A divorce can have an impact on both parties financially, and usually does. In addition to the potential loss of your spouse’s income, you can also lose retirement benefits and income due to alimony, child support, insurance costs, etc. There are a few steps you can take to at least prepare yourself for these financial expenses and therefore stay ahead of potential financial issues.
Upon divorce it is common for both parties’ budget to increase due to the fact that the proverbial financial blanket now has to cover “two beds” rather than one. After the divorce there is usually two mortgages/rent, two insurance policies, and household expenses that are no longer shared. As a result, many divorcees chose to forego contributing to their retirement plan, or even dip into their retirement savings. This is almost always a mistake. It is important that you continue planning for your future, and instead of removing retirement funds, reassess your budget and make adjustments that won’t have such long-term ramifications.
Many people fall into debt and bad financial practices while going through a divorce, or even the days leading up to the divorce. In some scenarios bankruptcy is an option and even a good idea, but if the debts are not significant enough to warrant bankruptcy, but still affect your credit, there are some things you can do to repair or build your credit.
Be careful about getting a credit card or line of credit, while this can help improve your credit score you want to make sure you don’t overspend and get in over your head. Generally it’s safer to get a pre-paid credit card or make sure your landlord is reporting timely payments to the credit bureaus. Taking these steps will ensure that you will have adequate credit when the time comes to apply for a mortgage or car loan.
If you have a will or trust make sure you update it after your divorce. There isn’t anything worse than someone’s loved ones missing out on important assets because the deceased failed to update his/her will. This is especially the case when minor children are involved, and the deceased didn’t update their choice of guardian. It is imperative that you update your will or trust after a divorce.
You’ll also want to update your retirement and/or insurance beneficiaries. I recently had a client that remarried but failed to name his new wife as the beneficiary of his insurance. When he passed away his ex-wife was still the named beneficiary and was entitled to all the insurance proceeds. Luckily the ex-wife disclaimed the insurance monies and my client was able to get it, but this is usually not the case. You’ll also want to switch all other assets into your name if possible.
If you did not make financial decisions in your marriage, or decisions were made together, make sure you investigate typical costs and expenses for various necessities such as food, electricity, water, etc., so you can budget for these items and manage your finances. It is important that you protect your finances and that you take ownership of financial decisions.
If you’re looking into divorce or you’re in the middle of the divorce process, contact Pearson Law Firm for a free consultation with an experienced divorce attorney who can help you navigate your divorce and the financial aspects of separating from your spouse. Call today, 801-888-0991