Achieving financial independence after divorce
Divorce is a time of change, and change can be frightening. Whether you had a one-income household or both spouses worked, you will both likely to have to make significant changes in your living expenses, lifestyle and saving patterns in order to adjust to the increased expenses of a two-household reality. You will have to account for the cost of the divorce itself when figuring out what your future will look like. Your lifestyle may change dramatically, so it’s important before and during the process to prepare for financial independence after divorce.
Build Your Savings
When you start preparing for divorce, you should take time to understand the difference between your fixed expenses and your discretionary expenses – basically, “needs vs. wants”. Avoid non-essential spending so you are able to set aside funds that might be used toward the cost of moving into a new residence or the cost of professional fees for the divorce. You should speak with an attorney before moving funds between accounts or opening a separate account, and you will need to be prepared to be honest and transparent about funds you are setting aside in preparation for the divorce.
If you depend on your spouse’s income, begin planning what you are going to do to generate an income of your own. Improving your education and training may be part of your plan. For some families, achieving financial independence after divorce may depend on the spouses working together to “bridge the gap” by agreeing on a spousal support amount for some period of time. You might also consider selling items (with your spouse’s knowledge and consent) or starting a side job. It is important to not only save money where you can, but to be honest about it. If you withdraw funds from an account (joint or in your name only), this can cause problems in the divorce process, so be sure to consult with an attorney regarding your options and potential consequences.
Budget for Change
Financial independence after divorce is not just about the assets you start with. Your budget and living expenses will change as well. You will now have only have one income, and you may not be able to depend on your ex after the divorce is final. Make sure to plan for your money to get you what you need.
Budgeting is all about knowing what you have and what you need. In a collaborative divorce, you work together with your spouse to determine an appropriate financial settlement. Make a list of what your expenses are. This includes housing, utilities, groceries, clothing, and everything else you need. For you to achieve financial independence after divorce, the right financial settlement should take your income and expenses into account.
You should also plan for those needs to change. If you have kids, their needs change as they get older. Keep an active eye on your budget to avoid surprises.
Finally, be good to yourself. Find inexpensive ways to take care of yourself now to avoid health problems later. Treat yourself on occasion, and plan for it in your budget.
Prior to, during and after the divorce, avoid taking on more debt. Resist the temptation to splurge or buy the things that you think you will need after the divorce. Increased debt payments will wreck havoc with your budget and may create a hole that you will not be able to escape from. Closely monitor your spending post divorce to ensure that you are not using increasing debt to finance your lifestyle.
Pay Attention to Your Credit
Get a copy of your credit report right away. Poor decisions during your divorce can affect your score and lower it, so you need to know what you are dealing with. Your credit affects your ability to manage many financial hurdles – such as renting or buying a home, buying a vehicle, insurance rates and even obtaining a job – in the years to come, so be ready. Your financial independence after divorce depends on it.
Once you see your credit report, you can find out what you need to fix. If you have errors, report them immediately and work to fix them. If you have late payments and collections, work to resolve them. And celebrate; every account resolved is a step toward financial independence after divorce.
Don’t face everything alone. You can lean on family and friends if you need help getting your financial situation together. To understand how your divorce settlement is designed to help you reach financial independence after divorce, work with a neutral financial professional as part of your collaborative divorce process.
Contact the professionals at Best Legal Choices if you have questions about how the collaborative divorce process can help you achieve financial independence after divorce.
Mr. Juilfs is the founder and managing member of Fair Share Divorce. He began his career in the Financial Planning industry as a Financial Advisor with American Express Financial Advisors in 1997.