Divorce is a litmus test of an individual’s emotional and financial well-being.
The whole world comes down crumbling when you end up in a divorce and the effect is felt the most on the family. It becomes an arduous journey thereafter once finance comes into play and takes center stage. The baggage you carry in the form of debts, income, savings, and not to mention your expenses is too difficult to digest.
There is a glimmer of hope provided you accept the situation and prepare yourself mentally and make the divorce less dearly and perhaps less painful.
Facing Financial Obligations
Divorce comes with its own financial obligations that form a major setback if you suddenly run out of money. Financial matters can get complicated and scary once things are legal. You gradually lose control of the situation as the court decides the fate of your finances.
The entire episode becomes bitter with the court directing you to commit financial assistance to your partner through alimony and child support if you are a parent. Failing to adhere to the financial obligations attracts stringent action on you.
The divorce agreement for child support depends on the state that delivers the divorce. The guidelines of most states take into consideration the incomes of parents, the number of children, and the custodial agreement.
If the court orders to pay child support you’re expected to abide by and legally obligated to pay it. Child support is subjected to change, reviewed, and adjusted periodically, but the point to be noted is how these payments will be managed within your budget.
Alimony is the most common financial obligation. It is a temporary one but you can never escape because it makes sure your spouse is financially taken care of following the divorce as it can lead to a shortage of funds. The spousal support requires you to allot the funds in your post-divorce budget and that is where things can get worse.
Balancing The Obligations
Budgeting for child support and alimony is necessary if your partner is asked to pay by the court and hence the money you receive takes center stage to meet the day-to-day expenses. On the other hand, if your income alone is enough to take care of the bills then the alimony or child support is extra income, and planning on how to allocate the funds best is crucial.
Alimony is considered income on your taxes and the same is not applicable for child support.
Reshaping Your Budget
Alimony and child support are temporary relief and hence reshaping your budget must be in place before the end of the payments. Our lives are too dependent on regular or monthly incomes any fluctuation that can pose problems in the latter part for both partners.
Potential costs involving children have every chance of shooting up and your source of income decides the accountability of bearing the expenses.
Sorting Out And Dividing Your Properties
Financial obligations are not the end of the road if you have had a prenuptial agreement then your respective state’s laws decide on how to divide your assets in a divorce. A few states come under the community property states wherein the acquisition of assets at the time of marriage by either spouse is considered joint marital assets. Joint assets are divided equally during a divorce.
In certain states, property division is done through “equitable distribution.” The term ‘equitable’ refers to the court’s consideration of many intangibles and tangibles, and not equal distribution of assets.
At the time of divorce, it makes sense to list your assets before appointing the attorney, arbitrator, or mediator. By listing marital assets it gives you an opportunity to get appraisals where ever applicable for antiques, art, and other items. The assets must be addressed during the divorce settlement and being aware of any joint liabilities and debt.
Marital assets include a mortgage on your home, student loans, car loans, home equity loans, credit cards, or any loans that you applied for together. Also, remember liabilities too are divided as part of a divorce.
Financial Impacts of Divorce
Look. It’s a catch-22 situation because divorce is not a regular phenomenon. The event can bring you down to your knees. Agreed, you can get along with somebody else post the break-up but the impact on the financial outlook can be significant.
Hiring a financial planner is worth assessing the value of your assets, determining the responsibility for marital debts, considering tax-related consequences and general financial planning advice before the settlement is good.
The cost of the divorce itself can be too much to handle. Hiring a mediator can become expensive if your current would-be spouse is not ready for custody arrangements, division of assets, or child support. Think how far you can go in your divorce if the mediator bill is looking like a huge debt bubble you don’t want to prick.
How To Protect Yourself Financially In A Divorce
It is understandable that entering into a prenuptial agreement can financially benefit both the spouses in a divorce. If you get married minus the agreement then only knowledge comes to your rescue. Every couple is a partner in a marriage and that should reflect in the finances as well. Each spouse needs to be aware of finances in the divorce like investments, debts, family income, and any other related assets, including how they’re titled.
Closing Bank Accounts
The confirmation of a divorce is a cue for closing any joint accounts that you may have with your spouses and opening individual accounts is a wise move. It is advisable to consult your attorney before touching the assets from a joint bank account.
Credit cards itself generate debts and jointly held cards can pile up more debts under your name so cancel it right away. Closing accounts and opening new accounts can dent your credit scores, especially at a time when people are reeling under the COVID-19 crisis and the chaotic FICO scores that make no sense for the common man.
The Final Move
Starting your life fresh with a new partner is problem-free only if every pending issue is solved from the previous relationship, especially financial matters.
When your divorce is official and final, a parting shot following the division of assets legally, change names on stocks and bonds, house deeds, and any other titles as needed. The other category would be to change beneficiaries on retirement plans, investments, savings accounts, and life insurance policies.
And last but not least, update your will.
While all the activity related to divorce is happening it takes some parallel thinking as well. Divorce is an obstacle financially but minimizing the damage is the key. Your daily life will still need you to pay bills, buy groceries, and the division of assets is a larger part of the story. Manage your daily expenses with whatever little funds you have saved or a payment app is a good idea where you can buy enough time to get back to normal.
Don’t forget love gets you into a relationship and money is a need, if you can address it then you are made for each other!