If you’re thinking of getting a divorce, you’re likely drowning in questions. Along with the frustration, anger, guilt and stress, you face the uncertainty of life after your divorce. There are so many things it’s impossible to predict, and even if you’re not facing a custody battle, you may still be unsure what divorce will mean for your future finances.
Divorce means dividing all the assets you and your former spouse had collected. But it means more than just dividing your assets. It means dividing your debts and taking on new expenses, like a second house or apartment, and that’s why a 2010 study from the University of Ohio found that even a slight increase in a person’s risk tolerance could lead to a much larger chance that person would get divorced. Divorce is a huge financial gamble.
What can you expect?
Divorce usually means net losses for both parties. After the division of property and debts, newly divorced people often need to cover some major expenses that they used to share, such as mortgages, rent and health insurance. This leads to a decrease in net income. But a reduction of net income isn’t your only financial concern. As you negotiate the terms of your divorce, there are many other financial issues you’ll want to consider, including:
- Looking at your current financial situation: This means getting copies of your joint tax filings, looking at your joint assets and thinking about the tax consequences associated with their division. It also means cutting back on unnecessary expenses—right now. Forbes recently took a shot at the idea of using retail therapy to get through the emotional turmoil of divorce. Your financial picture will suggest how much you need to cut back, but you need to get that picture and will likely want to save for your future.
- Creating separate accounts: By the time you finish your divorce, you’ll need to close your joint bank accounts and open separate ones. You’ll want to make sure your former spouse can’t access your credit cards. And you may need to update your retirement accounts and life insurance policies, as well.
- Updating financial records: After the divorce, you may need to retitle any property you keep, and you’ll want to update any existing wills, trusts or powers of attorney. Your marital status will change for your taxes and insurance, and if you change your name, you’ll need to update your IDs and a host of other documents.
- Budgeting for future income and debts: You’ll need to put aside your emotions as you look to make good choices for your future budget. Without a spouse, your daily finances will look different. How might your net income change after accounting for the division of your assets and debts? How might spousal support affect the picture? Will it be worth fighting for the home, or have you not yet earned enough equity in the home to make up for the increased responsibilities you’ll face with the mortgage and insurance payments?
If all this seems daunting, relax. It’s normal to be a bit overwhelmed by the possibilities. Divorce is usually an exceptional, once-in-a-lifetime sort of event, but you can find guidance from the professionals who deal with divorces every day. They can help you find order amid the chaos.
The beginning of the rest of your life
It’s easy to look at the divorce as the end of your marriage, but it’s also the beginning of the rest of your life. And there can be positive financial implications for people going through divorce. As U.S. News & World Report wrote, people who go through divorce sometimes end up gaining a much better understanding of their finances. Even with a reduced income, they can use their improved understanding and control to work toward better overall standards of living.