You and your spouse will have to make important decisions during a divorce. These decisions can have a significant impact on your financial security and future. Remember the following: Do not go into them uninformed and alone.
Many people consult a family lawyer during divorce proceedings. However, not enough people engage the expertise and knowledge of a financial advisor and/or a CPA. Here’s a list of some of the most important financial issues that can arise from a divorce.
1. How Divorce Can Affect Your Finances
Many people are worried about their financial health when contemplating divorce. They feel stressed out about the unknown, both before and after divorce. Realistically focusing on your finances will help you feel more in control of your life. This can reduce stress levels.
Dividing Property In Divorce
One of the most important decisions that you will have to make when a marriage ends is how to divide up your property.
Who gets the antique mirror that your mother-in-law gave you last Christmas? Who will get the stocks at GE? How about furniture? What about your car? How do you split the accumulated possessions from years of marriage? The law, court order or state can all decide the division of property.
There are many other options available for the division and management of marital property, aside from the laws found in the community property states. Surprisingly many people reach an amicable agreement on the division of property. However, if there are disagreements about one or more items there are several fair methods to decide who gets them.
One common option is bartering. This involves one spouse taking certain items in return for another. Bartering is where one spouse takes the other’s items in exchange. For example, the wife could take the car and furniture for the husband to get the boat. Another way to divide property is to sell the marital property and then split the proceeds equally. Sometimes, arbitrators or mediators may be employed.
Dividing Debts In Divorce
It can be even more difficult than the division of property in a divorce to decide who is responsible for any debts the couple has incurred during the marriage. To do this, it is important to determine how much debt you owe to whom.
Even if your spouse is trustworthy, order your credit reports from Equifax, Experian and TransUnion. Your credit report includes information about all the debts you have, as well as joint accounts that you may share with your spouse.
Look through your credit reports to identify the debts that are shared and those that are in your spouse’s sole name. It is important to stop your debt from growing while you are going through divorce proceedings. This is best done by canceling a joint credit card and leaving one card in your possession in case of emergency.
Tax Issues In Divorce
Sometimes people get distracted by the obvious and most talked about aspects of divorce, such as the division and debt of property, who will have custodial rights for the children. Many people don’t consider the tax consequences of divorce. This can lead to a loss of thousands of dollars. This is where a professional certified public accountant (CPA) comes in very handy as a part of your divorce process.
2. Rebuild Your Finances After Divorce With These Tips
Divorce can be devastating financially, no matter how hard you work to create the life you want. Many people lose half of what they have saved throughout their lives. This includes their home and savings, retirement, business, and other investments.
Divorcing couples often experience a decrease in their income and an increase in their expenses. It is important to consider the enormous attorney fees that both partners will have to pay. The higher-earning partner may often be required to pay half or more of their fees. Divorce is often bad news for your financial health. All is not lost, however. We can do a lot to improve our financial situation after a divorce.
Create A New Monthly Budget
There is a good chance that your household income and expenditures will be different after a divorce. After years of budgeting together, you might be budgeting for the first time on your own.
To make your budget you must first record your monthly income and expenses. You may have higher expenses, such as housing costs and Ameren bills if you move to a new house in Illinois after a divorce. You may find that certain expenses are less than others, such as groceries and eating out now that you’re buying one.
Calculate Your Net Worth
It’s crucial to take a complete look at your financial picture when you start fresh after a divorce. This includes your net worth. It’s possible that your net worth might be different if you have been tracking it together during your marriage, or if you don’t track it at all.
Your net worth is the difference between your assets and liabilities. Tracking your Net Worth over time will help you see how much progress has been made in reducing debt and saving for the future.
Reduce Or Eliminate Expenses
You may discover that your household income has decreased due to your divorce. As you work to bounce back financially, you should go through your budget and see which expenses you can reduce or cut. You could, for example, refinance your car loan to lower your monthly payment or sell the car and get a cheaper one with no payments.
Look through the statements from your bank and credit cards for the last few months to see which expenses you can cut or eliminate. Which purchases are unnecessary? What are the ones you regret spending your money on? These purchases are easy to trim from your budget.
It’s crucial to prioritize your mental well-being, even though it’s important that you stick to your budget. You may find that there are some expenses in your budget which seem unimportant but can help ease the emotional burden.
Increase Your Income
You can recover and even thrive financially after a divorce by increasing your income. Although this is not an easy task, there are many ways you can do it.
Looking for a job with a better salary?
Requesting a raise or promotion
Part-time or side hustle work
It is difficult not to let the stress and uncertainty of divorce ruin our faith in humanity. But, taking action is key to making the process easier. The more you learn, reflect, and take care of yourself, the happier you will be during divorce proceedings. Our divorce must not cause us to lose our direction. Focusing on moving forward in a positive, focused way is what we must do. Our greatest reward is our happiness and ongoing success.