People get married with high expectations of living a fulfilled life. However, this is not always the case, and more than 40% of marriages end in divorce in the US. Going through a divorce can be a debilitating experience. On top of taking care of your mental and emotional health, you also have to consider its financial aspects, which can make it all the more overwhelming!
However, having a plan to tackle your finances as you go through this arduous process can ease at least a little bit of the burden. If you’re looking to sort out your finances during or after a divorce, here are some helpful tips to help you navigate this difficult time.
Have You Signed a Prenup?
If you signed a prenuptial agreement before getting married, it can play a crucial role in the divorce. Provided the prenup has been drafted properly, the agreement can override state laws and the distribution of assets.
Make Sure the Bank Accounts Are Updated
You may have had joint bank and credit accounts with your spouse. But when applying for divorce, ensure you open an individual checking account for future personal deposits and expenses. Your joint account with your ex will have to be split between both, and a clean separation of your finances early on can lessen complications when it’s time to divide assets formally.
Consider Mediation First
Not all divorces need a court proceeding, which is why mediation might be in your best interest. Mediated divorces are not only faster and more peaceful but considerably less expensive as well. As a result, they can lessen the financial burden of having to get a lawyer and pay for the additional court costs, too.
Insure First
Get adequate life and health insurance coverage and choose a term plan that offers sufficient life cover at a low cost. Once you have the basics in place, consider getting floater health plans to cover all your dependents. When you get a better hold on your finances, you can later broaden your insurance coverage with accident and critical illness plans. Doing so ensures that your dependents – specifically your children – are not financially impacted if anything happens to you.
Create a Steady Source Of Income
Establishing a steady source of income can be a challenge – especially if you are not working or the primary breadwinner – but you can start by investing a share of your savings or money from alimony into a monthly income plan offered by mutual funds with an established dividend track record. You can also look into getting a job if you were not working previously.
Think About Your Retirement Contributions
Of course, thinking about or saving for your retirement could be the last thing on your mind if you’re handling a divorce, but it’s something worth considering for your future financial security. If you have not contributed to a retirement plan, it’s time to start now. Slowly increase the amount you are saving to make a retirement plan. You can take advantage of company-sponsored 401(k) plans and help things along by adding extra money from bonuses and so on into your retirement fund.
Secure Your Children’s Future
A divorce can become infinitely more complicated if children are involved! Both parents should agree on how to share custody and financially support children until they become adults. If both spouses cannot reach an amicable agreement, a court order with child maintenance awards and custody would have to be obtained.
Single parents must ensure they don’t fall short of funds when it’s time to sponsor their kid’s higher education. Therefore, it’s a good idea to set up a savings account for children to use the funds from it when needed.
Have a New Estate Plan
During your marriage, you may have named your spouse as a beneficiary in your last will. A divorce would likely have changed your mind, so you must review your estate planning documents and update your will once you have filed for separation. You may want to transfer your beneficiaries over to your children. Even if you don’t have children, you should still update or create a power of attorney for finances, healthcare, a living will, and other documents. This may be your parents, siblings, other relatives, or friends.
Set Up a New Budget
After a divorce, you’ll likely have some financial setbacks, so now is the time to set a budget. List your sources of income and expenses. After you have covered essentials like food, rent, utilities, and other bills, you can put the remaining money into savings.
Plan with A Financial Planner
If finances overwhelm you, it might help to get the services of an independent financial planner who can analyze your financial situation. They would then advise you on how much you should be saving, your budget, and how to make the most of your financial life.
Bottom Line
Going through a divorce is not easy in any way. But even when tackling all its financial repercussions, make sure you take care of yourself and your mental health, too. Take a deep breath, go on a small vacation, pause to recharge, and learn to love yourself.
At the same time, prioritize budgeting and automating your savings. If you can’t handle the financial stress of all this, work with a financial professional to help you stay on track.
