Divorce: Investing Your Financial Settlement

It isn’t easy to get your mind around the emotional and financial repercussions of a divorce. Most people just tend to get benumbed when in the middle of the bedlam, because facing these realities can sometimes be too much to bear.

When going through a divorce, it can be incredibly stressful to arrive at a financial settlement, even more so if you are the “non-moneyed” partner. If you haven’t been handling any aspect of your family’s expenses, even simple things like writing checks and monthly budgeting may be an entirely new experience.

When extending this process to providing for your long-term financial stability, taxes, and investments, it can be easy to become overwhelmed. During and post-divorce, an expert financial planner can help ensure that your financial settlement works for you, now and in the long-term as well.

Some aspects to keep in mind

Each divorce situation and financial settlement is different, so there is no set roadmap that you can follow. Divorce settlements include aspects like the division of marital property, spousal support (period of maintenance) and child support. The assets you receive from your settlement will have varying degrees of liquidity from immovable property, and securities to retirement accounts, as well as other assets. The different things you would need to do are:

  • Address all your current one-off expenses and the ongoing monthly living expenses.
  • Be responsible for insurance matters and income taxes
  • Plan for your eventual retirement
  • Manage your investment portfolio

Being solely responsible for all these things and your financial future is not just stressful – it is extremely exhausting.

How to plan your investments

Following the divorce financial settlement, the most pressing concern will be organizing for the ongoing cash flow needed to pay for all your living expenses. Here are some pointers on how you can manage this:

  • At the outset, you should set aside a certain amount of cash to cover at least three months of expenses. These are your living expenses, while you decide how to invest your money.
  • When building a suitable asset allocation, you would need to create a pool of liquid assets for emergencies. This can help balance your investment portfolio’s structure.
  • The remainder of your assets should then be prudently invested for the long term via various investment instruments.
  • Consider working with a seasoned financial planner who will help you build your asset allocation.

A diverse mix of investments

You may be tempted to invest all your money in bonds as they provide the highest short-term cash flow (immediate current yield). But when it comes to investments, it’s never a good idea to put all your eggs in one basket. A far more prudent approach would be to set aside an emergency fund and the amount for current living expenses. Then begin investing very methodically in a diversified portfolio of assets that is a balanced mix of equities and bonds, with a keen eye towards the total return.

Get professional advice about your tax situation, revisit beneficiary designations on life insurance policies and IRA’s, and address revising your Will and other estate documents.

Starting afresh with a new financial life can be an uphill task and most people that have been recently divorced seek assistance from a financial advisor, to set them on the right track.