Divorce is more than just an emotional transition. It is a financial one, too. After all, not many decisions we make in our lives decrease our net worth by half overnight. Sadly, most people do not think about the financial ramifications of divorce as much as they should, and the consequences to your finances can be far-reaching if you are unprepared.
Whether you are contemplating a divorce or have already entered into formal talks with a family law attorney, it is important to understand how divorce can impact your finances and what steps can be taken to lessen the burden of those new obligations.
Here are just a few ways your divorce can impact your finances:
- Most property and assets will be divided in a just and right way, not necessarily a 50-50 split.
- You may be negatively impacted by the debt that your spouse incurred during the marriage.
- If you had discretionary income before the divorce, you may not afterward.
- Your living expenses will increase since running two separate households costs more.
- You might be the one having to pay child support.
- You might also have to pay spousal maintenance (also called alimony).
- A portion of your retirement plans (401(k), pension, IRA, etc.) could be awarded to your spouse.
- You might have to sell your home and share the proceeds with your spouse.
- Legal fees can be costly, depending on the nature of your divorce case.
- You can no longer file jointly, thus increasing your tax burden.
- Your credit score could be negatively impacted.
- Your business may become part of the community property division.
- You will need to have your estate plan reviewed and probably revised.
How Do I Prepare for and Even Minimize The Financial Impact of Divorce?
While not an exhaustive list, there are a few things you can do to prepare for and even minimize the financial impact of divorce.
Know your marital assets and liabilities
Make copies of all the statements you can find. This includes bank accounts, brokerage accounts, retirement, pension, and credit card accounts. It is also important to know how much you owe on your mortgage and vehicles, and to make copies of your last three years of tax returns. Take inventory of everything you and your spouse own. This helps you and your family lawyer gain a clearer picture of the financial state of your marriage and what might be protected.
Know your individual and joint credit situation
To piggyback on the first tip, the more aware you are of your individual and joint credit situation, the easier it will be to stay on top of payments, monitor your credit score, make key decisions such as paying off or freezing joint accounts, and create a cleaner financial break.
Do as much heavy lifting as possible
When you do not know all the facts or where important documentation is located, your family lawyer has to spend more time uncovering this information for you. This costs you more money. To do the heavy lifting, find out from your lawyer: (a) what you need to prove in court; (b) how you prove your case; (c) what evidence you need; (d) where the evidence can be found; (e) how to get the evidence. Then do it!
Draft a realistic post-divorce budget
Look at your current monthly income and factor in new fixed expenses (future housing, child-related expenses, changes in income, etc.). This will give you a clearer picture of what to expect after the divorce is final and create a plan to be in a more financially sound position. Also, knowing what you will need down the line will help you and your family law attorney plan and negotiate more effectively during the divorce process.
Consider mediation
Any case that goes to trial will quickly add to your total legal fees. ADRs, such as mediation, are a great way to resolve disputes amicably without reaching the courtroom. Not only is this an efficient way to end your marriage, but it’s also a great way to save money and reduce the impact divorce has on your finances.
Update your estate plan post-divorce
Most people do not consider their wills and trusts after a divorce. But if you have one and do not change it, you will likely leave everything to your soon-to-be former spouse or have your former spouse make decisions for you after you die. Updating or changing your estate plan now ensures your new wishes are carried out if something happens to you.
Talk to your lawyer early on about your business
Whether or not your business could be impacted by your pending divorce depends largely on when the business was formed. Talk to your lawyer about your unique business situation and what might protect your business throughout the divorce process.
Call Nelson Law Group Today!!
Regardless of your legal matter, you need an advisor to guide you through each stage and help you deal with the fears that naturally come with that. We work diligently to achieve a result that ensures you receive what you are entitled to as you move forward—inside and outside the courtroom. The Nelson Law Group brings decades of experience to every mediation case.
Give our knowledgeable staff at Nelson Law Group, PC, a call if you have any further questions. Our staff is always available. Give us a call today! For more information about Brett A. Nelson, click here.
