How to Deal with the Financial Downside of Divorce
With the U.S. divorce rate ranging between 40 to 50 percent, there are many people dealing with post-marriage life in Texas. The transition can be financially crippling for those who had combined savings and/or debts with their former partners. With a little preparation, however, couples can avert a lot of trouble later down the road.
The Financial Harm of Divorce
Divorce can be financially straining for many exes. For one thing, separated couples will have to pay for two households using the same income they had before splitting. Additionally, the process of divorce can be expensive, especially if there are long, drawn-out battles. After all, getting divorced means hiring attorneys and financial advisors, both of whom could cost exorbitant amounts of money. To make matters worse, several individuals lack basic financial literacy. One could make bad decisions without knowing about it. The following are some of the most common financial consequences of divorce.
Debt: When you get divorced, you and your spouse will have to split up any shared debt. This is all the more pertinent when one of the soon-to-be exes owes a lot of money, be it in the form of student debt or something else. Otherwise, either spouse could soon find themselves saddled with a financial burden they didn’t ask for but one that will haunt them for a long time to come.
Credit score: Speaking of debt, you should be aware of your former partner’s credit score and how this score will affect yours. After all, it would be regrettable if either party got punished for the lack of responsibility of the other.
Retirement: Divorce can even impact retirement. In fact, studies show that divorced individuals are at a higher risk of running out of assets while retired than non-divorced individuals.
Plans for the future: Not only can divorce harm a couple’s financials today, but it can also interfere with any plans they may have for the future. For instance, even though you may intend to send your children to college, a divorce might force you to reevaluate that decision. Any money you’ve saved in anticipation of college fees might have to be paid for alimony or child support instead.
Possible Ways to Minimize the Financial Damage of Divorce
Fortunately, you can prepare for the unique issues of your divorce. Consider the following methods for minimizing the financial damage.
Learn to be financially literate: It’s extremely important for both individuals in a marriage, regardless of who is the breadwinner, to learn how to be financially literate. This will protect their interests and help them plan for their future.
Get a prenup or a postnup: Prenuptial agreements can be a lifesaver. On the one hand, they can help couples figure out how they’ll split their assets long before negative emotions and resentment seep into the picture. On the other hand, by dictating how the assets should be split, they minimize the conflict on that front. The only problem is that many couples neglect to get a prenup before marriage. Fortunately, these spouses can resort to a postnuptial agreement, which can perform many of the same functions.
Plan ahead: Lots of problems that arise from divorce can be averted if the couple plans ahead. Going back to the aforementioned example of college fees — even though many divorced couples may find it difficult to foot the bill for education, they might have an easier time if they put their money in a 529 plan. The money will then grow tax-free and can also be withdrawn without fees so long as it is used for educational expenses.
Speaking to an experienced professional: Obviously, there are many ways you can shield your finances. Bearing that in mind, it’s wise to talk to an experienced attorney. Most divorce lawyers have seen countless cases before and are aware of the best tips and practices to protect your money. A good attorney will also be aware of the little nuances that the layman could miss, such as how alimony is taxable but mortgage payments aren’t.
With all that said, if you or someone you know is going through a divorce, contact Stewart Law PLLC today. You can also find our offices in Baytown, Texas.