In a typical divorce, the average cost that is incurred by each spouse comes to approximately $10,000. When two people get divorced, the cost of living on the whole doubles, because you’re not sharing costs on anything and especially when co-parenting of kids is involved, lots of expenses are duplicated because there are now two households running parallel to each other. Post-divorce finances can be tricky since living costs increase, discretionary expenditure remains the same, and you’re reliant on only one salary to do it all.
In addition to the obvious expenses like divorce attorney fees, there are many other things that drain your bank balance, like filing fees, classes on co-parenting through the divorce process, divorce coaching, mediation fees, psychiatric evaluations for children, mortgage refinancing, and so on.
If the additional expenses weren’t enough, here comes another blow, all joint savings like retirement funds or mutual investments are split. Meaning that the money you had saved for a rainy day now has to cover two separate rainy days. So your next egg may not be as substantial any more. That may seem like a lot of money, but this amount doesn’t seem so much if you take into account what a divorce could cost you in the long term, especially if you don’t take the necessary precautions to protect yourself during a divorce.
To maintain financial stability through your divorce, follow this checklist to make the right decisions with the right information, at the right time.
BEFORE THE DIVORCE
- Get your paperwork in order
Collect any financial statements like bank statements and investment details. Make sure you get records dating back to at least one year. Make copies of tax returns to ascertain income history. You should also get your credit report to find out the details about any debts you have as there may be substantial credit score impact after divorce.
- Consult a divorce lawyer
Having a lawyer on your team is a good contingency plan in case things get complicated. Lawyers are also invaluable to counsel you about the specific state laws, for instance, in some states assets acquired during marriage are considered “community property” and are split fifty-fifty regardless. In other states the court ordains the share if the matter goes to litigation.
- Get your own Bank account and credit cards
Start putting away some funds in a bank account that is in your name? The extra cash is essential for emergencies and to cover legal fees. As a married couple, your household income is higher, so apply for a credit card in your name before divorce proceedings begin, to get a higher limit.
DURING DIVORCE PROCEEDINGS
- Get Appropriate Help
Once the divorced process begins, you need to determine what kind of professional help you need for your case. For instance a mediator can help work out a settlement and save money if the divorce is straightforward. However, in case of complicated finances or if assets are contested, a divorce attorney will be able to guide you better and help you circumvent errors or exorbitant allowances to the other party.
- Choose your Battles
Go in to negotiations with a strategy. Make sure you end up with a strategic balance of investments to assets. For instance you might get the home that you love, but if you are forsaking investments of equal worth, you lose the advantage of a balanced portfolio, not to mention being saddled with house upkeep etc. Consider liquidating large assets.
- Stick to percentages rather than monetary values
While finalizing discussions about how to split assets, funds, etc, finalize shares in terms of percentages of the total worth rather than monetary value at that time. This prevents any losses if the market value soars or tanks.
- Talk about the kids finances
While discussing your settlement, be crystal clear about how kids expenses will be managed. This is often a grey area where people get short-changed. Explicitly determine how possible future expenses like orthodontics, school fee, summer camp, clothes, and college etc. will be allocated. In case of alimony or child support, ensure that the provider gets life insurance so payments are ensured.
AFTER THE DIVORCE
- Get your own insurance
If you were on a family plan or your spouse’s health plan, consider going through your employer’s insurance offering to conserve finances.
- Get your taxes in order
Reviewing your taxes is important after a divorce as only the parent who has custody can claim kids as dependents. Alimony is also a new element to factor in as it is a tax deductible for the payer, and taxable income for the payee.
- Make a new retirement plan.
Rebuild and rethink your retirement plan based on your new financial situation, income and household costs.
- Revise your will
You should update your will and name new heirs on bank accounts, stocks, pensions, life insurance etc. to prevent your ex from inheriting.