Whether terminating your marriage was your or your spouse’s idea, it is likely that neither have you prepared for it financially. Though it is obvious that it means there will be a split from one household into two households, sometimes it is not so obvious how the family’s finances are affected. For starters, the same amount of income you and your spouse have will now be used to support two homes. Following are some of the financial matters you should consider as you go through the divorce process.
Learn about your current finances. It is not unusual for one spouse to have handled the finances during the marriage. Before you can begin to consider any financial decisions that will need to be made, you should familiarize yourself with your current financial situation. That includes financial accounts, retirement accounts, loans, credit cards and other debts, insurance, utilities, cell phone accounts – everything. And then prepare a budget that shows your current monthly expenses. If you use banking software, such as Quicken, this will be easy to do.
Your credit. Request a copy of your credit report. Not only will it give you your credit score, it will also provide a list of all of your credit obligations (including credit cards, automobile loans, mortgages). You should find out where you stand in case you need to use or apply for credit.
Divorce costs. Investigate and research all of the processes available to terminate your marriage. Divorce litigation is extremely expensive. If you are going to litigate in court and have a judge decide how your assets will be divided, what support may be paid or received, or the custody of your children, you need to be prepared to spend thousands to tens of thousands of dollars. You will need to pay a retainer to your attorney. You may need to pay a retainer for guardian ad litem for your children. Any experts you need to hire for your litigation will require a retainer. And there will be filing fees and court costs and fees related to subpoenas. You can reduce your divorce costs, though, by agreeing to a process that is less expensive such as collaborative divorce or mediation.
The Home. The first question you should ask yourself is whether you can afford it? If there is a mortgage in both of your names, you will be required to refinance the home to remove your spouse from the liability. In addition to refinancing the current mortgage balance you may have to borrow additional money to “buy out” your spouse and pay to him or her their share of the equity. Can you qualify for the new mortgage? Can you afford the mortgage payments? Can you afford the real estate taxes, insurance and utilities? And, last, but not least, can you afford to repairs and maintenance (when will the roof or HVAC need to be replaced)? Do not let emotions cloud your judgment about whether you can keep the home. You may be better off financially buying a new home or condominium or even renting a place to live.
Your Children. If you have children, no one needs to tell you how expensive they are and will continue to be. Your finances dictate everything from the clothes they wear to the schools they attend to the activities in which they participate. Transitioning into two households will require an analysis of these expenses. And if you have children with special needs, you need to consider the expenses related to any additional care or transportation they will require.
Health Insurance. Is your health insurance provided through your spouse’s employer? If so, your coverage will end with your marriage termination. That means that you will have to apply for and purchase health insurance. If you are in good health, you may be able to lower costs by purchasing a high deductible plan. If not, a lower deductible plan may cost you substantially more money. You should begin to investigate the health insurance costs.
Accept your new financial reality. Do not waste your emotional capital on things you cannot control. Once you understand your financial situation, you will be armed with the knowledge you need to begin negotiating and making decisions. Knowledge is strength and this should help reduce your stress and anxiety. And you can start right away to begin a plan to improve your financial life.
There will be much you will learn during the divorce process you choose. But, at the outset, these are a few things that you should consider.