“Divorce is one of the most financially traumatic things you can go through. Money spent on getting mad or getting even is money wasted.”
– Richard Wagner
Life is filled with instances we don’t ever expect. Being prepared for the uncertainty that life hits you with is tough. The only aspect of our life we could actually hold some semblance of control will be the area that deals with finance.
But when you are facing a life-changing crisis like Divorce, Financial Planning will be the last thing on your mind. Because it is not easy to plan when so many things have started to change abruptly. Your heightened nervous system during the time of divorce may need some time to catch its breath before embarking on huge life-changing decisions.
During this testing time of your life, you might be worried about a lot of things which might include:
- How to gain financial stability in life after divorce?
- How to separate the joint financial investments with your ex-spouse after divorce in order to avoid any financial disputes in the future?
- How to financially support your ex-spouse’s financial needs in case you need to pay alimony?
- How to plan along with your ex-spouse in order to provide financial support to your children after divorce?
- How to financially recover from the heavy cost of divorce?
At a time of utter confusion, gaining clarity will feel like a breath of fresh air. As I have mentioned before, sorting your finances is one way to gain control and clarity in your financial life. This article aims to clear any doubts you have regarding financial planning after divorce along with helping you to guide yourself out of this situation.
You can always fall back on a financial planner who would come up with a customized strategy to help you get your financial life back on track after divorce in case you find navigating this phase alone really difficult.
Keep reading to become financially self-aware in handling a crisis like a divorce.
Table Of Content:
- Financial After-effects Of Divorce
- Untangling Assets
- Joint Property
- Joint Loan
- Revising The Financial Road Map
- Assess Your Risk Tolerance
- Revamp The Insurance Cover
- Raising The Kids
- Filling The Vacuum
1.) Financial After-effects Of Divorce:
The first thing you might notice while going through a divorce is how hard it gets to keep track of your finances.
To build a strong foundation of financial stability after divorce, you need to be aware of what comes in and goes out of your income.
So to start over in the case of divorce, you need to get your basics down first. You have to list all your expenses and your sources of income to come up with a record of where your money goes.
After divorce, you might struggle financially like other divorcees out there, if you were used to living in the security of a dual-income which might get reduced to a single income now after divorce. This kind of sudden lifestyle change might be hard for you to get accustomed to in the beginning.
Especially if you are a woman going through a divorce, you might find yourself at a crossroads of either starting your career from scratch or rebuilding your career after years of being unemployed due to personal reasons.
This kind of magnanimous responsibility might seem more daunting while trying to navigate this all alone. This is why being more conservative around your financial decisions during this financially delicate period in your life is more crucial now than ever.
These factors force you to cut down on any discretionary expenses you might have and revise your budget until you gain some kind of financial stability back in your life.
2.) Untangling Assets:
When you are in the process of separating from your ex-spouse, it is natural to separate both of your belongings starting from your things to your investments.
You both might be planning to split your wealth according to how you both see fit. This will help in untangling any financial related dispute which might sprout after the divorce in the future.
Many couples tend to open a joint bank account shortly after getting married. The first and foremost thing to do while in the process of divorce is to close your joint account with your ex-spouse in case you have any.
Then the second course of action for you will be opening a fresh individual bank account to help you deal with your finances separately. You also would need to change the Nominee details in your existing bank accounts and further furnish the Nominee details for the newly opened bank account.
This way managing your finances will become a lot easier for you individually without any complications.
3.) Joint Property:
While going through the process of separation, you might have come to realize how you and your ex-spouse are no longer going to be living together and sharing the same space.
The same property which you and your ex-spouse might have considered an investment would have automatically downgraded itself into a liability as you both are getting divorced.
Because properties usually have a tag of liability on them in the form of property tax, EMI, or any other home loan which you could have both taken together to buy the property.
It’s crucial you sit down with your ex-spouse and have an honest conversation about who actually plans to get the property through the settlement agreement. This will help the other person to relieve themselves from any form of liabilities related to the property.
