Your marriage may have been over long before you decided to divorce. Fear of losing financial stability is one of the main reasons New Jersey couples stay married far longer than they should.
This is an understandable fear, especially if you are a professional who has worked hard to get where you are in life, or if you are older and do not have many working years left. However, once you decide to divorce, there are many steps you can take to maintain as much of your financial stability as possible both thought and after your divorce.
First, you must accept the reality that there will be a change in your financial circumstances after divorce, at least for a while. It is usually impossible to emerge from a divorce without some damage to your finances.
You might now be living off one income instead of two or have additional expenses. If you are the spouse who keeps the marital residence, you will not have a second income to handle all the expenses involved in keeping up a home.
Additional expenses can also come in the form of alimony, child support or spousal support payments. The idea here is to accept that your standard of living will likely change and figure out ways to handle it.
Know your financial picture
Next, make a budget that details your total monthly income and expenses. You may not have needed a budget during your marriage if you were financially comfortable, but post-divorce, it is important to know how much money you have coming in and the cost of your monthly expenses.
Review your budget and identify any unnecessary expenses. Consider cutting expenses you do not need.
Additionally, get an idea of your overall wealth. In addition to your income, your budget should include the value of any assets you own, such as real estate, retirement accounts and the value of any of your insurance policies or business interests.
Be smart when negotiating your divorce settlement. Your main goal could be to keep the marital residence, but even if your spouse agrees to give it to you, make sure you can afford it.
The spouse who receives the marital residence must usually refinance any mortgage on it to remove their ex-spouse’s name. A poor credit history or lack of credit could mean you are not approved for refinancing.
Real estate is often one of the most valuable assets in a divorce and the law usually requires an equitable, or fair, division of marital property. This means that if you receive the marital residence, you might have to give up another asset of equal value. Your spouse could also buy out your share of the marital residence.
Consider tax consequences
When negotiating marital assets, do not forget about any tax consequences. Certain retirement accounts come with a tax penalty if money is withdrawn early, so these accounts are usually split with a special type of order in a divorce, called a qualified domestic relations order.
Make sure the values you obtain for assets are after-tax equivalent values. For example, the value of a retirement account is often not the same as the value of a checking account balance due to the tax consequences of using the retirement account.
Finally, start creating a new long-term financial plan. Set goals to get you back on track and revise your plan based on your newly single status.