but they should be part of the experience. Then comfort and confidence builds over time and when my female clients become the sole decision maker, they are ready to face it head on versus burying the head in the sand.

The good news is that you can get your finances back on track, you can plan for the future, and you can still enjoy the retirement lifestyle you envisioned.

Oftentimes the hardest part of financial planning after a divorce is getting started.

Let’s go through how you can plan for transitioning from two incomes to one (or one income to none), what financial factors you should consider, and how to get back on track to live comfortably today and make retirement a reality.

Divorced Women and Money: The Transition from Two Incomes to One (or One to None)

One of the hardest financial parts of going through a divorce is having half of the income to live on. Whether you were the primary breadwinner or were holding down the house, you are bound to face a change in your relationship with money.

When working with my divorced clients during my Financial Foundations program, we start with the basics: money in and money out.

First, what is your income stream?

Where is the money in coming from and how much will it be each month? If you work outside the home, will your job continue uninterrupted? Will you be receiving palimony, alimony, or child support? How about receiving a portion of the proceeds from splitting assets? For example, are you selling your home and splitting the profit?

Write down all the money you expect to receive on a monthly basis from these income streams. If you plan on getting a job, list the expected income here as well.

Many women that are homemakers scramble when it comes to a divorce. Their years maintaining the house and caring for children often go unpaid and underappreciated.

Did you hear about the homemaker in Spain that was awarded $215k by her husband for her years of homemaking? She claims that due to exclusive care of her home and family, she was unable to explore job opportunities outside the household.

Although this situation was abroad, this court ruling could be a landmark case in divorce proceedings and change settlements between breadwinning husbands and stay at home wives.

If you did not earn an income during your marriage, that means you are transitioning from one income to none.

Understanding expected income and developing a reasonable plan to allow you to live within your means, can help you manage this new phase without the stress of pinching pennies each month.

Divorced Women and Money: Understanding Your Expenses

After identifying your income streams, you need to outline your expenses. Consider rent or mortgage payments, utilities, groceries, childcare costs, and the other expenses you need to live.

When outlining these expenses, it’s best to be realistic. You don’t want to budget $200 a month for groceries if you know costs end up being around $500.

Having a grasp of your expenses can also help with the negotiation phase of the settlement, ensuring you aren’t under-compensated.

Ideally, your basic expenses, the stuff you can’t live without, should be about 50% of your income, and no more than 70%.

I get it, that is hard, especially if you live somewhere that is expensive. But if more than 70% of your income is taken up by necessary expenses, then you could put yourself into a tough situation going forward.

You need to make sure you have a cushion in the event of an emergency or months where spending is higher (summer camps, vacation, braces, etc.)

Another factor that many divorced women don’t consider is health insurance. Who holds the health insurance? If your ex-spouse held the insurance, you might need to find a new provider either through the marketplace or your place of employment. Factoring in health insurance for your children can make the process more complicated; however, your divorce agreement should outline who is required to foot that bill.

When you compare your expenses to your expected income stream, are you in a deficit? If you project your expenses to be higher than what you earn, you may need to find ways to cut costs or earn more income.

Sometimes having a hard conversation with yourself or putting your pride aside now and making major changes will save you from financial ruin.

Finding ways to work with the money you are receiving or uncovering tangible ways to cut costs is important to position yourself for financial stability and success. When working with my divorced clients, we create an attainable plan to help you thrive, not just survive after a divorce.

Financial Essentials for Young Families

Divorced Women and Money: Is Retirement Still an Option?

A common misconception that divorced women have is that retirement is off the table.

This isn’t true.

With the right resources and strategies, you can reach your retirement goals, maybe even sooner than you imagined.

Hopefully, you aren’t starting from scratch, as most states have marital property laws that include retirement assets.

Did your ex have to split his 401k or 403b with you? This is called QDRO (Qualified Domestic Relations Order).

If you received retirement funds in your settlement, it is best to roll those assets into an IRA or Roth IRA.

Please know that if you are younger than 59.5, this is not a lump sum of cash that you can use at will. This is money to be used for retirement.

When you make withdrawals from retirement accounts, you will pay taxes on 100% of the withdrawn amount. If you are younger than 59.5, in addition to taxes, you’ll also pay a 10% penalty.

Employers really don’t want to hold onto QDRO assets in their plan, and by rolling them over you also have more control over your new found money.

Generally, you can expect to receive half of the retirement assets that have already been saved by the breadwinner.

My advice is after you roll over your QDRO retirement assets into an IRA of your own, forget they exist. That money is for your retirement. Let’s live off of the cash, after tax dollars that you will receive.

If you are unsure what you are receiving, contact your lawyer or check your divorce documents.

Even if you don’t already have a nest egg, you can still retire comfortably.

What does your retirement look like?

To plan for your future retirement, first you need to think about your vision. Ask yourself, when would you like to retire?

You should start planning for retirement at least 10 years prior.

It sounds daunting to plan for retirement but again, start small. Keeping your ideal retirement lifestyle in mind, ask yourself a few questions:

Do you want to relocate?

What age would you like to retire?

Would you want to stay in your home or downsize?

Do you plan on taking care of grandchildren?

Asking yourself these questions can help you determine what you must do today to reach those goals.

Then look at your expenses, most expenses will stay pretty consistent from pre-retirement (when the kids are out of the house) to post-retirement, so you should expect to need roughly the same amount of income.

Many individuals like to travel during retirement, resulting in spending more than they did when working. If you want to travel, take these costs into consideration.

Factoring in rising health care costs and inflation is also important.

And just like we did when you were recently divorced, you will need to start small and determine the money coming in.

Social Security benefits for Divorced Women

A chunk of your income in retirement will be your Social Security. Your Social Security payment is determined based on your income for the past 30 working years. If you worked and contributed to Social Security, you can find out your Social Security benefit by going to SSA.gov and creating a profile.

If you did not work for the full 30 year calculation period, it is likely you will receive a spousal benefit. A Spousal Social Security benefit is rouhgly 50% of your spouse’s benefit. (Assuming benefits start at Full Retirement Age).

As long as you are not remarried and were married to your ex-spouse for 10 years, you can receive a spousal benefit off of your ex-spouse’s income.

The difference between your expenses (needed income) and Social Security income is what you will have to provide for yourself. Then that number will need to be about 20 times that amount because we can expect at least a 20 year retirement.

That number may seem unattainable, but again, think of small steps. Save bit by bit, dollar by dollar, and invest your savings in order to make that retirement number a reality.

These calculations can become tricky quickly, which is why it’s important to work with a professional that can guide you throughout the process.

You do not have to go about this on your own. You need someone in your corner, that understands where you are currently and where you want to go.

In addition, your retirement savings plan should be revisited on a yearly basis to evaluate progress and make any changes to help you reach your goals. Inflation, changes in tax laws, and alterations in divorce agreements can all impact your retirement saving goals.

Divorced Women and Money: Where to Start?

Unsure Where to Start?

Financial planning after divorce can be overwhelming, but remember that you aren’t alone in this process. Greenway Wealth Advisory specializes in helping women take control of their finances, creating attainable goals that you can work toward today.

We want to educate and empower you to give you a quality of life without having to worry about paying the bills each month or having enough money to retire. Having expert help can be indispensable in this next phase of your life.

Whether you are starting from scratch or are unsure of how to use your portion of assets, we can help. We want to be your trusted partner, helping you take control of your finances post-divorce.

  1. McKinney, Andrea, “Women and Their Role as Financial Decision Makers,” Central Trust Company, June 14, 2022.

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