Of the many consequences of divorce, one too few people anticipate is the impact on finances. A single household becomes two separate households; one wage earner may become two wage earners. What can an individual beginning a divorce do to prepare for financial life after divorce?
First, think about income. If you have been the primary wage earner of the household and your spouse has not worked to care for the children or otherwise by agreement, the court may consider an award of maintenance. Thus, the primary wage earner needs to budget for both spousal and child support and determine how that impacts standard of living. Conversely, the spouse receiving support will have to begin a job search, as even with maintenance the expectation is that the spouse will pursue self-sufficiency through employment. That spouse also needs to budget for a lifestyle limited by the fixed income of support and the possibilities of the job market.
Second, think about housing. Can one spouse afford the marital home alone, including the mortgage, taxes, insurance and upkeep? If not, the parties will have to sell the home and downsize, starting anew with their share of the net equity after the sale. Spouses should consider where to live – it will impact everything from school districts to how much time and expense will go into custody exchanges.
Third, think about your future. Many spouses panic in the short term, worried about maintaining the status quo lifestyle rather than thinking long term and planning for a secure retirement. Living a more frugal life in the aftermath of divorce allows the spouse to keep college funds and retirement accounts intact for their intended purpose. Beware incurring credit card debt or second mortgages.
Fourth, think about lifestyle choices. You likely have grown used to certain amenities for yourself and the children, from extracurricular activities to premium cable channels to vacations. Reexamine the priorities of these choices and decide what you can afford.
Finally, think about a five and ten year plan. Where do you want to be financially in those time periods? What will it take to reach that level? What can you hope to gain through reasonable employment? How might expenses increase or decrease over time?
In undertaking these serious conversations with yourself about your finances and the real cost of living post-divorce, you greatly decrease the chance you encounter a crisis and greatly increase the chance you will have a stable financial foothold into retirement. Remember that the court is not given the responsibility to make sure you have a comfortable life until retirement; the court is ordered to divide property equitably and see to it that one spouse provides reasonable support for the children and/or the other spouse as needed, and the law puts limits on what the court can do. Also, life happens as you go forward – you could lose support because your former spouse becomes ill or loses employment. It would be shortsighted to allow the court to do your financial planning for you. Rather, you should be proactive and determine your needs for the future and advocate for that in reaching a settlement with your spouse or in a hearing before the court.
If you have questions about the financial consequences of divorce, contact us – we can help.