The Financial Issues of Divorcing

Divorce more often than not has dramatic impacts on the financial situation of the couple. Assets that were once joint become separated leading to financial limitations that may not have been present before divorce, expenses become shared, insurance premiums can rise and moving costs, childcare and legal fees add to the strain. This article will outline financial factors involved in divorce and provide suggestions for dealing with the financial issues that can arise in such circumstance(s).

Financial aspects of divorce

Divorce has unique affects for couples as the parties getting divorced usually have different financial situations, are subject to different legal aspects of divorce and have lives, careers and living arrangements that can also be influenced by the divorce. Listed below are several of the variables involved in divorce that can also have an impact on the finances of the divorcing couple.

• State laws
• Divorce petition
• Tax implications
• Alimony and child support
• Legal costs
• Asset and expense division

Some U.S. States are defined as "Equitable distribution States", meaning if no agreement is met by the divorcing couple the divorce court will equally distribute debt and assets equally between both parties. (family-law.freeadvice.com) For states that aren't party to the equal distribution law, an uneven splitting of assets and liabilities may occur.

Additionally, in some cases "Maintenance laws" may apply, which means if one spouse has been determined to be unable to meet certain criteria within and following a marriage, the other spouse may be required to pay maintenance funding to that spouse. (Divorcenet.com) Adding to the financial complications are alimony, which may be deemed necessary by the court when custody of children is granted to a non-working parent.

How to deal with post-divorce financial issues

Depending on the post-martial financial circumstances and divorce decree, different financial strategies apply. The simpler the situation i.e. no children, no maintenance, equal distribution etc., the more straight forward dealing with finances are likely to be. In any case, properly documenting ALL assets and liabilities is essential and legally required to both avoid legal complications and acquisition of one's fair share of assets and expense payments. (Divorcenet.com)

In cases where one party is subject to a great increase in monthly expenses and less assets to deal with those expenses, a financial overhaul may be necessary. In some cases, dealing with changes in a divorce related financial situation can involve several factors such as the following:

• Increased cost of living
• Adjustment to lifestyle related expenses
• Lower monthly savings and/or non-discretionary income
• Relocation and changes to monthly living expenses
• Divorce related expenses ie.Realtor and legal fees, locked asset distribution penalties
• Loss of assets

In many cases neither party gains more finances than they had before the divorce because the net worth of two individuals is higher than the net worth of one. So financially, divorce is really a lose-lose situation. This inevitably means a change in lifestyle in which lifestyle and cost of living may have to be temporarily lowered to adjust for the financial changes. In cases where alimony and maintenance expire, such changes may not be realized until several years later.

Dealing with the changes in finances after a divorce involves adaptation to a changed financial situation. This can include a number of changes such as lowering living expenses, reducing retirement contributions, adjusting tax exemptions and withholdings and annual tax payments and paying for expenses that were once shared. The essential facts of divorce usually mean reconfiguring one's monthly budget to account for changes incurred by the divorce. A few methods for adjusting to such alteration in finances are listed below.

• Attain a new income via employment
• Sell property and/or relocate either to lower cost housing or with family
• Lower monthly expenses by spending less
• Reduce retirement and savings contributions
• Refinance or downgrade vehicle

Summary

Divorce almost inevitably involves a change in financial circumstances and these changes are ideally dealt with in a practical manner that adjusts in accordance with the new financial situation. Practically, this may involve a number of changes to lifestyle and budgeting such as those listed in the previous section(s) of this article. In time, the new financial situation will become the new financial reality and the divorced parties may no longer feel the changes in the monetary situation as their lives, fiscal adjustments and circumstances also reshape.

All in all, the immediate financial affects of divorce more likely than not lead to a net decrease in total worth for both parties and can also involve a short and/or medium term increase in costs related to the divorce and in the case of maintenance and alimony greater monthly expenses. Dealing with financial issues of divorce involves a practical acceptance of the new reality and taking the appropriate steps to modify one's finances for the new monetary reality.

Sources:

1. http://family-law.freeadvice.com/divorce_law/equitable_distribution.htm
2. http://tinyurl.com/4gyj69h
3. http://tinyurl.com/4hpcta7