7 tips to survive a divorce financially
Thursday, 7 May 2015
Divorce almost always takes a toll on both spouses.
Researchers found that the average divorcing couple needs a 30 percent income increase to maintain their quality of life. About 20 percent of women fall into poverty as a result of divorce, and men suffer a standard-of-living hit of between 10 and 40 percent – depending on their circumstances before the split.
But the end of your marriage does not have to be a total financial disaster. Here are 7 tips to ensure you land on your financial feet in the long term:
1. Seek objective advice
Divorce is one of the most incredibly stressful events anyone can go through. While you deal with the emotional trauma of this major life change, it can be difficult to make wise and logical financial decisions – not decisions based on emotion. A trusted lawyer, accountant, or financial consultant can be an excellent voice of reason in times when you may be prone to unreasonable behavior.
2. Get real about your budget
Your financial picture will be a lot different after your divorce with one less adult contributing to the household. But that's also one less adult to support and if there are children, they won't necessarily live with you full-time. To create a reasonable budget, track your expenses for at least three months. A website like Mint.com is useful to see exactly how much you spend on various bills and extras – and will help you identify where you can cut back.
3. Adjust to a new standard of living
Your post-divorce standard of living is likely to drop–at least for now. It may make sense to downsize to a smaller home or apartment, and replace a financed luxury vehicle with a used car that's much more modest.
Many families overextend themselves financially for the sake of not uprooting the children from their family home. If you're considering keeping your old house, also consider the toll on your family's financial security, as well as your own mental health in living beyond your means. According to recent research on the mental health affects of consumer debt, depression is nearly three times more prevalent in people with debt than those without debt. Another recent study found that those with high credit card debt tend to suffer from poorer health and higher blood pressure.
4. Aim for financial independence
In many cases of divorce, one spouse pays the other child support and/or alimony. But life can change unexpectedly, and you can never fully rely on consistent payments from your spouse–no matter what the court decides. Even the most committed and responsible exes can lose their job or become disabled. When that happens, any support will likely cease.
And rarely is lifetime alimony awarded. According to federal statistics, only one-third of single mothers received any child support that was due to them, and the average amount they received was $430 monthly.
The answer is to focus on your own earning power. If you are currently working, make a plan for how you can increase your income, or build your business. If you've been staying home to take care of your family, decide how you'll re-enter the workforce and rebuild your career.
5. Even breadwinners have to adapt
You may earn more than your ex, but don't assume you're immune from the financial hardship of post-divorce life. And don't assume that the woman always receives financial support from the husband–Pew Research found that 40 percent of families with children are headed by a female breadwinner. But man or woman, the higher-earning spouse will also face a challenging financial future and may be forced to pay alimony and child support, as well as settlements from investment accounts and real estate. This can mean a big long-term hit.
6. Plan for your post-divorce future
Divorce lowers living standards, and there is often less to save for retirement, your children's college funds and emergencies–especially since all assets are usually divided at the time of the breakup.
Consult with a financial professional to understand tax-advantageous strategies to ensure you and your family are protected long-term, no matter what your current income.
7. Remember–it gets better!
While divorce can be emotionally and financially devastating, it's only a short-term transition. It may make sense to make short-term financial accommodations–like renting your next home instead of buying right away, or taking an entry-level position while you launch a professional career. Plenty of divorced people have gone on to rebuild their finances and thrive beyond what they previously thought was possible.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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