If you or your spouse have filed for divorce, you may have the overwhelming urge to change beneficiary designations on your checking and share accounts, personal investments, life insurance, and retirement savings accounts — especially if your relationship with your spouse is contentious. The last thing you want to do at a time like this is ensure your soon-to-be ex gets their hands on money that belongs to you, right?
You could be in the position to splurge on a sexy, sporty sedan to celebrate your divorce. On the flip side, the loss of your spouse’s income contribution to the household could be greater than your drop in expenses.
Either way, a post-divorce budget will let you know where you stand with your finances, help you avoid getting whacked with surprise expenditures, and keep you on a steady course of financial stability.
Rarely any couple that exchanges marriage vows expects to face divorce someday. Yet, for 40-50% of first marriages, and 60% of second marriages, divorce is a reality. Aside from the emotional cost of divorce, especially when there are kids involved, there can be a huge financial cost: Divorces can cost anywhere from a few hundred dollars to a few hundred thousand, depending on a number of factors. Here are some of them:
The emotional toll of divorce is tough enough without worrying about the impact it can have on your finances. It’s important, however, to be aware of how splitting up will affect your finances – short-term and long-term. Here are some specific steps to take early on to protect both your money and your credit rating:
The issues that couples deal with in a divorce are often emotionally charged. While couples argue about the immediate issues – the house, child support, debts, etc. – they may overlook or underestimate the importance of retirement benefits. It’s important to know your rights to retirement benefits because these benefits are not automatically split in a divorce.
When a marriage ends, housing can be one of the most challenging transitions to work through. If you are facing this hurdle, try as much as possible to remove emotions from the equation and use the following factors to make a choice that will set you up for a more secure financial future.
If you died tomorrow, who would inherit your estate? Who would get the proceeds from your retirement plan and/or life insurance policy? If you were incapacitated, who would have the legal right to make medical and financial decisions for you? If you named your ex-spouse, you may need to make a call to your lawyer and insurance company.
As part of the divorce process, it is typically determined who will pay what debt. If you are responsible for some of the accounts, you may be worried about your ability to make payments. (After all, going through a divorce does not leave most people flush with cash.) If this is the case, it is a good idea to contact your creditor(s) immediately. Many creditors are willing to work with consumers experiencing hardship and allow them to make lower payments temporarily. When contacting them, keep the following tips in mind:
Married people frequently take out credit together. However, as part of the divorce, you may have closed down or been removed from joint accounts. If you no longer have credit cards or other types of credit, it is a good idea to establish your own credit history. Do you plan on getting a mortgage or car loan in the future? In order to get one, especially at a low interest rate, you generally need to have a good credit score. Having a good credit score can also make it easier to rent an apartment and get low rates on insurance. You can’t have a good credit score unless you have credit that you use responsibly.
It is widely known that divorce is expensive. By the time you add up attorney’s fees, court costs, mediation costs, and possibly the cost of refinancing property, a divorce can cost as much or more than a wedding. But the expense of a divorce is not the biggest financial concern most people have.