Divorce can throw a wrench into even the most careful financial planning. If you’re newly divorced, you’ve probably had to deal with dividing assets, such as investments and retirement accounts, and setting up separate households, not to mention the emotional fallout of ending a marriage.
Here’s a look at several steps you can take to get your finances back on track after a divorce.
Consider Life Insurance
Life insurance is especially important if you have dependent children who may be relying on you to cover their daily expenses or educational costs. Life insurance could also prevent you from becoming a financial burden on other family members, because your beneficiaries could use the proceeds to cover your final expenses, such as burial or funeral costs. That money could also be used to settle any debts you might leave behind.
Investigate Health Insurance If you were covered under your ex-spouse’s employer health insurance policy, you may need to secure new coverage once the divorce is finalized. If your ex-spouse’s company has 20 or more employees, you may be eligible to continue coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), provided you notify the health plan administrator within 60 days of becoming divorced. However, under COBRA, you will be responsible for the entire amount of the premium, which is the monthly payment, so it may be more economical to secure coverage on the individual market or through your own employer.
You may also want to beef up your health insurance coverage by adding supplemental health insurance. In the event of a serious injury, supplemental health insurance would help fill coverage gaps like co-payments, deductibles, and nonmedical care, such as transportation to treatment.
Explore IRA and Social Security Options
If you were married for at least 10 years and have not remarried, you can claim Social Security benefits on your ex-spouse’s record starting at age 62, regardless of whether your ex-spouse has remarried or not. But Social Security checks may not cover all your expenses during retirement, so it’s often a good idea to use other retirement savings vehicles, such as Individual Retirement Accounts (or IRAs).
IRAs are a tax-advantaged way to save for retirement that allow you to choose the investments in your account and supplement employer-sponsored retirement accounts, including a 401(k) or 403(b). The maximum IRA contribution for 2013 is $5,500, but if you’re over age 50, you can also make catch-up contributions to a traditional or Roth IRA up to $1,000.
By taking these steps now, you’ll help ensure greater financial independence and security during and after this difficult transition. Want to know more about insurance and IRAs? Contact an Allstate personal financial representative to discuss your needs.