It’s wise to quickly decide if you both want to sell and get an equal share or divide and keep the property in the present itself as this will mitigate some huge financial disputes in the near future if a decision is not quickly settled upon.
4.) Joint Loan:
During the course of your marriage, you and your ex-spouse would not have limited yourselves to just opting for properties.
You guys might have shared a fair financial load of other financial decisions with each other. Be it paying the bills or savings or investments, it all would be boiled down to how you both jointly navigated that aspect of your life.
Now when you both are facing divorce, you might have reviewed all the financial decisions you took together with your ex-spouse which would have brought up all the ways you are still financially entangled with your ex.
In case, you both had taken different sorts of joint loans together, you guys could decide together how the person who actually used the loan amount should be the one subjected to paying the rest of the loan amount while the other person relieves themselves from the financial obligations.
While taking loans, collateral assets usually get involved. These aspects of both your financial decisions should also come under careful consideration while going through a divorce. Later on, if these aspects were not carefully reviewed, you and your ex-spouse might have to run into the risk of losing huge financial losses after the divorce proceedings get over.
You and your ex can simply avoid such messes by having a transparent conversation about your past financial decisions to come under a mutual agreement.
5.) Revising The Financial Road Map:
As Rita Mae Brown once rightly said,
“Divorce is the one human tragedy that reduces everything to cash.”
During one of the most testing times of our lives, it would definitely be disheartening to constantly think about the financial impact the divorce would be costing us along with the other major life changes.
But do you know what causes a crisis to look more daunting for us?
The lack of control.
As much as it sounds confusing, having control over your finances would actually help you to stay afloat while you still feel like drowning in your misery. You would honestly feel up to facing life’s challenges when you know your financial life is in control.
This is why a periodic review of your financial life at regular intervals will be one of your life-changing habits. Even if you generally keep up to date with your finances, a huge blow like a divorce would actually make you sit down and revise your entire financial roadmap as the financial destination you once envisioned might not be the same anymore.
You need to start with setting your foundations right. Separate your income from your expenses and begin revising your budget. Compare them alongside your short, medium, and long-term goals to plan how to achieve them with the financial resources you already have.
The main reason for revising your financial road map, particularly after divorce is because now both you and your ex-spouse might have to carry out your financial responsibilities individually unlike before.
For example, you might have taken charge of the children’s education while your ex with the children’s other expenses.
This is a stage in your life where more emphasis on wealth creation must be focused along with wealth preservation.
The concept of Wealth Creation might seem daunting to most of us. But, it doesn’t have to be. By simply keeping a system of disciplined savings and regular investing in fixed income securities or other investment products with equity exposure depending on your risk appetite, you can simply start your wealth creation journey today.
This type of financial planning would act as a stable financial resource your children can later lean back on while preventing other financial disputes that might arise after your divorce proceedings get over.
6.) Assess Your Risk Tolerance:
A life-changing situation like divorce will alter a lot of things in your life. It will be hard to get used to these new changes and adapt to them.
Even your financial life would go through such changes. For example, if you were a risk-tolerant investor, you might notice how your risk appetite has shrunk considerably since your divorce. You might not feel up to challenging yourself with risks you don’t consider important.
But certain calculated risks in your financial journey would help you go a long way.
Mostly, your risk tolerance is tested based on your Net Worth as it determines the financial quality of your life. Your Net Worth is determined by the below-mentioned factors:
- Your assets
- Your liabilities
- Your financial goals
- The time frame to achieve them.
To help yourself curate a portfolio that will suit you best, you need to take a step back and reassess your risk tolerance. Even if you can’t meet all your financial goals in one go as you were used to, it is still ok to slow down and let your financial goals match the pace of your life.
7.) Revamp The Insurance Cover:
Just like financial planning, your other financial responsibilities might be the last thing running through your mind while going through a divorce.
