At the outset of today’s blog post, I would like to briefly discuss the importance of having cash on hand in the immediate period after your divorce. You may be thinking to yourself: “I’ll have just spent an arm and a leg on attorney’s fees, and this guy is saying that I need to keep some cash on hand once my divorce is done? Is he nuts?” The fact is that cash allows you to be flexible when decision-making. Cash allows you to help maintain your investments and not cash them out for fear of not having sufficient cash to pay bills or tuition for your kids. Consider that you are taxed for taking money out of your IRA or 401(k) and are penalized 10% on top of that if you are not 59 and a ½ years old.
Examine your beneficiaries as you go through your divorce
If you have a will (and by the way- you should have a will no matter what your circumstances are), the person that you named as the one who will inherit the lion’s share of your property upon your death is likely to be your spouse. This is common and not in itself something to consider changing. However, if you or your spouse has filed for divorce, it is one of the first things I would change once you can do so. The same goes for life insurance policies and retirement accounts.
Take some time and write out a list of accounts, documents, and other areas of your life where your spouse is listed as your beneficiary. Then take more time to remove them. This is better than the alternative if it means putting a sibling or parent into their place just as a temporary measure. Imagine going through your divorce and then passing away in the week after the proceedings have concluded. How would you feel if your ex-spouse stood to inherit all your earthly possessions rather than your parents, siblings, or charity of your choosing? This is a consequence of failing to update your beneficiaries, as suggested.
Should you have already hired an attorney, please speak to them first before making any decisions and acting on the advice provided in this blog. I’ll take a second to point out that this blog post does not form an attorney-client relationship between you and our office or any of our attorneys individually. It is for informational purposes only.
Your standing orders or temporary orders may bar you from making changes to life insurance policies, wills, and other documents during your divorce. Power of attorney documents and medical directives should be changed as soon as you can- those do not have to wait for the divorce to have concluded.
Budget, Budget, Budget
While “budget” may be a six-letter word, many of us treat it as a four-letter word. Being told what we can and cannot spend our money on strikes us as just plain unnecessary in many situations. You work hard, try to do your best to spend your money on worthwhile things, and now I’m telling you to put pen to paper and come up with a set in the stone budget? What gives?
What if I told you that the budget didn’t constrain your spending but instead permitted you to spend money on certain pre-determined items? How many times have you been at a store where you swiped your card and wondered- Can I afford this? If you can relate to this situation, then you need a budget. Divorce should only encourage you to act quickly to ensure that your finances are protected as quickly as possible.
The reason being is that I believe it is human nature to let our spending get out of control when we are faced with an unpleasant and stressful event like a divorce. Think about this- when you’re busy with work or other obligations, what is the first thing to go? Your diet. If you were calorie counting or taking the time to cook at home, you probably had to forego this piece of discipline in favor of quick and unhealthy options that allowed you to remain in motion to complete whatever task it is that you have to complete.
Divorce is no different. Your body craves comfort during stressful times, and that comfort can be found in spending money that you may not have. You may even rationalize excessive spending by telling yourself that you are already spending a lot of attorneys and other expenses related to the divorce. What difference is another $200 going to make? The answer to that question is quite a bit that $200 is followed by six similar charges all in the same shopping trip. Don’t let your divorce be a built-in excuse for going on a shopping spree. Budget your money wisely to avoid financial difficulties.
What divorce-related expenses need to be considered in your budget
Beyond the necessities of food, clothing, shelter, utilities, and health insurance- what else can you plan on budgeting for about your divorce? Consider that you may now be responsible for child support and spousal maintenance after your divorce. These are costs that can be doubly as painful. Consider the fact that not only are you losing the benefit of your spouse’s income (no matter how modest). Now you have to pay that person a percentage of your income each month on top of child support.
Any income you earn from work or investments should be laid out at the top of your budget each month. If you have an irregular income, you can assume a low pay mark for that month and then adjust it as more money comes in. Pay the necessities first, along with as many of your debt payments/court obligations as you are able. If you find yourself in a position where you cannot pay your child support, be sure to contact the Office of the Attorney General and your ex-spouse. Do not let the issue fester and hope that it will go away. It certainly will not.
How to talk to your children about money and divorce
Maybe the most challenging part of the divorce process will be figuring out how to talk to your kids about your divorce, and the role money will play in your new life as a single person. If your children are very young, this is not a conversation that needs much depth. Be truthful about the divorce as far as you and their other parent not living together anymore, but spare details about the breakup of the marriage and anything having to do with financial issues.
However, if your children are old enough, you can make them aware that you live on a budget. This does not mean that your kids will suddenly go without necessities, but it may mean that frequent vacations or other “goodies” will not be a part of their lives for some time. Most kids are walking narcissists. I don’t mean this as a put-down against children whatsoever. I have two of my own. My point is that kids look at your divorce situation from their perspective rather than yours or your ex-spouse’s. They may not appreciate all that you have sacrificed to this stage to make sure that they are kept in their private school or year-round soccer. Explain that you and your ex-spouse made a decision that has consequences- both short-term and long-term.
Developing new financial habits to achieve success in your post-divorce life- tomorrow’s blog post topic
Please come back to our blog tomorrow to learn about developing characteristics and habits that will help you transition into life as a single adult. In the meantime, if you have any questions, please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. Our licensed family law attorneys can meet with you six days a week for a free-of-charge consultation. Your questions and concerns can be addressed in this setting, and we can also discuss the services we provide to our clients and their families.