Divorce can be quite the shock. If you’re getting divorced yourself, you probably already know that. But most focus only on the emotional shockwaves that it creates. They neglect the many financial changes that their divorce brings.
You may have already read about the common financial mistakes people make during a divorce, but what about the mistakes they make after they sign and file all the paperwork? A lot of people make financial mistakes in the months and years after the divorce becomes final. These are six of the most common:
1. Failing to make a budget.
Making a budget is the single best step you can take after a divorce, regardless of your financial situation or the results of your divorce case. Make sure you know how much money is coming in and how much is going out each month to pay for life’s necessities (housing, transportation, food, utilities, etc.). Then evaluate your discretionary spending and what you can afford to put in retirement and college savings accounts.
Getting a clear picture of what is coming in and going out is the key to achieving financial security as a single person. In addition, seeing on paper how you are spending your money is great way to see where you can begin to cut back and save.
2. Spending too much on your new life.
A lot of people come to see divorce as an opportunity for a new start, even if they were not the one who asked for it. They might live in a new house or apartment now, or see an opportunity to refurnish their marital home for their new life. And if they expect to start dating again, they need a new wardrobe, right?
This is where a lot of people get in trouble – spending on new things that they really don’t need. The things people spend their money on after a divorce varies greatly, with some making some pretty extravagant purchases like plastic surgery or a new car.
These new items might represent a new start and may offer a temporary boost in self-esteem, but they probably won’t produce lasting results. Instead, heed the advice above and make a budget. See what you can afford to spend on new furnishings, new clothes, a new car, etc. A lot of people find waiting several months or a year after their divorce before making any big purchases is a good way to avoid overspending.
3. Spending too much on the children.
Even though money is often tight after a divorce, many parents spend a lot of money on toys and other items their children don’t need. They usually do so with the best of intentions; most want to do what they can to make the transition easier on their children. And it can be tempting to buy the kids new toys to put a smile on their face after they just saw their parents get divorced.
While you might need to buy a new bed, furniture, and other items so your children have a room at both parents’ homes, some parents go way beyond the necessary items. Make a list of the items your children need and create a budget for those items. If there is anything left over, it might not hurt to buy a little something extra.
4. Not fully understanding the divorce settlement.
Your divorce settlement lays out the division of your marital assets, spousal support payments, child support payments, and more. Before you can achieve a healthy financial life after divorce, you need to know and understand these details.
But a lot of people don’t know what is in their settlement. A study of middle-aged divorced women in the United Kingdom found that a startling 38 percent were not truly aware of what their divorce settlement was or what their alimony was.
I work closely with my clients so they know exactly what the settlement says and what property and child or spousal support payments they will get. This lets them create that all-important budget and make sure they truly do receive what the settlement awards them.
5. Neglecting their retirement.
A few years ago, there was a survey of recently divorced British women that revealed some scary statistics about their financial future. According to the 2012 Phoenix Group study, 19 percent of divorced women stopped paying into their retirement plan following a divorce.
This means they may not have the money they need to retire when the time arrives. So whether you actively managed your retirement account during marriage – and even if you never even opened one with your ex-spouse – make an effort to regularly pay into a retirement account. Make it part of that budget we keep talking about.
Further, talking with a financial planner is a good first step toward ensuring you have a new plan in place and can continue saving for retirement.
6. Not asking for help.
If you’re struggling to make ends meet, ask for help and explore the options available to help you as you transition to your new life.
There are community resources out there for single parents or those recently divorced. For example, the City of Seattle’s child care and preschool programs can help low- and moderate-income families pay for child care. Ask friends or family to watch the kids while you run errands to save you from hiring a babysitter for the day.
Help with Family Law Matters in Bellevue
The Law Offices of Molly B. Kenny represents clients in a variety of family law matters from divorce to child custody and support. If you require our legal services, contact us today at 425-460-0550.