Divorce is never easy. Unfortunately, divorce is very common. Nearly 40% of all first marriages will end in divorce and 60% of second marriages will end in divorce. The reasons couples separate are as unique as every marriage, but divorce & money problems are common.
Divorce & Money: Financial Mistakes to Avoid
While your divorce may be inevitable, the financial mistakes many people make don’t need to be. Here are a few common financial mistakes that are made in a divorce and how to avoid them.
Not creating a new financial plan
From the moment of separation, you are now living on one income. It is imperative to start from scratch and create a new budget and reallocate for necessary monthly expenses. Once you are clear for your month to month expenses, it is time to start considering a separate budget for long-term expenses and investments such as retirement. Likely, unless you are close to retirement age, you will no longer be entitled to the social security income of your spouse. Plan accordingly and make a new financial plan that is in line with your new circumstances and income.
Not thinking about new expenses
With divorce and money changes come drastic lifestyle changes. First, you are now going to need a new place to live. This includes first, last, and security deposits on a new home or even a new mortgage on a home or condo. While this might sound just fine, there is one minor caveat. If your name is still on the lease or mortgage on the old home, you are still responsible for those bills being paid. Yes, that likely includes electric, water, and trash at both places.
Keep in mind any other unsecured debt you may have with your spouse from auto loans to credit cards. It may feel good to forget about the “old” bills, but doing so can severely hurt your credit and your financial future. Let’s also not forget about the costs of the divorce process itself. Divorce can be expensive with attorney fees, deposition costs, court costs, and custody mediator expenses adding up in contested cases. In addition, keep in mind the new places money will need to be allocated.
Not thinking about insurance
Different types of insurance can affect your divorce settlement. Life insurance and health insurance often prove to be the largest. If you don’t include the cost of health insurance in your post-divorce budget, you may be in for a rude awakening, especially if your spouse is currently carrying you on a health insurance plan through their employer. Once divorced, you likely will no longer qualify as a “spouse” of the employee to be eligible for health insurance through their employer’s health insurance plan. Your costs for health insurance could drastically increase.
Especially in cases involving alimony or child support, a party may be ordered to carry a life insurance policy to protect the children or the spouse receiving alimony in the event the payor spouse dies before the support is paid in full. This monthly premium could be significant in your budget, especially if it is in addition to new child support or alimony obligations.
Fighting over the house
A home is more than a financial asset, it is an emotional investment. A home is a tangible piece of your life, from raising children to hosting dinner parties. It is easy to see why the house is usually one of the most significant points of contention for divorcing couples. It is imperative to objectively ask yourself if you will be able to pay the mortgage, utilities, maintenance, insurance, and taxes with just your income. If not, it may be better for you financially to let go and sell the house or allow your spouse to take it. This may be difficult, but this is a critical stage in which you must look at the home in terms of dollars and cents, not memories and emotional attachment.
Settling out of exhaustion
Contested divorce cases are often a marathon, not a sprint. If you go to trial, it is not uncommon to be physically and emotionally exhausted, while also relieved, at the end of it. To be honest, more likely than not you will simply want to get the entire process over with. Many cases do tend to settle closer to trial when there are more facts known and fewer unknowns. While it is easier said than done, the financial aspects of your divorce need to be treated as any other business arrangement.
Follow your attorney’s advice on what is a realistic settlement or whether it is better to go to trial. The exhaustion and fear of testifying can cause you to want to “throw in the towel,” give in, or just stop participating instead of putting your case before the judge. Keep in mind the marathon mindsight and follow the advice of your attorney on whether it makes sense to go to trial or settle out of court. If you don’t carry this mentality, your decision can leave you in permanent financial ruin.
Law Office of Julie Fowler, PC, LLO | Divorce Lawyers Omaha
Child Custody | Child Support | Divorce Lawyers Omaha
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