Your Divorce Is Final. Now How Should You Invest?

Once a divorce is final and the assets have been divided, it can feel like the difficult financial work should be over.

In many ways, however, a new part is just beginning.

You may now have cash, a brokerage account, individual stocks, or retirement assets that were divided as part of the settlement. The divorce determines which assets are yours. It does not determine how those assets should be invested for your new life.

Start With Your New Financial Life

Before investing anything, I would first understand what your finances look like now.

What are your annual expenses? What income do you have? What will housing cost? Are there expenses related to children, insurance, education, or other obligations?

These questions matter because the portfolio that made sense for a married household may not make sense for one person living under very different circumstances.

This is also where your hopes and dreams matter. What do you want your financial life to look like five, ten, or twenty years from now? Your investments should eventually help support that picture.

Understand What You Now Own

Divorce settlements can leave someone with several different types of assets.

Cash is relatively straightforward. Brokerage accounts may contain stocks, bonds, or other investments. Retirement assets can have different rules. For certain employer retirement plans, a Qualified Domestic Relations Order, or QDRO, can assign part of a participant's retirement benefits to a former spouse.

A former spouse receiving eligible retirement-plan assets under a QDRO may also be able to roll some or all of a distribution into another eligible retirement account, depending on the circumstances.

The point isn't to become an expert on every rule. It is to understand what you received before deciding what to do with it.

Don’t Automatically Keep the Old Portfolio

This is one of the most important things to consider.

If you receive investments that were previously part of a family portfolio, there is no reason to assume those investments are automatically right for you.

That portfolio may have been constructed around two incomes, two retirement plans, different expenses, a different time horizon, and a different tolerance for risk.

Your life has changed. Your portfolio may need to change with it.

That doesn't mean everything needs to be sold. It means each investment should now be evaluated based on your circumstances rather than simply kept because that is how the money was previously invested.

Decide What the Money Needs to Accomplish

There isn't one correct way to invest after divorce.

Someone may need part of the settlement to generate income and help cover living expenses. Another person may still be working, have substantial income, and want to invest primarily for long-term growth.

The money may need to fund retirement, maintain your lifestyle, help children, grow over many years, or eventually pass to the next generation.

Often it will need to accomplish several of those things.

The appropriate balance between safer assets and investments intended for growth depends on the person: where they are in their lifecycle, how much they earn, what other assets they have, their tolerance for risk, and ultimately their hopes and dreams.

Build a Portfolio for Your Life Now

Some women come out of a divorce with substantial assets but haven't previously been responsible for making most of the family's investment decisions.

There is nothing unusual about needing time to become comfortable with that responsibility.

The objective shouldn't be to recreate the portfolio you had while married or immediately pursue the highest possible return. It should be to understand what you now have, what you need from it, and how much risk you can reasonably take.

Once those pieces are clear, the assets received through a divorce settlement can stop being simply the assets you received in the divorce and become something more useful: a portfolio designed around the life you want to build from here.