Once married, couples settle into roles. You may be in charge of the laundry while your spouse may be in charge of the dishes. Or you may stay at home to care for the family while your spouse climbs the corporate ladder in the working world, earning a living to support you both.
However, the good times do not last forever and some couples in the South Los Angeles area will decide to divorce. Divorce has a significant impact on anyone’s finances, but this may be especially concerning to a spouse who stayed out of the workforce while married. You can prepare for your financial life after divorce by following these steps.
Step 1: Design a divorce budget and a post-divorce budget
The first step you can take is to develop two budgets. One budget will address your sources of income and financial needs during the divorce process and the other budget will address your sources of income and financial needs post-divorce.
For example, a divorce budget will include not only living expenses if you and your spouse have already separated and are setting up separate households. In addition, a divorce budget can include divorce-related legal expenses such as court fees and attorney fees. Budgeting for savings can also be a way to protect your future while you are still in the divorce process.
A post-divorce budget can include all your sources of income, including Social Security benefits, retirement benefits, alimony (if you are receiving it), child support (if you are receiving it) and, if you choose to return to the workforce, the income you will earn there. Post-divorce expenses include the costs of housing, utilities, insurance, basic necessities, entertainment expenses, alimony (if you are paying it) and child support (if you are paying it). Developing a divorce budget and post-divorce budget ahead of time can give you a firm foundation for taking the leap into your post-divorce financial life.
Step 2: Be wise when dividing assets
California recognizes community property laws when it comes to divorce. This means each spouse has an equal interest in assets obtained during their marriage, and in general assets will be divided on a 50/50 basis.
Certain assets have a bigger impact on your post-divorce life. For example, dividing retirement accounts fairly is essential to ensuring you can support yourself well into the future. You may need to obtain a qualified domestic relation order to ensure the transfer of retirement accounts is not penalized or taxed.
The marital home is another major asset that must be treated with care in the property division process. If you want to keep the family home, you will either exchange the home for marital assets of a like value or buy out your spouse’s interest in the home. You also have to ensure you can afford the expenses of homeownership such as the mortgage, homeowner’s insurance, property taxes, upkeep of the property, utilities and more.
Step 3: Do not forget about marital debt
If you and your spouse incurred debt during your marriage, this debt must be divided as well. Joint debts can include a mortgage, credit card debt, student loans and more. If possible, try to pay off these debts before the divorce is finalized. This way neither you nor your spouse will be paying back these debts on a single income post-divorce.
Note that if your spouse is responsible for a joint debt per your divorce decree but your name remains on the account and your spouse misses a payment, you may be on the line for the default despite what the divorce decree says. To avoid this outcome, ensure that you are taken off any joint accounts and your spouse refinances the debt in their name only.
Remember, you can bounce back financially post-divorce
If you are facing divorce, you naturally have many concerns about what your financial life will look like once the ink dries on the divorce decree. If you have been out of the workforce many years, the situation seems even more bleak. Do not lose hope. By being proactive, you can ensure your finances will remain intact once you are single again.