In your marriage, there is a chance of either you or your ex-spouse providing the health insurance cover for the entire family. But while in the process of divorce, you might have discovered that now you have to shoulder the responsibility of providing health insurance for yourself and your children (if you have any) all alone if it is not already agreed upon during your settlement agreement.
So, you might be considering opting for your company-provided insurance cover or to go for an individual claim or you might also be considering revising your insurance cover for your children depending on if they are financially dependent on you or your ex-spouse.
While planning for your health insurance, the doubts about securing life insurance for you would also come to mind.
Instead of scouring over hundreds of different life insurance policies and confusing yourself into a state of panic, you can just opt for the hassle-free and risk-free option of choosing a “term insurance.”
Pure term insurance provides a high-value life cover at affordable premiums.
But what if you already have one?
No need to worry!
You can decide to alter the sum assured based on your newly added responsibilities. This will help you to mitigate any unforeseen circumstances in the future.
8.) Raising The Kids:
Divorce is a highly traumatic event not only for you and your ex-spouse in the process of separation but also for your kids who are going to be suffering a major upheaval in their life during this process of divorce.
It is clear if you are a divorced parent that your responsibilities have gotten a bag heavier with not much time to lighten the load soon.
You could understand how you and your ex-spouse need to share the responsibility of taking care of the emotional and financial requirements of your children.
You can decide together with your ex-spouse about how to split the roles to provide for your kids completely. While one of you can be in charge of the financial requirements of your children while the other takes care of the day-to-day requirements of the kids whichever arrangement suits you both the best.
If you are the spouse who decides to take care of the day-to-day requirements of your children. This will be the right time to start thinking about re-planning your career by working through freelancing or in a part-time job whichever is convenient to your busy schedule. In the long run, being a financially independent individual would make sure your children have a financially secure future as well.
To make sure, you and your ex-spouse will uphold your responsibilities as a parent diligently, you both can get it written it down on a legal contract to avoid any fallouts or mishaps in the future.
9.) Filling The Vacuum:
One of the side effects of divorce that other people rarely notice is how someone after getting divorced gets more vulnerable and lonelier.
This is one of those times in your life where you might feel tempted to take lots of reckless and emotional decisions like excessive shopping and impulsive spending to replace the gaping hole in your life that your ex-spouse left to replace it with the temporary joy of retail shopping.
This kind of reckless spending on hotels, parties, and tours will leave a huge dent in your savings. We are not here to tell you how to curb all kinds of spending impulses as it is not realistic in the long-term perspective.
Instead, we urge you to look at how you still have the ability to flip this situation in a healthy manner. Impulses are a normal part of having emotions. So instead of curbing your impulses, you can redirect those very same impulses to a more positive outcome.
For example, you can definitely spend on healthy habits like pursuing your passion like photography, cooking, etc.; or on some technical course which might boost your career path a notch high.
If you are not interested in spending your free time away, you can still think of ways to brainstorm ideas for your side hustle. Earning a side income is a great way to utilize your time and also to earn a bit of pocket money while you are at it.
But do take your time in deciding how you want to spend your free time and your finances. It is completely ok for you to not have it all figured out right this moment. Give yourself the time and space to think and move on during a testing phase like this.
Divorce might seem like a dead-end whereas it is just a new beginning in your life. As much as it’s a highly traumatizing event for both men and women, it is still a place in your life you can rise above.
Take a look at your current situation and try to make informed decisions that will minimize the financial impact of a divorce in the long run. Educating yourself on the topic of Personal Finance is the first step towards regaining independence in the financial aspect of your life after divorce.
But if you are struggling to cope with the financial high demands of your life, do not hesitate to seek professional help such as a financial planner or an investment manager to guide you through.
Your family and friends will be the emotional pillars to support you through the process of divorce. Your legal attorney would tie up any loose ends from the legal side.
In the exact same way, a financial planner would be there to guide you by coming up with a strategic plan to handle your finances which would minimize any mistakes you might make along with helping you to sit back and relax a little bit during this stressful process of divorce.
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