Making the decision to end a marriage can be emotionally devastating and will also have an impact on your financial life. Experts at the Institute for Divorce Financial Analysts (IDFA) point out that in most divorce cases, the standard of living of both spouses drops within the first few years of the split because most people don’t prepare themselves for the financial ramifications of the breakup. For many divorcees, financial stress combined with the big life change can be overwhelming, which is why reaching out to a financial advisor can be so beneficial.
Here are some key reasons why financial planning is so important during a divorce:
Helps You Maintain a Suitable Standard of Living
Even though you are no longer supported by a cumulative income, you can maintain a standard of living you are comfortable with by planning ahead and creating a budget for a single-income household. Researchers estimate that, on average, divorced individuals need more than a 30% increase in income to maintain the standard of living they had before the divorce. If you aren’t in a position to get a raise, take on a part-time job, or secure another source of income, you will find it challenging to keep up with basic financial obligations and responsibilities. Re-evaluating your budget based on your current income is a necessary first step.
Strengthens Budgeting Skills
If budgeting activities were previously delegated to your significant other, you’ll need some basic budgeting skills to draft a working budget based on your income. Whether you choose to learn these skills on your own by reading money management books and articles or hire a financial advisor to help you draft a new budget, budgeting is a necessary part of financial planning during and after a divorce. You will need to review all sources of income as well as your personal and living expenses during and after the divorce.
Allows You to Review Assets and Calculate Net Worth
It can be challenging to determine exactly what your assets are until after the divorce proceedings are over. However, you can take inventory of everything you own to get a better idea of your financial standing. Working with a financial advisor can help with this process by giving you a chance to list all retirement funds, the cash value of life insurance, personal property, liquid assets, and other assets that are solely yours. Having a fair idea of your net worth even before divorce proceedings can help you make informed financial decisions as you part your ways and set up your new life.
Makes It Easier to Accommodate for a Change in Lifestyle
If you were previously the non-working spouse or lived a fairly lavish lifestyle because of a dual income, you will need to modify spending habits to accommodate for the change in lifestyle. Dipping into a retirement fund, living in a home that is expensive to maintain, or overusing credit cards are some dangerous money moves during and after a divorce. You may need to accommodate for the change in lifestyle by downsizing expenses, moving in to a more affordable home, and creating a realistic budget. Working with a financial advisor can help you prioritize your expenses so you can make appropriate lifestyle changes
Gives You a Chance to Draft a New Savings Plan
Your personal savings may be depleted or minimal after a divorce. Alternatively, you may have been able to stash away some cash of your own before the divorce process began. Whatever the case may be, working with a financial advisor will give you a chance to set some new, realistic savings goals. Building up your savings account can help you manage emergency expenses with ease and give you the freedom to explore investment options at a later date.
If you are going through a divorce or are considering getting the divorce process started, schedule an appointment with a financial advisor at Boston Asset Management. We help divorcees evaluate their financial situation and provide asset management services to protect their assets and interests for the long-term.
This content does not constitute a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. To the extent any of the content discussed may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. This content is for informational purposes only and is not a substitute for personalized advice. Effort has been made to ensure the material presented is accurate, however no guarantee can be made as to its accuracy. This material is not meant to be an exhaustive and all-inclusive explanation of the circumstances discussed.