There’s no question that 2020 has been an unusually stressful and trying year. In many cases, the year’s stresses have piled up until they proved the last straw for an unhappy marriage. Often, those stresses involved money.
As reports have noted a 34% spike in recent divorce rates, they have also noted that disputes about money are often among the main stressors. Couples often struggle to reconcile their individual financial habits and philosophies. However, divorce brings financial consequences of its own.
How to aim for a better financial future after divorce
There are many reasons to pursue divorce as the best solution to a broken marriage. However, couples might want to think carefully before they consider divorce a solution to their arguments about money. As Forbes notes, the truth is that divorce tends to impose greater financial burdens on both parties. It may offer financial freedoms, but it also forces individuals to take on new expenses they had shared as couples.
Forbes also notes that people suffer worse when they don’t fully consider the financial ramifications of their divorce. Women tend to get the worst of this, and 41% of them end up with a significant decrease in their household incomes. Only 19% of women report feeling financially secure after their divorces.
So, what can people do to get through divorce in a better financial position? For starters, you can avoid these five common mistakes:
- Failing to prepare a post-divorce budget. You want to know what your income and expenses are going to look like. Then you want to make decisions based on these figures—not based in emotions or sentiment.
- Fighting for a house you can’t afford. Especially if you expect to gain physical custody of your children, you may be tempted to fight for the house. It’s comforting to keep that life anchor in place. But if you can’t comfortably afford the mortgage payments, association dues and other bills, that anchor may hold you back from the future you and your children deserve.
- Treating all assets alike. It may seem reasonable to think that a bank account, stock options and car all worth $10,000 are all worth the same. But they’re not. Some assets grow. Others depreciate. Others have tax penalties associated with their early access or use. It’s important to value assets according to their type.
- Dipping into retirement to pay the bills. Divorce can be costly, and many people look to their retirement accounts as a source of cash. This is a bad idea. You’ll face penalties for accessing your retirement early, you’ll reduce the amount of interest your account is earning, and you may even need to pay back your loan.
- Failing to prioritize. No matter how much anyone wants a divorce to go all their way, the law recognizes there are multiple parties involved. This invariably leads to some element of negotiation, compromise or disappointment.
Preparation for the rest of your life
Divorce is often a hard and stressful process. It’s easy for people to get caught up in their emotions and to lose sight of the big picture, not to mention the details.
For this reason, it often helps people to work with professionals who understand their needs and priorities. Depending on the divorce, the right team may include more than an experienced attorney. People may want financial advisors, business valuators or forensic accountants. The right team depends on the specific circumstances, but the goal is always the same—to ensure the divorce leads to as fair and positive an outcome as possible.