In most instances, if not well planned, financial impacts of a divorce can cripple your finances and income sources. Don’t forget the pain that comes with having to undergo the dissolution, which, in most cases, can be long-lasting. As such, it always advisable to plan so you can keep the losses at manageable levels. Usually, the process involved in a divorce will consume a sizeable chunk of the family’s assets. In the worst case scenario, it can eat into the current and future household income.
Divorce requires that the spouses cut all the ties they have had and start a completely different life. In the light of this, a financial plan is in order. Moreover, planning makes even more sense if the parties involved want a secure future, the peace of mind and to face the world without a lot of challenges. In a divorce, both the husband and wife need time to reassess everything. That is because all the achievements and the dreams you had together as a family come shattering once you have signed the divorce papers.
A common assumption among people is that they are still entitled to the life they were leading before the divorce. The reality hits later after moving out. In a divorce, the chances are high you will share assets. This alone is a sign that your living standards have to change for the time being. Given the evident asset loss, here are some tips you will find invaluable during and after the divorce;
1. Review Your Financials and Expenses
One primary reason many people face the consequences of a divorce is lack of a prior detailed plan. If you want to go through the process successfully, you need to have a proper picture of your finances before you can sign that sheet of paper. For a fruitful review of your finances, there are some key factors that you need to take into consideration. They include your income sources, assets, expenses and the current tax situation.
Inarguably, you are aware that it requires more resources to maintain two different households as each has unique needs that need to be met. To know the exact amount of money you expect to be spending after the divorce, make sure that you have a rough figure of your expenses before the split. The whole process can be confusing, which is why it is advisable to involve a private accountant or a financial specialist. However, it depends on the status of your finances and your share of the total assets.
To crank out the figures successfully, make a review of your past credit cards and bank statements. From that, you will get a summary of the expenses. Then you can break it down further into categories (mom, dad, and children) so you can know how much each expected to spend monthly or annually. By detailing all that information, you will be in a position to project your expenses right after the divorce.
If you have children and the divorce requires that they have to live with you rather than your partner, make sure that their current and future expenses get captured. In your calculations, be sure to include an allowance of your future costs in your list such as braces, cars, insurance, and activities among others.
2. Prepare your Budget for Alimony
Most people have trouble understanding how the whole alimony thing works or even how to go about it. Often, the duration of your marriage will serve as the basis for which the judge determines and orders the alimony in a court. It is also determined by period each of the partners worked and the amount each is entitled to as part of the settlement. Alimony is a specified duration for which you pay, or you get paid for a particular period following the divorce.
The above parameters determine the manner in which the alimony will be calculated and if the scheme becomes part of the settlement. In cases where the partners were in a long-term marriage, but one of them never worked for an extended period, he or she gets a permanent maintenance. That implies that one of the spouses has to pay the other a certain amount until the court sees otherwise. Permanent support is not applicable in cases where one of the spouses retired or where some circumstances would not allow them to continue working. It is also worth noting that alimony expires if any of the recipients cohabits or remarries.
What’s more, it pays not to forget that alimony affects both the budget and taxes of the beneficiaries. Thus, it is divided into two categories – the nontaxable and taxable alimony. The nontaxable alimony is deducted after-tax and will reach the recipient without any taxes. For the taxable alimony, both spouses have to pay tax.
Even before you can think of alimony, make sure you understand the ins and outs of it because it has a notable impact on your budget. In most cases relating to alimony, you can renegotiate your settlement on alimony, but that is strictly after your income as a payer goes down.
As a spouse on the receiving end, you need to understand that alimony is never guaranteed forever. So, make sure that whatever you do, you have a proper plan, so once the source of income is cut, it does not weigh down on you. To make the best out of alimony, hire a specialist. That way, you can get counsel on the best way to budget.
3. Have Plans for Your Career
Despite the promising dividends from the divorce, make sure that you have a good understanding of the direction you expect your career to take. At times, getting back to the workforce may seem a little daunting. However hard a divorce hits, we would not recommend switching jobs or even leaving to a new city for the first year after the divorce.
Through your employment you will of course benefit from a more solid financial state, it may also help you regain your happiness and self-confidence. Also, you will be in a position to meet new people, which will improve your social life.
For those who have been in the workforce, divorce is an opportunity to think of how to better your career. Strive to attain marketable skills that will land you a better job or even a promotion in your current position.
For instance, if you need a degree or think of some training that can make you better, discuss it with your spouse so that it can be included in your budget. Even if divorce calls for the dissolution of your previous engagements and relationships, you hopefully will have an understanding spouse who will want to see you make something of your life towards your financial freedom. The chances are high they would be more than ready to lend a hand in your education or the training.
To be on a safe side, be sure to research intensively all the costs including tuition, lab fees, computers, books, parking and any other expenses that would be required to facilitate your training right before you can sign the divorce decree.
4. Consider Downsizing Your Home
Moving to a new palatial home is inadvisable if you are tight on budget. That is why it makes more sense to move into a less expensive home. You might argue that will disrupt the life of your children, but it does not make sense to live beyond your means. They will understand what you are going through.
And if you have more items than can fit in your smaller home, you can consider selling whatever you do not need. The best thing about that is that you will create space while at the same time generating a few more bucks to cater for some other expenses. In addition, for the time being, renting should also be part of the options at your disposal.
5. Don’t Forget the Health Insurance
As a couple, the whole family was probably covered by a single life insurance policy. In light of this, given the importance of insurance, you cannot afford not to buy another insurance cover during the divorce process so you can arm yourself against the unforeseen risks. You do not want to spend all your remaining assets on hospital bills while an insurance covers all your medical bills.
The State of Utah has several life insurance policies that you can purchase to cover your family. However, for those facing divorce, there’s a popular policy named COBRA coverage, which lasts for 36 months. The COBRA policy allows you to stay covered under your partner after you have split. However, you will need to pay the premiums. It is relatively expensive, so you may consider getting different coverage.
Wrapping it up
Without a doubt, divorce is always a rough encounter for everyone involved, from the mother, father to children. It is a life-changing situation that tests your emotions and resilience while hitting financially hard. To make it through the divorce process successfully with minimal financial loses, one needs to avoid making impulsive financial decisions. The divorce process should not be done hurriedly. Be sure to involve a divorce specialist who has handled similar cases before.