How Divorce Will Affect You Financially
Getting divorced can and will affect you financially. However, unlike many people fear, divorce doesn’t automatically mean financial ruin. In knowing the finance-related decisions and potential outcomes, you can better prepare and plan to avoid financial pitfalls during and after our divorce.
Here are a few ways that divorce can impact your financial situation.
- Retirement savings (like 401(k)s) may be depleted. 401(k) and pension plans can be subject to division if they were acquired during the marriage or if marital funds were contributed to the plan. You may have to consider mediation to negotiate with your spouse and protect your retirement savings or plan to rebuild those savings.
- Your health insurance may be more expensive. If your insurance is provided by your spouse’s employer, you will have to take on paying for your own insurance. While your employer may provide insurance, they may take a larger chunk out of your paycheck or the coverage may not be as good. If you do not have employer-based insurance options, you will then also have to consider shopping around for private insurance.
- Your housing expenses may increase. Because of the current housing market, some couples may decide to continue living together as roommates after their divorce. However, many couples still choose to live separately, which means having to take on more financial responsibility for rent/mortgage and utility bills. During your divorce, take a look at the market and calculate what you may have to pay for rent/mortgage and other costs. This review can help you determine whether you can afford to fight for and keep your family home and what you can afford in the current market.
- Childcare costs may take a larger toll on your budget. Even if you share custody or receive child support, you may experience a financial strain because of childcare costs. For instance, the cost of a babysitter, daycare, and/or other childcare expenses may affect your budget (even with child support). Having a support network of friends and family who can help you with babysitting and having an additional stream of income (including passive income) can help with a financial burden.
- Your income may decrease. Divorce can impact your income as you lose the second stream of household income. If you are the higher-paid party, a portion of your income may also go to alimony payments. Budgeting to factor in the potential loss of income and considering what expenses you will have to take on post-divorce can be important to protecting your financial future. Whether you are the higher or lower earner, you should also discuss the possibility of alimony as well as the types of alimony with your attorney.
- You may have to take on more debt. During your divorce, you and your spouse’s debts will be subject to division as well. While debts you acquired before the marriage are separate debts and not divisible, marital debt (or debt that has been commingled) can be divided. If you and your spouse are unable to come to an agreement yourself, the court will determine how assets and debts are divided, and you may become solely responsible for paying off joint credit accounts.
- Legal fees can add up. Before retaining an attorney, you should ask how they charge (i.e. by the hour, a flat rate, etc.) as well as how many hours they think they will need to dedicate to your case. You should also ask whether they will suggest you employ the services of other professionals, such as forensic accountants, child psychologists, etc., to strengthen your case. In getting this information, you can budget better and know whether an attorney and their plan for your case are truly affordable.
How to Recover Financially After a Divorce
If you have recently gotten divorced and feel like your finances have taken a large blow, here are some tips for improving your financial health.
- Create and stick to a new monthly budget. Whether you eliminate certain expenses (like subscriptions or shoe funds) or rearrange your distribution of funds, consider making a new budget and adhere to the limits you place on yourself.
- Build an emergency fund. It can be beneficial to have an emergency fund, which is a set amount of cash meant to be used in emergencies. Having these funds and/or other savings accounts can help your financial future.
- Set financial goals. Having financial goals, especially post-divorce, can help you better plan for the future.
- Get a support network. Having friends to hold you accountable to your budget and encourage you with financial goals as well as a financial consultant or professional to help you develop a plan can be a great help.
- Rebuild your credit (if necessary). Divorce can affect your credit in many ways. If your credit score has decreased, you can request a free credit score (from many different sources) and create a plan to address whatever is affecting your score.
- Consider finding ways to increase your income. Passive income (i.e. income that is acquired with minimal labor) has become an increasingly popular option for people who want a second stream of income. Whether you consider taking on a passive income project, opening a small Etsy shop, or doing small jobs for Task Rabbit or Upwork, increasing your streams of income can help you feel more financially secure.
Consult with Our Attorney
At Dale L. Bernstein, Chartered Law Office, our attorney can help you understand the financial implications of divorce-related decisions and protect your financial interests. Once you retain our services, we can discuss your financial and legal concerns and develop a plan to protect your interests. Our firm is known for being knowledgeable and aggressive, and we are committed to empowering our clients to make wise and informed case decisions.
Learn more about how we can help you by scheduling a case consultation today. Fall (727) 312-1112.
