Divorce
How Does Divorce Or Separation Affect Finances? What To Look Out For
Understanding the financial implications of a divorce or separation can help you make better decisions as you go through this difficult process.
How Does Divorce Or Separation Affect Finances? What To Look Out For
Understanding the financial implications of a divorce or separation can help you make better decisions as you go through this difficult process.
If you're considering divorce or are currently going through the process, you're likely facing a rollercoaster of emotions and uncertainties. Divorce not only takes a toll on your mental well-being, but it also carries financial implications that can affect your income, assets, and quality of life moving forward.
The key is to be prepared, and this article aims to leave you feeling better equipped to move forward with a strong financial foundation.
Key Takeaways
- Knowing where you stand is the best place to start. List down assets and prepare financial documents in advance to make the transition more manageable.
- Divorce proceedings can turn into long, drawn-out processes, draining both your emotions and your wallet. Being prepared can help mitigate some of the effects.
- Your lifestyle post-divorce may need to be different from your current situation due to loss of shared income and gaining new responsibilities.
How Does Divorce Affect Finances?
Divorce can impact your finances negatively due to legal proceedings, losing income and assets, and transitioning from shared to separate expenses. Different types of divorce and separations can have different impacts, depending on a variety of factors. No matter what, things will change, and it’s important to be ready.
Cost Of Divorce Proceedings
The duration and overall expenses of a divorce depend on a couple’s unique circumstances and the level of cooperation between spouses. It can range from a few months to even a few years. Courtroom battles have the highest costs. On average, expect to pay around $1,845 in legal fees for an uncontested divorce or $13,638 for a contested divorce, according to the Canadian Lawyer’s Legal Fees Survey.
Divided Assets
Since both spouses are entitled to a share of property, you may lose savings, investments, and/or other assets in a divorce.
Separating Finances
Loss of shared expenses like mortgage payments, insurance premiums, and other household bills can take a toll on your finances in addition to paying child support and spousal support (alimony).
Financial Habits
It’s also important to note the impact of a serious change to your financial habits. Even if actual losses or costs are low, you will need to adjust to a new financial routine. If you ignore this fact, you may find yourself facing unexpected consequences.
What to Look Out For Before, During, and After a Divorce
It's important to maintain clarity and composure throughout the divorce process, as emotions can cloud judgment and lead to costly decisions. If you’re struggling to address the financial side of your divorce or separation, it may be a good idea to bring in an empathetic third-party to help you. This could be a friend, parent, or even a trusted advisor to guide you, give advice, and take care of some of the administrative requirements.
Before: How To Financially Prepare For A Divorce
First, assess your financial standing by compiling a list of assets and debts. Here’s a financial preparation checklist for divorce to help you prepare the necessary documents. This is also a good time to review your marriage or cohabitation contract, if you haven’t done so yet.
Knowledge is power: the best thing you can do to prepare is simply to understand where you stand.
During: Dividing Finances
If you have joint accounts, it’s important to divide these as soon as possible to avoid any later implications on your credit score. Ensure that your personal bank accounts are safe, and other important documents like your estate planning, retirement accounts, and insurance policies are updated.
After: What to Expect After Divorce
Lifestyle adjustments are often necessary after divorce, and making drastic changes is especially true for women. Data shows that women’s finances are disproportionately affected by divorce, as their median income drops by 30% in the same year compared to a 6% decrease in men’s median income.
You may need to tighten your budget until you reach a more secure financial footing. This could mean moving from a larger house to a smaller apartment in order to reduce housing expenses. Create a completely new budget, and check your new limitations. You may only need to make a few small adjustments, but being aware of them as soon as possible is important.
If you were previously financially dependent, be prepared to upskill by going back to school or taking certifications to remain competitive in the job market. Proactive steps like creating a step-by-step plan and seeking professional advice can help you adjust to your new income.
While the emotional toll is undeniable, the financial aspect of divorce shouldn't be overlooked. Knowing how divorce affects finances and preparing for potential challenges in advance can help you navigate this difficult time without sacrificing your financial well-being.
Here at Parachute, we understand that adjusting to a new reality is a tough and long-term process, especially if you are dealing with high-interest debt. Learn how Parachute can help you manage debt while dealing with divorce.
