Divorce can be emotionally difficult, and it can also be financially challenging. Whether you and your ex-spouse both worked full-time or one of you worked while the other stayed home, splitting one household into two undoubtedly causes a hit to most people’s budgets. While you might have some juggling to do as you learn how to handle the transition, you can get through this. Read on to learn about how you can minimize the negative effects of divorce on your finances.
Work Together as Much as Possible
Before even considering the financial puzzle of how you will budget after the divorce is finalized, think about what you and your ex can do now to minimize the cost of the divorce itself. Can you work together to compromise and collaborate to make the divorce as fair as possible to each of you without hiring high-priced attorneys? If you have struggled to work together in your marriage, this can seem daunting, but there will probably be things that you both agree on right out of the gate.
For example, you might both agree that the cat you have had since you graduated from college belongs to you and that the boat belongs to your spouse because he or she brought it into the marriage. You each might have your own cars. Please make a list of what you agree on so you can eliminate the need to argue about them on paid court time. When it comes to things you disagree on, consider using a legal resource group like National Family Solutions or a mediator, a neutral third party who can help the two negotiate.
These types of services cost substantially less than a private lawyer, and they can keep you out of a long, drawn-out court battle. Make your divorce as inexpensive as possible by using these options if possible. It is also important to protect yourself: Ensure that you are getting your fair share of your marriage funds. Remember that if you stayed home while your spouse worked and contributed to a retirement account, you might be entitled to some of those funds. You also might be entitled to a portion of his or her retirement fund. Talk to your legal advocate.
Make Lists of Assets and Debts to Divide Fairly
You probably have both assets and debts that belong to both of you. Now you will need to divide those up. Depending on how you structured your finances when you were married, you might each have your own personal debts, or you might have considered all debts as shared debts. You also might share a house (and any mortgage payment that goes along with that), artwork, bank accounts, and so on. In general, allocating these things should be roughly equal.
Keep in mind that your state will determine how debt is handled. In some states, all debt belonging to either spouse belongs to both spouses, even if one spouse did not know about it. In others, however, the debt under one spouse’s name belongs only to that spouse. You will need to talk to your legal advocate or research to determine how things are handled in your state.
Make a Financial Budget
Once you have figured out who will get which assets and debts and who, if anyone, will be paying (or receiving) child support and/or spousal support, it’s time to make a budget. If your spouse handled the money during your marriage, this might be completely new to you. On the other hand, if you both worked together or were the bookkeeper during the marriage, it might seem intuitive.
First, make a list of all the income you have coming into your home. Include:
- Wages from work (use the amount that you get in your check, not the gross amount before taxes, insurance, retirement contributions are taken out)
- Any other income you have
- If you are collecting child or spousal support, then add those in as well.
Now, make a list of all your fixed expenses. These will be your:
- Mortgage or rent payment
- Utility bills
- Any loan payments (such as a car payment)
- Child or spousal support payments you are responsible for
- Payments for health, car, life, and other insurance coverage
Next will be your variable expenses. These are the funds you can spend on:
- Gasoline for your car
- Food and meals
- Pet supplies
- And so on
If you can subtract your income expenses and not have a negative number, you are all set. If you are spending more than you are bringing in, you will need to tweak some numbers. If there is a large deficit, it might help talk to a financial planner or financial advisor to help you figure out what you should do. In general, your options are to increase your income or reduce your expenses; talking to an expert can help you decide the best course of action.
If you cannot afford a financial advisor, your local church or other community-based organization might have volunteers who can help. Going through a divorce can be messy in many ways, and it is up to you to ensure that your best interests are upheld when it comes to finances. Deciding whether to liquidate assets and whether to sell the marital home can be difficult.
Talking to both a legal advocate, such as the ones at National Family Solutions and a financial coach, can help you make these decisions and represent your best interests in court if it comes to that. Even though it might be emotionally difficult, remember that your future financial success could be helped or hindered by the decisions you and your ex make now, so pay special attention to your finances and consider all options for making sure that your settlement is fair for both of you.