When people go through the emotional upheaval that often accompanies divorce, it is easy for them to put financial considerations off to the side while they try to process all of the changes that are occurring. However, people cannot completely ignore money matters during divorce. Divorce requires making several important financial decisions, and people also need to learn how to manage finances as a single person after divorce. There are some important steps people should take after divorce to make themselves more financially secure.
Develop a Budget
One of the most important things people going through divorce can do to ensure their financial stability is make a budget for themselves – particularly those who did not handle the finances in their marriages. People cannot live as easily on one income as they can on dual incomes, so many people will have to adjust their standards of living after divorce to reflect their new economic realities. Some may be tempted to overspend after a divorce, either on themselves or their children, in an effort to help themselves feel better. However, thoughtless spending after divorce is one of the surest ways to wreak havoc on finances.
People should educate themselves about what their incomes and expenses will be after divorce, as well as the assets and liabilities they will receive in the divorce property settlement. Many find that meeting with a financial planner is useful in helping them get on-track financially for the immediate future and plan for long-term security.
In addition to making sure that they can meet their immediate financial needs after divorce, people need to take retirement planning into account. People should make sure that they secure assets in the property settlement that they can save for retirement. Financial planners can also help educate people on how much they will need to save for retirement and options for saving.
Divorce is a life event that should trigger an estate plan review. People will not only want to remove their ex-spouses from their wills and name new heirs, but they will also want to name new beneficiaries on non-probate assets such as retirement accounts, pensions, trusts and life insurance policies. A person’s will does not control who receives those assets, so even if a person drafts a new will that does not include an ex-spouse, the ex-spouse may still end up getting assets if a person is not diligent about reviewing his or her named beneficiaries on all such assets.
Understand Tax Implications
The filing status for federal income taxes changes for many people after divorce. People will have to file singly or as head of household, rather than jointly as they may have when married. Additionally, those who have children need to determine how they will allocate the dependency credits between them. People need to understand the tax implications of alimony, as well. Such payments are taxable as income for the recipient and deductions for the payor. Child support, however, is neither taxable nor deductible.
Divorce can be overwhelming for many people, and it is not something people should try to face alone. If you have questions about divorce, talk with a seasoned divorce attorney who can discuss your situation with you and advise you of your options.