Divorce can be a significant event in a person’s life and has the capacity to have a great impact on their finances. Not only can the process of dividing assets and paying legal fees be expensive, but it can also cause financial stress and uncertainty.
Going through a divorce can be a challenging and emotional experience, and it’s important to take steps to protect your financial wellbeing during this time.
To help you navigate this difficult period, we’ve put together five financial tips to consider when going through a divorce. These tips can help you take control of your finances and feel more confident about your financial future.
1. Understand your financial situation:
When going through or considering a divorce, it is important to understand your financial situation. One of the essential steps in this process is to gather information about your assets, debts, and income. This can include bank statements, investment accounts, retirement savings, tax returns, and other relevant financial documents.
In addition to understanding your assets and debts, it is important to consider your living expenses and how they may change after the divorce. This can include rent or mortgage payments, utilities, groceries, transportation, insurance, and other daily living expenses. It is important to be realistic about your expenses and to consider any potential changes in income, such as reduced earnings or spousal maintenance payments.
Budgeting is a great tool to break down your cash flow and determine your expenses and sources of income. By creating a budget, you can identify areas where you may be overspending and adjust your spending habits to align with your new financial situation. You can also plan for any upcoming expenses or financial goals, such as paying off debt and/or saving for retirement.
2. Seek professional advice:
It is important to seek professional advice during a divorce, particularly when it comes to financial matters.
- Legal advice: A divorce lawyer can provide legal advice on the divorce process, property division, and custody arrangements.
- Financial advice: A financial advisor can provide guidance on managing finances, creating a budget, and investing after the divorce.
- Tax advice: A tax professional can provide advice on the tax implications of divorce, such as capital gains tax and tax deductions related to child support payments.
- Emotional support: A therapist or counsellor can provide emotional support and guidance on managing stress, sadness and other emotions associated with divorce.
3. Consider the long-term impact:
Divorce can have long-term financial implications, particularly when it comes to retirement planning. It is important to consider how the division of assets or potential spousal maintenance payments may impact your ability to save for retirement. Divorce may cause your retirement funds to decrease due to additional expenses and may have an impact on the quality of your retirement.
Additionally, individuals should factor any outstanding debt that they hold. If the debt is under a joint name, divorce may result in the debt taking longer to pay off.
4. Be mindful of debt:
Individuals considering a divorce should be mindful of joint debts that need to be divided between the two parties. Joint debts can include car loans, mortgages, credit cards, and personal loans that the couple may have taken out together. When deciding how to divide these debts, it is important to consider the terms of the loan agreement, the amount of debt owed, and the earning capacity of each spouse. If one spouse is unable to pay their share of the joint debts, then the other spouse may be held liable for the full amount of the debt.
Additionally, by closing joint accounts or credit cards, both parties can ensure that they are only responsible for their own debts and avoid incurring any additional joint debts. It is important to note that closing joint accounts or credit cards can have implications on credit scores, so it is important to seek professional advice before taking any action.
5. Prioritise your mental health:
Going through a divorce can be emotionally and mentally draining, which can impact an individual’s ability to make sound financial decisions. It is important to prioritise self-care during this time, whether that means seeking professional counselling or finding support from friends and family.
By implementing these five financial tips, individuals going through a divorce can take control of their financial situation and feel more prepared to manage the challenges that may arise. It’s important to understand the potential long-term impact of divorce on finances, seek professional advice, be mindful of debt, and prioritise self-care during this difficult time.
By working with a financial planner, individuals can create a plan that considers their new financial situation and helps them move forward with confidence. At EPG Wealth, we are committed to helping our clients navigate the complexities of divorce and providing them with the support and guidance they need to achieve their financial goals.
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