Financial Planning Tips For After Divorce: What To Watch Out For
Divorce marks the end of one chapter, but it is also the beginning of another. While the legal process finalizes the dissolution of your marriage, the financial consequences can last long after the decree is signed. For most Illinois residents, divorce represents not only a personal transition but also a complete financial reset. From dividing assets to adjusting to a single income, the decisions you make in the months following a divorce can shape your financial future for years to come. If you have questions about this or other family law matters, our Troy, MI divorce lawyer is available to talk.
At Merel Family Law, we understand that divorce is not just about the legal resolutions—it’s about securing a stable foundation for the next stage of life. Here are some of the most important financial steps to take after divorce in Illinois, and what to watch out for along the way.
Immediate To-Dos
Close or Separate Joint Accounts
One of the first steps after divorce is untangling shared finances. If you and your ex-spouse had joint checking, savings, or credit card accounts, those should be closed or retitled into individual names. Leaving accounts open can create unnecessary risk, as either party could continue using them. If you cannot immediately close an account because of outstanding balances, consider freezing access until the debt is resolved.
In Illinois, divorce decrees often specify how joint accounts should be divided or paid down, but it’s up to you to make certain these orders are carried out. Get confirmation from your financial institutions in writing to make certain that all accounts are updated and/or appropriately closed.
Budget for Single-Income Living
Divorce means transitioning from a household supported by two incomes to one. Even if you receive maintenance (alimony) or child support, you should prepare for leaner cash flow. Draft a monthly budget that accounts for essentials—housing, utilities, food, insurance, and transportation—and build in categories for savings and discretionary spending.
Illinois courts require financial affidavits during the divorce process, so you may already have a snapshot of your income and expenses. Use that as a starting point, but adjust for post-divorce realities like new rent, childcare costs, or health insurance premiums.
Update Tax Withholding and Filing Status
If your divorce is finalized before December 31, you cannot file as “married” for that tax year. Update your W-4 with your employer to reflect your new filing status. Adjusting your withholding early helps prevent surprises at tax time, especially if you will no longer be claiming the same number of dependents or deductions. Confirm with your accountant to make certain you are putting yourself in the best position possible.
Retirement & Investments
QDROs and Dividing Pensions/401(k)s
For many couples, retirement accounts are among the largest assets divided in a divorce. In Illinois, these are typically split through a Qualified Domestic Relations Order (QDRO). A QDRO is a specialized court order that directs a plan administrator to transfer a portion of one spouse’s retirement account to the other, without triggering taxes or penalties.
If your divorce involved a QDRO, make certain it has been properly prepared, signed and entered by the judge, and accepted by the plan administrator (and don’t hesitate to follow up with them to make certain all is in order!). A divorce judgment alone is not enough—without a QDRO, you may lose your right to retirement funds later.
Rebalancing Investment Portfolios Post-Split
After dividing investments, you may find yourself with a different asset mix than before. For example, you might end up with more non-liquid and fewer liquid assets than is appropriate for your age or goals. Review your portfolio to rebalance according to your new risk tolerance, time horizon, and income level.
Insurance & Benefits
Health Insurance Coverage Loss (COBRA, ACA)
If you were covered under your spouse’s employer-sponsored health plan, that coverage typically ends after divorce. In Illinois, you may be eligible for COBRA continuation coverage, which allows you to stay on the same plan for up to 36 months—but you will most likely have to pay the full premium, which can be costly.
An alternative may be to enroll in an Affordable Care Act (ACA) marketplace plan. Divorce counts as a “qualifying life event,” meaning you can apply outside of the normal open enrollment period. Compare costs and coverage before making a decision.
Life Insurance Updates to Protect Support Obligations
Illinois courts sometimes require a parent paying child support or maintenance to maintain life insurance to secure those obligations. Even if not required, it may be wise to update your life insurance policy to make sure your children or dependents are financially protected if something happens to you.
Be sure to review and change your policy beneficiaries. Many people forget that ex-spouses may remain listed, which can lead to unintended outcomes.
Credit & Debt Management
Repairing Credit After Joint Debt Payoff
If you had joint credit cards or loans, your credit may have been impacted by high balances or missed payments during the divorce process. Begin rebuilding by paying down balances, making consistent on-time payments, and considering a secured credit card if needed.
Request your free annual credit report to confirm that joint debts have been closed or transferred. Illinois residents are entitled to one free report each year from each of the three major credit bureaus.
Refinancing Mortgages or Car Loans
If one spouse keeps the marital home or a vehicle, that loan often needs to be refinanced into their name alone. Until that happens, both spouses remain legally liable for the debt—even if the divorce judgment assigns responsibility to one party. Protect your credit by making certain refinancing is completed or consider selling the asset if refinancing isn’t feasible.
Taxes After Divorce
Child Tax Credits & Dependency Exemptions
In Illinois, parenting time and support obligations are separate from who claims a child as a tax dependent. The divorce decree should specify which parent may claim the child for tax purposes. The Child Tax Credit and Earned Income Credit can provide substantial benefits, so it’s important to follow the agreement.
Alimony Tax Treatment (Post-2019 Changes)
For divorces finalized after January 1, 2019, spousal maintenance (alimony) is no longer deductible by the paying spouse or taxable to the receiving spouse under federal law. Illinois aligns with this federal standard. If your divorce was finalized earlier, different rules may apply. Always check your judgment and consult a tax professional.
Long-Term Planning
Estate Plan Revisions (Wills, POAs, Trusts)
A divorce automatically revokes certain provisions in Illinois estate plans, such as leaving property to a former spouse. Still, you should formally update your will, trusts, powers of attorney, and beneficiary designations. Consider naming new executors, trustees, and agents who can manage your financial or healthcare decisions if needed.
Saving For Kids’ College (529 Adjustments)
Many Illinois parents save for college using 529 plans. If you previously contributed jointly, clarify ownership and contribution responsibilities in your divorce judgment. You may want to open your own 529 account to maintain control, while still coordinating with your ex-spouse to maximize savings for your child’s education.
Start Smart: Build A Financial Foundation After Divorce
Life after divorce in Illinois comes with new challenges, but also the opportunity to build a secure and independent financial future. By taking immediate steps to separate accounts, revising your budget, and updating tax information, you protect yourself from short-term setbacks. By addressing retirement, insurance, credit, and estate planning, you set the stage for long-term stability.
At Merel Family Law, we help clients navigate both the legal and financial realities of divorce. With careful planning and the right professional guidance, you can move forward with confidence and avoid costly surprises down the road. We are an award winning, nationally and locally recognized law firm. Since opening in 2009 we have helped over 5,500 clients with their family law needs. If you have questions or need help with a family law matter, reach out to us today.
