Going through a divorce is a shock for some individuals, not because they didn’t expect it to happen but because they don’t realize the financial implications of the split. Throughout a marriage, you become accustomed to a specific standard of living. You might be facing a difficult transition once you take a look at your finances.
There are a few things that come up when you are thinking about your finances after the end of your marriage. Here are some points to think about:
Cost of assets
One of the most difficult things about divorce is the division of assets. This is challenging when there are many types of assets or high value ones. When you are working through this part of the divorce, don’t focus on what assets are worth right now, especially for things like retirement accounts and investments. Instead, look at what they might mean for you next year, in a decade, or even longer.
You have to think about what an asset might cost you. For example, keeping the vacation home might be something you want. Before you push for this, think about what it will cost for you to keep that property. Can you afford to pay the mortgage, insurance, property taxes, upkeep and other expenses associated with hanging on to it? If you can’t do this comfortably, then it might be best to bypass that asset.
Income versus expenses
With the divorce, you are likely going to face a decrease in income. Take the time to figure out a budget based on your income and the expenses you are going to be responsible for. Even if you think that you are going to receive child support or spousal support, it is best to base your budget on only your own income. You never know what might happen with the support payments. They might come in late or not arrive at all, so it is a good idea to make sure that you can cover essential bills without them.
Impacts of credit
The divorce might impact your credit. The joint accounts will likely still remain your responsibility, even if your ex is required to pay for them. Your ex failing to make payments can mean that you will have negative marks on your credit. This is because divorce is a civil matter, so creditors don’t have to abide by the terms. There is also a chance that your debt-to-income ratio will change.
It doesn’t matter if you are going through a multi-million dollar divorce or trying to make ends meet. You need to think carefully about your finances as you make decisions during the divorce.