A total of 673,989 divorces and annulments took place across the 45 U.S. states in 2022. While couples mutually consent to a divorce, it can be stressful and traumatic. You are battling with turbulent emotions while worrying about the uncertainty of the future.
Divorces can also be expensive if you are not careful. Couples spend an average of $7000 to dissolve their marriage. You have to bring your personal finances in order during and after divorce to secure your and your loved ones’ future. Here are ten valuable tips to help you handle divorce financially:
Take Professional Financial Advice
Divorce is 95% emotional and 5% legal. No matter how devastated you are, you can’t ignore legal aspects such as living arrangements, child care costs, and property settlement, which are directly related to money. An attorney will sort out legal issues according to the state’s laws.
However, it is equally important to understand the financial complexities of divorce, especially for women who have been dependent on their spouses. Financial activist Dasha Kennedy accrued $20,000 in debt after her divorce. So, she says from personal experience, “Seek professional financial advice. I did not know a lot about how to advocate for myself financially, so it is important to get some type of support or guidance to the finances during the divorce process.”
Assess the Assets and Liabilities
You will have to take stock of all assets and liabilities you and your spouse have individually or jointly. This includes bank accounts, deposits, stock market or real estate investments, retirement savings, house deeds, car ownership, credit card debts, mortgages, other loans, insurance coverage, pensions, taxes, jewelry, trust funds, social security benefits, etc. If you had signed a prenuptial or postnuptial agreement, it would make the divorce process financially amicable.
Organize the paperwork and make copies of documents for evidence. This step will help you determine the distribution of assets and debts and whether you are entitled to alimony from your spouse after the divorce.
Plan Your New Budget
A divorce may take about a year to complete, and you will continue to incur the expenses. List your present and future expenses, and consider how you will meet them. If you are a double-income couple, separate the bank accounts and make sure your salary goes to your account. Divide the household budget and joint debts with your spouse till the settlement of the divorce. Close joint credit card accounts. This will also ensure that your divorce doesn’t impact your credit score.
If you aren’t an earning member in the marriage or don’t have any personal savings, don’t hesitate to seek monetary support from family and friends. Securing employment before starting divorce proceedings for a steady income is advisable. Try to liquidate whatever you can and live frugally. Find out from legal or financial experts if your spouse can bear the expenses till you have a source of income.
Determine Alimony Support
Estimate the alimony support you expect to get from your spouse to maintain your post-divorce living standards. You can negotiate the amount, frequency, and duration of the alimony. The agreement should also have clear terms and conditions on modification or termination of alimony after the receiving spouse remarries or finds an alternative source of income.
Ascertain Childcare Support
According to a survey, about 85.6% of those parents who received cash child support payments had a legal or informal agreement with the child’s other parent. It is always recommended to settle childcare support formally to avoid ambiguity after the divorce.
You can agree to cash and/or in-kind payments for childcare support. The support should compensate for groceries, diapers, clothes, medical expenses, education fees, insurance, and other expenses associated with raising the children.
Divide the Housing Arrangement
You may decide whether you want to continue living in the current residence you share with your spouse or move out. If you are the sole legal owner of the house, you have the right to stay there. You can sell it and split the income from the sale if you own it jointly. Alternatively, if you own a joint mortgage, then one of you can refinance in your name and buy the other spouse out. You can also continue to co-own the house in a similar arrangement as business partners.
Review the Retirement Portfolio
The retirement assets are usually split equally or equitably, depending on the state laws. The assets may include social security benefits, an Individual Retirement Account (IRA), 401K, 403 (b), and a pension. Consider obtaining a Qualified Domestic Relations Order (QDRO) to receive a fixed share of your spouse’s retirement assets for yourself, children, or other dependents.
It is advisable to put your retirement plan in place after the divorce.
Evaluate Tax Filing
Married couples in the United States can file their taxes jointly or individually yearly. If you file taxes jointly with your spouse, with or without dependents, you can no longer do that during the divorce proceedings or after it is final. As an individual taxpayer, you will also need to check for tax benefits and deductions on mortgage and property, alimony, and child support.
Update the Change in Marital Status
Update the marital status on all your personal, legal, and financial records after the divorce settlement. Dropping your spouse’s last name in your name or changing beneficiaries will also require updating everywhere. A few places you need to update are property titles, bank accounts, credit cards, tax records, utility bills, insurance policies, wills, power of attorney, medical directives, retirement plans, etc.
Take One Step at a Time
A divorce saps your energy because you suddenly find yourself lonely and lost, trying to accept the big change in your life. It is okay to feel overwhelmed navigating everything, including finances, especially when your spouse managed everything for both of you. However, trust that you can figure things out. Invest your time in financial literacy. Take small steps towards rebuilding your finances or establishing your own financial identity.