Financial Advice in Divorce
Besides being an emotional strain, divorce can wreak havoc on your personal finances. Although the emotion can outweigh the practical considerations when you are dissolving your marriage, it is important to keep a level head and be as practical as possible when dealing with the financial aspects of the divorce. Getting the financial details wrong can leave you trying to play catch-up for the rest of your life rather than moving on in a positive new direction.
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Accept a Lifestyle Change
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One income simply will not buy as much as two. Even if you receive a generous divorce settlement and are happy with the way the marital assets were distributed, you may find that you need to give up some of the luxuries you had been used to during married life. Country club dues, gas guzzling SUVs and maid services are examples of the many things the newly divorced may have to learn to live without. If you are receiving alimony or child support, remember that these income sources are temporary. Don't fall into the trap of thinking these things have increased your income without considering the corresponding expenses that have also increased.
Pick Your Battles Wisely
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Although it is important to protect yourself during a divorce proceeding, spending piles of money in unnecessary attorney's fees can cut into any assets you gain quickly. Many people fall into the emotional trap of waging an expensive war over an item that has little real value. Others become so focused on making sure their ex-spouses don't get a particular item that they lose sight of other assets that may be more important. The Institute for Divorce Financial Analysts recommends making a list of the assets you will truly need, the ones you would like to have and the ones you are willing to give up. This will help you stay focused on what matters during the negotiation process.
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Protect Your Credit
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When the divorce is over and the dust has settled, each party to the divorce will need to be able to move on with life. Finding yourself left with shattered credit will make it more difficult to rent an apartment or buy a car. Credit reports have also been known to influence employment decisions. Try to negotiate a plan with your soon-to-be ex-spouse about who is paying what bills until the divorce is settled. Follow up by making sure that all the bills are truly being paid. Cancel joint credit card accounts as soon as possible so that a vindictive partner doesn't run up a high bill and stick you with half or worse -- file bankruptcy and leave you with the entire bill.
Don't Go House Poor
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It is common during divorce for one partner to be overcome with the desire to keep the marital home. Both CBS News and the Institute for Divorce Financial Analysis report that women are more likely to desire the house then men during a divorce. In order to do so, you must be willing to buy your spouse's portion of the home or otherwise compensate him. This means you may have to give up cash and liquid assets to keep the house, so make sure that you can afford to do so. It is often a wiser move to sell the house, split any profit and buy your own home after the divorce is final. Special provisions can be made in your divorce settlement as to how the loss is split if you owe more than what your house is worth, so don't assume that being upside down in your mortgage must compel you to stay in the home.
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References
- Institute for Divorce Financial Analysis; Surviving FInancially After Divorce; Fadi Baradihi
- Institute for Divorce Financial Analysis; Tips: Avoiding Financial Traps; Nancy Kurn
- Institute for Divorce Financial Analysis; Avoiding a Financial Disaster; Nancy Kurn
- CBS News; The Financial Consequences of Divorce; June 2008
- Photo Credit Pixland/Pixland/Getty Images
