Marriage is one of life's greatest moments. According to the American Psychological Association, an amazing 90 percent of people marry by the time they reach age 50. A marriage is more than just two people loving each other. The legally recognized union gives couples certain rights and obligations. For instance, married couples can choose to file their yearly taxes jointly or separately. It's up to the couple to decide how to best plan and spend their finances. Most couples move in together and start families, both of which are huge financial commitments.
Unfortunately, not every marriage works out, as nearly 50 percent of these unions end in a divorce. People are also more likely to get a divorce after remarrying, according to the American Psychological Association. If you get divorced, you'll have a lot on your mind during this process. One of the most important aspects of your life is your financial planning following the divorce. Luckily, you can make things easier by following some guidelines to protect yourself.
Marriage typically entails the couple renting together or buying a house. The ownership of the house will likely be determined during the divorce proceedings. According to Entrepreneur, you may want to consider moving into something more affordable for one income source. It's understandable if you want to keep the house, especially if you have young children. This will limit disruptions in their lives.
But downsizing is often a smart financial move. You'll go from paying the mortgage with two incomes to one income. Moving into a smaller house will fit within the constraints of your budget. Moving into a smaller house or becoming a renter will help with your personal finances and also allow you to provide your children with the care they need.
Create a budget
It is during this time that you need a budget more than ever. You have to create a plan to account for future alimony payments. You should cut back on expensive life choices, such as the purchase of new electronics or a car. A new budget will also give you an idea of where you stand financially before and after the divorce is finalized. Any changes to your finances should be reviewed with your attorney, especially for more delicate matters.
It is during this time you'll want to cancel joint accounts and open a savings account and checking account if need be, according to Daily Finance. These accounts may help you when you apply for a credit card to cover expenses in the short term. You should only use credit for important matters, such as covering bills and food.
While working, you should create an emergency fund. Daily Finance recommended establishing a safety net that will get you by for at least six months.
Review insurance and assets
Many families invest and maintain assets together. After a divorce, you should go through everything and determine what assets you want to keep, and which ones you'd like to let your spouse have. Identifying your assets will play a role in your overall financial health once the divorce is finalized.
However, there may be nothing more important than reviewing your insurance policies. Entrepreneur said insurance costs will likely increase following a divorce. Call all your insurance providers and check on homeowners, auto and health coverage. Be sure to review the items listed on the homeowners policy, as some of them may no longer be in your possession. After all, it doesn't make much sense to pay a premium for an item you don't own.
You also don't want to forget about the beneficiaries on your 401k and IRA accounts. Your spouse may be listed, but that should change to avoid him or her receiving your assets after you pass away. The longer you wait, the more likely you'll forget to make the important changes.
"You should go through everything and determine what assets you want to keep."
According to the law review website Nolo, divorces typically cost around $15,000, including some $12,000-plus in average attorney fees. Essentially, the more issues that go to trial, the more expensive it is for the involved parties.
No one expects to get divorced once they are married. However, life can be odd, and sometimes the marriage doesn't succeed. A survey by Nolo revealed most divorces take 11 months to finalize, sometimes even longer. It is during these months that you should carefully review your financial health and make the proper adjustments to ensure everything is secure.
For more information about smart ways to manage your finances, contact Landmark Bank.
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