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The following post was submitted by Rebecca S., a reader who wanted to share some insight on divorce and the financial implications that such an event will likely cause.
[Disclaimer: Rebecca and I have no financial relationship]
With almost 50% of the marriages ending in divorce in the US, it continues to alter so many lives in countless ways.
The emotional damage caused during the course of a divorce to both parties is usually very difficult to reverse.
There are significant financial repercussions from a divorce that necessitate prior planning and execution so that each party can indeed move on.
Income, assets, debts, and child-support are some things that need to be considered for those about to file for divorce.
Let us look at the financial changes and impacts of a divorce:
It is not uncommon for a divorce to have result in significant income reduction, often half or even more.
To make matters worse, there are a lot of expenses that are incurred both during and immediately after the divorce that need to be negotiated financially, such as court costs and expenses from your legal team.
Thus available cash left to spend may be reduced even more, truly putting a strain on the newly formed households.
Thus revising your budget not only be a good option but a necessity.
Creating a new budget and taking into account the new expenses and the income left after that will give you an idea what new lifestyle can be expected.
It would be wise to make a list of all the assets you own before filing for a divorce.
Division and new registration of every asset is a vital part of a divorce.
These assets include physical property as well as any shared financial assets.
It is only after you have you have a complete list of the marital property that you can start considering how these assets should be divided equitably.
The ideal scenario is that both parties can agree to a fair distribution of property perhaps through mediation.
However if there are points of contention that remain, it will be the court that will decides the final distribution of assets in the divorce decree.
Child support and Alimony:
One of the fundamental issues of divorce is that the children will be adequately provided for.
This takes the form of court ordered child support.
If the court orders you to pay for child support, you are legally obligated to do so.
Child support can thus have a significant impact on your overall budget.
Even the party that receives the child support benefit may encounter circumstances that can cause financial issues.
Such is the case when your ex-spouse, who has to pay for child support, is unable to do so due to health or job issues.
So it is therefore wise to account for such potential ups and downs in your budget.
Another financial consideration that will impact both parties is if alimony is required by the court.
The amount and length of alimony payments varies and is typically dependent on the length of marriage and if one party is considered financially disadvantaged compared to the other party.
Debts and credits:
Just as important as creating a list of all the marital assets is creating a list of all the outstanding marital debt.
Debt payments would include loans, leases, credit card debts, and etc.
It is sensible to review all your debt obligations in advance and ask for advice from your financial advisor as to which party should be assigned that debt.
In circumstances where there are tax liabilities that become too burdensome after a divorce, the IRS does offer some options for tax relief.
IRS offer in compromise is an option you may have in mind in case of tax liabilities.
Fulfilling any debt obligations assigned to you is important as any unpaid debt will bring down your credit rating.
Other costs and savings:
As mentioned previously, the actual divorce proceedings can be quite costly.
Legal and court fees can drive up the cost of a divorce to 5 or 6 figures depending on how contentious the proceedings are.
Another aspect to take care of is long term savings.
A divorce can leave one or both the parties potentially bankrupt in the most extreme cases.
Having a valid prenuptial agreement can often times make the divorce proceedings go much smoother and thus incur less cost.
If you do not have a prenuptial agreement in place, the next way to defend yourself is through education.
This is where having a good legal team in place can save you thousands in the long run.
In the wake of a divorce, all joint bank accounts should be closed and new individual ones should be opened.
Joint credits as well should be disabled.
After the division of all assets, their names should be changed legally.
Importance of communication:
Another quality to adopt both during and after a divorce is open and frank communication.
Both spouses should keep contentious issues aside and truly try and have open communication.
Proper communication can make the process of divorce go as smoothly as possible.
A divorce can be a major change in your life.
It can render your life completely overturned.
However, it is possible to minimize the impacts of it with comprehensive education about the same.
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