July 18, 2018
With the end of a marriage—especially a long one—there are emotional costs and potentially difficult transitions, not to mention the practical side of splitting up: legal fees, division of assets, endless paperwork, and new plans to make. It often seems every new consideration in a divorce comes with a hefty price tag.
And while divorce is often expensive for all involved, women are especially financially vulnerable during and after a divorce, especially women older than 50. If you’re a recently divorced woman of any age—or are planning to divorce soon—here are five key steps to add to your divorce financial checklist to safeguard your financial future.
“A realistic post-divorce budget is critical to meeting your short-term needs and achieving your long-term financial goals,” says Kristin Capalbo, Esq., a family law attorney based in New Jersey.
Transitioning from a two-income household to a single-income budget is a major sea change. Everything will need to be re-evaluated, from your monthly spending to your long-term planning, based on your revised income. Go over all line items and tally up your specific figures. The more you know, the better prepared you’ll be for your new lifestyle.
“If you’re now paying alimony and/or child support, how will you readjust your short-term budget and long-term savings goals to address these extra payments?” asks Capalbo. “If you’re the recipient of alimony and/or child support, what is expected (and reliable) each month? How much will you need to contribute to dependent expenses, such as work-related child care or college costs? What is your plan for when your alimony period is up or when your children are out of the house?”
Speaking with a financial advisor can help you adjust your budget to meet your obligations, while also safeguarding your assets or rebuilding them.
During a divorce, all your insurance coverage may change. Review your existing insurance policies (health, home, auto, life, disability, long-term care) to see where updates are needed and what the cost changes will be. If you are receiving alimony and/or child support, make sure your life insurance addresses the possibility of your ex-spouse not being able to continue to pay. Factor all monthly insurance changes into your revised budget.
If you had joint credit cards with your ex, you may not necessarily want to close the accounts completely as this could impact your credit score. Instead, include the joint cards in your divorce negotiation and determine who gets to keep the accounts. For the credit cards you keep, reach out to the respective issuing banks to remove your former spouse as an authorized user.
“Recent changes to the tax code can have a major impact on your post-divorce finances, especially when it comes to the treatment of alimony, itemized deductions, the child tax credit, and valuation of businesses,” says Capalbo.
In the middle of a divorce, many adults will get an unpleasant surprise at tax time when they learn what now counts as taxable income. For example, depending on when your divorce was finalized, if you’re receiving alimony, this may no longer count as taxable income; if you’re paying alimony, this may no longer be taken as a tax deduction. Child support is not taxable or deductible.
As many situations are unique, it’s essential that you consult an accountant or tax professional to determine how this new tax reform will affect you post-divorce.
Many married couples have held long-term plans: far-flung travel, saving for their child’s college education, a vacation home, retirement. Now that you’re single, the goals themselves don’t have to change but the strategy to reach them does. Look at your new budget and your obligations, now and in the future. How can you revise your timeline post-divorce to make sure you’re working toward the life you want?
“Life after divorce can be intimidating,” Capalbo says, “but with proper planning and the right tools, your finances don’t have to suffer.”
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