Don’t let divorce be ruinous to your financial health. As you go through the dissolution process, you’ll come across many decisions that strike at your financial security. Be careful, the emotional roller coaster of divorce may keep you from clearly thinking about the financial consequences these decisions may have on you and your lifestyle.
Let’s consider a short list of financial miscues made by divorcing spouses and how you can avoid them:
- Underestimating or disregarding your expenses
While most people know exactly how much they make every month, most are also incapable of detailing just where and how they spent that money. Make time to write down all your expenses and develop a monthly budget to follow. Take into account inflation and consider the cost of future living expenses once the divorce is finalized.
- Ignoring shared debts
It may be difficult to be civil with your spouse while a divorce is going on, but don’t forget your mutual liabilities and debts. If you took out joint loans, had a credit card together, or kept other shared credit while you were married, you and your spouse are both obligated to pay them. Gone unpaid, these debts could wreck your credit score. Creditors and even the IRS could hound you until the debts are resolved. As best you can, attempt to pay any shared debts before finalizing the divorce so you can both begin financially fresh and anew. The other solution is to close all joint accounts and transfer any balances to one person’s name.
- Forgetting insurance on child support and alimony
Collecting child support and alimony is totally dependent on your spouse’s ability to pay it. Are you to get these payments after your divorce? In that case, do what you can to protect that future income. Ask your spouse to get life insurance policies or make changes to existing policies to make sure these payments continue in case they die. If need be, your divorce agreement may set aside a part of the child support or alimony payments to be used as payment for this coverage.
- Letting emotions control your decisions
The divorce process is emotionally wrenching and trying. Deciding to stay or leave the family home is an especially tough decision. It may seem obvious to stay put, however, staying in the family home may not always be the best choice, financially speaking. Can you afford to pay for utilities, maintenance, property taxes, and a mortgage? In many instances, it may be more sensible to downsize to something more affordable.
- Thinking an equal division of property is fair
Splitting up property isn’t easy. It is crucial to understand that an asset’s value is not necessarily defined by its current market value. Ask yourself if the value of certain assets is more valuable or less valuable than cash. The value of a vehicle, for instance, will depreciate over time. Bonds or rental property, on the other hand, will generate income and may be worth than the market value.