Divorce: A New Financial Reality

Besides adjusting to a new emotional reality, divorce means accepting a new financial reality; and many people this means transitioning to a single income. According to the APA, around half of American marriages end in divorce so this is something a lot of us will face in our lifetimes. Unfortunately for many divorcees, particularly women, transitioning to a single income can feel like financial disaster: according to research from insurance provider Allianz two thirds of women feel their divorce created a financial crisis.

Track your spending and anticipate future expenses

At any point in your life, tracking your spending is a good habit to get into but especially so when your marriage is ending. Find out how much you spend on what. If you haven’t tracked your spending until now, use your credit card statements to estimate previous expenses. There are a variety of budgeting apps to help you do this. Once you know your current spending, you can estimate how much you will need to continue your current standard of living. This is a good first step in negotiating a settlement.

Gather documentation

Having the right financial records to hand early on in the divorce proceedings is very important. Correct documentation can help you avoid misunderstandings when reaching a settlement. Gathering documents can take longer than you think so start early. Particularly important are your checking and savings account statements, as well as statements from retirement and investment accounts.

Health

Many couples rely on the coverage of one partner’s health insurance plan, so divorce can create a lot of health questions. There should be a way for you to get some kind of health coverage in the transition period. If you are eligible for a legislation known as Cobra, you can get health insurance for 36 months on your spouse’s plan. In addition, one’s health insurance may also cover dental care and medical expenses for lower income divorcees, as long as your divorce is equitable. Believe it or not sometimes people divorce intentionally and pile all of the assets on the well spouse so the sick spouse can get under the income threshold to qualify for Medicaid. This is known as ‘Medicaid divorce.’ The courts have caught on however so make clear you are not trying to do this by making your divorce equitable – something you should aim to do anyway.

Divorce can be a hugely stressful part of a person’s life but in reality a lot of people will experience it. With the right foreknowledge and preparation you can minimize the financial burden and embark on your new single life.

Author of this article, Lucy Wyndham, is a freelance writer and former Financial Advisor. After a decade in industry, she took a step backward to spend more time with her family and to follow her love of writing.