Make a financial plan during your divorce

On Behalf of | Dec 6, 2021 | Divorce

Many decisions are required when a marriage ends. Financial planning sometimes becomes forgotten during this time even though a divorce may have more impact on a spouse’s finances than all other events in their lives. Sound planning can help reduce some of the financial consequences.

Standard of living

Except for very wealthy couples, a divorce will reduce each spouse’s standard of living. Two households are more costly than one household financed with a couple’s joint income. There are even fewer assets and income if one spouse was a stay-at-home parent.

Mediation

Mediation allows spouses to work out a resolution that meets their needs with the assistance of an impartial mediator in a non-judicial setting.

Parties may have to forego mediation or other alternative dispute resolution if they cannot resolve issues amicably. These spouses may need to undergo the normal legal process.

Budget

Early in this process, spouses should create budget so they can prepare for negotiations or litigation. Plan for up to 20 to 30 years after divorce. Couples should include their financial plan in their settlement negotiations or litigation strategy.

Setting forth a budget is especially important for parents who have sole custody of their children. These costs include tutors, special needs, college tuition, health care and orthodonture. A spouse paying spousal or child support should also have a life insurance policy to assure that these payments continue.

Asset analysis

Assets have different values and need evaluated. A $100,000 savings account, for example, is worth more than a joint retirement account that will be taxed in the future or that amount of equity in a home.

Keeping the family home, while helping assure continuity, can be costly. It may be overly burdensome for a spouse with a single income to refinance the mortgage in their name and to pay upkeep.

Taxes

Divorce settlements may have substantial tax consequences. Understanding how different assets and income is taxed is important to dividing assets.  Prepaid taxes from marital income may also be refunded to a former spouse.

Make changes

A divorce also affects other plans made during marriage. Update your will, power of attorney, beneficiaries, and other estate documents. Consider additional training or education if you have not worked for an extended time.

Attorneys can help spouses prevent mistakes that can impact your future. They can also assist you with seeking a property settlement that is fair and reasonable.