Fortunately the days of couples sticking together in relationships that no longer work are behind us. Divorce provides the opportunity for a fresh start.
Where once you and your partner once shared a roof, there is now a need for separate housing. Often children are involved, so considerations of being local and having enough room for the kids can be a big challenge.
You typically also go from two incomes and sharing expenses as a couple, down to one income with little change in expenses, so budgeting becomes a real challenge. Often one of you will keep the family home so as to minimize disruption for the kids, but this may mean borrowing a significant amount so that your partner is able to move on with their life and get a new house of their own. How will you service this new debt? You may be required to pay child support, which, on top of new housing costs can be a real strain.
And thinking longer term, retirement plans are often significantly disrupted. Often one member of the couple took time out of the paid workforce to help raise the children. This means their retirement savings are typically considerably less than their former spouse who worked through. This difference is allowed for in your financial settlement, but the result is that you are both now facing a less generous retirement outlook than was once the case.
So divorce has big financial impacts. Yet it provides you with an opportunity to steer your life in the direction that you want to head, possibly without the compromises that you needed to make when you were in your former relationship.
Here are a few strategies that might help you get back on your feet.
The starting point must be gaining clarity around how much you have coming in and how much you have going out. Following the divorce your household arrangements have changed, and possibly there is child support obligations and spousal maintenance to meet. Or perhaps in reverse, you have these support payments coming in and need to ensure they are used wisely and appropriately.
You can create your budget in a spreadsheet or use a budgeting app to help.
2. A roof over your head
For most people, becoming a home owner as soon as possible will be an important element of recovering financially from a divorce. You may need to start smaller or less comfortable than what you once owned, but getting back into home ownership is likely to be a very important step.
If you simply can’t make the numbers stack up to buy a home, and it looks like that won’t be a reality in the medium term, consider increasing your contributions to your retirement savings instead.
3. Review your insurances
There are two elements here. You will want to update the beneficiaries on any policies to ensure any payout would be directed where you would want it to go post-divorce.
The larger item is thinking through how you will establish a financial safety net to ensure you are totally self-reliant.
4. Retirement planning
Usually there are two scenario’s after the divorce. One member of the couple keeps the house, most often the wife, and then has very little in retirement savings. Or the person gives up the house, but retains their far larger retirement savings balance – most often the husband.
Some other things to think about are whether your existing retirement savings and wealth creation structures continue to make sense.
Finally, don’t procrastinate. The sooner you get your finances in order, the sooner you will start to move forward with your life.
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