There’s no denying that going through a divorce is an emotionally draining experience. The stress of negotiating a divorce settlement, attending multiple court sessions, and dealing with rival lawyers can be overwhelming for both parties. Aside from the emotional toll that a divorce can take, it’s crucial to understand how your financial situation will be affected. You need to make sure that your finances are in order now more than ever. You’ll be able to put the past behind you and start laying the groundwork for your new financial future.
How do you plan financially after a divorce?
Following a divorce, you’ll need to get your finances in order and examine your existing financial condition, taking into consideration the loss of your former spouse’s income. Furthermore, you may suddenly be responsible for expenses that you previously shared with your ex-spouse, such as housing, utilities, and car loans. You may eventually realize that you are no longer capable of living the lifestyle you were used to before to your divorce.
How long does it take to recover financially after divorce?
Establishing a budget that represents your existing monthly income and expenses is an excellent place to start.
Include other sources of income, such as dividends and interest, in addition to your normal salary and pay. You’ll also want to include alimony and/or child support payments if you’ll be receiving them.
When it comes to spending, you should divide them into two categories: fixed and discretionary. Housing, food, and transportation are examples of fixed expenses. Entertainment, vacations, and other non-essential expenses are examples of discretionary spending. Remember that you may need to reduce some of your discretionary spendings until you get used to living on a lower salary. It’s crucial, though, not to deprive oneself of all pleasure. You should budget for a treat every now and again (for example, a yoga session or dinner with friends).
Re-evaluate and re-prioritize your financial objectives.
The next stage should be to reassess your financial objectives. You and your spouse may have set financial objectives together when you were married. These objectives may have shifted now that you’re on your own.
Begin by generating a list of the tasks you’d like to accomplish right now. Do you need to increase your retirement savings? Are you considering returning to school? Do you want to put money aside for a new home?
You’ll also want to re-prioritize your financial objectives. You and your spouse may have intended to purchase a beach house as a holiday home.
However, after your divorce, you may discover that other priorities (such as ensuring that your cash reserve is well funded) become more important.
How do I determine my financial situation?
While you’re getting used to your new budget, make sure you’re managing your debt and credit. You should strive to stay away from the temptation of relying on credit cards for extras. Also, if you do have debt, make a strategy to pay it off as rapidly as feasible. Here are some suggestions to help you pay off your debt:
- Keep track of your balances and interest rates
- Create a payment schedule to prevent late fees
- Pay off high-interest debt first
- Look into debt consolidation/refinancing possibilities
How can creditworthiness be improved?
Consider taking steps to protect your credit record and/or establish credit in your own name, as divorce can have a negative influence on your credit rating. A good credit history is essential because it allows you to get credit when you need it and at a cheaper interest rate. Employers may even consider good credit to be a requirement for employment.
Examine your credit report and look for any discrepancies. Are there any joint accounts that have been refinanced or closed? Are there any names that need to be altered on the report? Each of the three major credit reporting companies must provide you with a free copy of your credit report once a year. For additional information, go to www.transunion.ca
Make on-time monthly bill payments and attempt to avoid having too many credit inquiries on your report to develop a positive track record with creditors. When you apply for new credit cards, such inquiries are made.
Is life insurance a requirement?
In most divorce settlements, insurance coverage for one or both spouses is arranged.
However, you may require additional insurance coverage beyond that which was provided as part of your divorce settlement. When it comes to health insurance, make sure you have enough coverage. Obtaining temporary health insurance coverage (up to 36 months) through the Consolidated Omnibus Budget Reconciliation Act is a possibility unless your divorce settlement mandates your spouse to supply you with health coverage (COBRA).
You can also check into buying individual coverage or getting coverage via your company if you’re employed.
Now that you’re on your own, you’ll want to double-check that your disability and life insurance policies are up to date. This is especially true if you’re returning to work or if you’re the primary caregiver for your children.
Finally, double-check that your property insurance is up to date. In order to reflect property ownership changes that may have happened from your divorce, any applicable property insurance policies may need to be updated or redone.
Make a change to your beneficiaries.
You’ll want to alter the beneficiaries on any life insurance policies, retirement accounts, and bank or credit union accounts you have after your divorce. Keep in mind that you may be required by a divorce settlement to keep a former spouse as a beneficiary on a policy, in which case you will be unable to modify the beneficiary designation. This is also an excellent moment to write a will or revise one that you already have to reflect your current circumstances. Make sure your ex-spouse isn’t included as a personal representative, successor trustee, beneficiary, or power of attorney in any of your estate planning documents.
How does getting divorced affect your taxes?
You should also think about the financial ramifications of your divorce. Your sources of income, filing status, and the credits and/or deductions that you are eligible for could all be impacted.
You may have new sources of income following your divorce, such as alimony and/or child support, in addition to your regular work and pay. Alimony is considered taxable income for you if you receive it. Child support, on the other hand, will be exempt from taxation.
In addition, your tax filing status will change. The last day of the tax year is used to establish filing status (December 31). This implies that even if you divorced on December 31, you will be considered divorced for tax purposes for the whole year.
Finally, depending on whether you are the custodial parent, you may be eligible for various credits and deductions if you have children. Dependency exemptions, the child tax credit, and the credit for child and dependent care expenses, as well as student loan interest and tuition deductions, are all possible options.
Seek the advice of a Certified Divorce Financial Analyst.
Although you can absolutely accomplish it on your own, you might want to seek the advice of a financial specialist to help you adjust to your new financial situation. A financial professional can help you assess your needs as well as establish a strategy to help you achieve your financial objectives, offer recommendations regarding specific products and services, and monitor and amend your plan as needed.
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