You may anticipate divorce to be a lot of things, including messy, emotional, draining and all-consuming. However, you may not fully appreciate how much it could end up costing you.
If you and your spouse hope to part ways with as few financial ramifications as possible, you should give priority to the following issues.
According to CNBC, one of the first financial tasks you should check off your divorce to-do lists is to create a personal budget. Individuals who hope to maintain the same standard of living post-divorce as what they had pre-divorce will need about a 30% increase in income. Because this is impossible for most people to achieve right away, you will need to budget to make up for that 30% difference. Failure to do so could cause your newly single self to take on more than you can financially afford to handle.
Divorce comes with several tax implications that individuals only think about when it comes time to file. However, putting off tax concerns until April can leave you with little time to financially prepare. Some things you should consider include the cost of alimony — as of 2019, obligors must pay taxes on alimony instead of the other way around — how filing single will affect your tax liability, and who will get to take advantage of the child tax credit.
Insurance and benefits
Divorce triggers changes in insurance benefits. Depending on who currently carries the coverage, these changes can benefit or hurt you. If you provide coverage for your spouse and kids, you may save some money by removing your spouse from your policy post-divorce. However, if you are a dependent, the loss of coverage can have significant adverse consequences on your finances. To minimize these consequences as much as possible, you should work insurance and other benefits into your post-divorce budget.
If you are close to or of retirement age, know that divorce could change the trajectory of your retirement future. Upon separating, you and your spouse will likely split retirement assets, thereby setting you back years if not decades. As a result, you may need to work longer, save more or both to retire comfortably at a good age.