Adjusting financially after divorce can be difficult

Going through a divorce brings about a multitude of changes. One of the most challenging is adjusting to a new financial reality. In fact, a man’s household income decreases nearly 20% after divorce, with women experiencing double that amount.

In this article, we’ll explore the various changes that may occur to your finances post-divorce and some important things to consider. From adjustments in income to changes in payments and the impact of time on financial stability, we’ll delve into the intricacies of navigating your finances in the aftermath of a divorce and share some tips to help you adapt financially.

Making the Tough Decisions

Divorce often necessitates making tough decisions particularly when it comes to finances. That’s why it’s important to be proactive and in control of the financial decisions you may face during and after divorce. With that in mind, here are some steps you can take:

1. Develop a budget based on your needs. The division of your marital assets will shake up your personal finances in profound ways, and you’ll likely need to adjust your budget to accommodate the decrease in income. Your expenses need to stay within your post-divorce income which includes spousal and child support, as well as investment income.
2. Evaluate whether to sell the house. In many cases, one spouse wants to keep the house post-divorce. However, this decision is typically not financially practical because the equity in the house is illiquid and won’t help with ongoing expenses. Plus, given the current housing market, spouses may struggle to sell quickly or for a good price. Today many couples find that neither spouse can afford housing costs alone, and selling the house might not cover the outstanding mortgage.
3. Create account and asset statements. Another important step is to collect statements for all your financial holdings and create a list of your assets. This will be helpful as a starting point when negotiating your divorce settlement. Include items such as retirement accounts, real estate, personal property and business interests.
4. Consider the after-tax values of your assets. Accounts that benefit from pre-tax contributions and tax-deferred growth carry a tax obligation. Therefore, it’s important to understand the value of these assets after taxes before accepting them in a settlement. The spouse with the retirement plan gets the value minus taxes while the other gets the full amount of any other assets.
5. Examine your insurance coverage. Most likely, you will need to update many of your insurance plans after your divorce, especially if you received coverage from your spouse’s plan. That’s because post-divorce, you are no longer eligible to use your spouse’s health insurance. Therefore, you will need to get your own policy, which can be expensive.

Starting the Process Now

Navigating financial adjustments after divorce can be a complex and challenging journey. Just the cost of divorce itself can have a significant impact on your financial stability. However, for those considering self-representing or other strategies to save on legal fees, it’s important to weigh the pros and cons carefully and consult with an experienced family law attorney. There are other cost-effective options you can explore, such as pay-as-you-go divorce. Ultimately, the key to successfully adjusting financially after a divorce lies in careful planning, seeking appropriate advice, and making informed decisions that align with your long-term financial goals.