Divorce usually has adverse effects on a person's financial situation--particularly in the short term. However, there are ways in which divorcing individuals can bounce back financially after divorce. The advice applies to all those who face financial hardship after divorce, both men and women.
Get involved in your investments, retirement planning, and insurance.
Many couples tend to split the financial decision-making. While one partner, usually the chief wage earner, focuses on investing and major financial decision-making, the other partner focuses on day-to-day budgeting and bills. After a divorce, it is usually the spouse who did not focus on the bigger picture who suffers most financially.
Establish personal credit and check your credit report for inconsistencies.
Many couples have a single joint bank account and credit card. In these situations, one spouse is usually not building up a personal credit history. Being an authorized user of a spouse's credit card does not build personal credit. Upon divorce, the spouse with no credit history will find it difficult to secure credit in their name.
Another common problem faced after divorce has to do with debt and their credit report. Since New Mexico is a community property state, debt, like assets, is divided equally during a divorce. It is important for individuals to check their credit report to ensure that their debt has been divided and allocated correctly by creditors, in accordance with the divorce settlement. It is extremely important to check for and rectify these mistakes as soon as possible.
Determine a budget.
Budgeting becomes of vital importance after a divorce. Both partners have to be realistic and consider multiple issues when organizing a budget. First of all, both partners have to have reasonable expectations. In most cases, the cost of maintaining two separate homes will prohibit both partners from maintaining their former standard of living.
In planning a budget, divorcing individuals should make a detailed inventory of their income, including income from work, alimony, investments, and child support. However, it is important to account for child support, and possibly alimony, ending at a certain point in the future. There should also be a detailed list of annual expenses, including rent, mortgages, insurance, car payments, taxes, utility bills, food costs, etc. If thinking about returning to school or pursuing some sort of career enrichment, it is necessary that individuals also factor this transition period into their budget. This includes accounting for an income reduction while in school and an income increase when the training is completed.
Children are an important consideration when making realistic budgeting choices. In some cases, the custodial parent wishes to keep the family home. However, this may not make financial sense. It is usually the primary caregiver who fights to keep the children as well as the family home. It is important not to make the decision to own the family home an emotional one, because it may be financially unrealistic.
Save for retirement.
Many individuals find themselves having to begin saving and planning for retirement from scratch after divorce. For various reasons during marriage, one or both partners may neglect to plan or save for retirement. But no matter how late or how difficult, retirement planning must be addressed as soon as possible. It may be best to start investing or saving even a small amount every month which can accumulate with time or, if possible, to take a lump sum received as part of the divorce settlement to begin a retirement fund.
Finally, many divorced couples neglect to separate their financial lives completely. As soon as the divorce is final, each spouse should ensure that assets are transferred to their name, as well as home and auto insurance policies. Individuals should also make sure that if they receive child and spousal support, then the paying partner has life insurance that will allow for a continuance of the support if they should die unexpectedly. It is also important to change beneficiary designations and to update wills and healthcare directives after divorce.
Even though divorce can be financially crippling, there are ways to get your financial life back on track. It is important, however, to get involved in your finances, be realistic, and make important changes that look toward the future. And if divorce is on the horizon, consult with an experienced divorce attorney early on to protect your financial interests.
Collins & Collins, P.C.