For many, if not most divorcing couples, splitting up isn’t the hardest part of divorce; it’s dealing with the financial impact. While not all couples are affected the same, the majority of couples do experience significant changes in their financial status during and after the divorce process.
Financial Considerations in a Divorce
Divorce is not only a legal process but equally a financial one, with far-reaching economic implications for both parties involved. The dissolution of a marriage often entails complex financial considerations, including:
- The division of assets and debts accumulated during the union.
- The determination of child support payments and potential spousal support arrangements.
These financial aspects can significantly impact both parties' long-term financial stability and require careful negotiation and planning to ensure a fair settlement. The process of divorce itself comes with its own set of financial burdens as well.
Court costs and attorney fees can quickly add up, especially in contested divorces where disagreements prolong the proceedings. If expert witnesses or financial advisors are brought in to assess property values or business interests, the expenses can escalate further.
Moreover, the transition from a dual-income household to a single-income situation often leads to a notable decrease in financial resources and standard of living for both parties. This shift can be particularly challenging as individuals must adapt to managing household expenses, including housing, utilities, and daily living costs, on a reduced income while potentially facing new financial obligations resulting from the divorce settlement. While a lower-earning spouse can receive alimony to help with this transition, having to budget with one income is different than sharing financial responsibilities, and each party may feel that change.
Who Suffers More Financially After a Divorce?
Data from various studies suggests that women often experience more severe financial consequences following a divorce compared to men. While it's important to acknowledge that both parties can face significant financial changes and that there is ongoing debate about gender differences in divorce outcomes, research points to a disproportionate economic impact on women. This disparity is often attributed to factors such as income differences, career interruptions for childcare, and the challenges of single parenting.
Research indicates that women tend to experience substantial declines in household income and standard of living post-divorce, along with an increased risk of poverty. Women may also:
- face a higher likelihood of losing homeownership and descending the housing ladder,
- have lower chances of remarrying (or re-partnering), and
- are impacted by child-rearing responsibilities disproportionately.
All of these factors can hinder their economic recovery in the years following divorce. The financial impact of divorce on women becomes even more pronounced in cases of gray divorce.
Everyone’s Finances Are Impacted
Again, each party can face significant financial changes because of their divorce. Some examples of how divorce affects spouses include the following:
- A stay-at-home parent has to return to the workforce.
- A stay-at-home parent has to return to work and, in effect, start paying for full-time childcare so he or she can earn a living.
- A breadwinner has to pay child support and alimony.
- A spouse has to give half of their retirement to their soon-to-be-ex.
- A long-time homemaker has to go back to school to obtain skills, which can result in student loan debt.
- A breadwinner has to support two households when he or she divorces a disabled spouse or a spouse who is caring for the couple’s disabled child.
Do any of the above scenarios sound like your situation? Whether you’re to pay child or spousal support, or if you’re to receive either one, there is a strong possibility that you will have more financial pressure than you did before the divorce. We are not saying this to scare you; we just want you to be emotionally prepared for what lies ahead.
If you’re like most people, you are headed towards more financial responsibility than you had before, but that’s okay. You can learn how to deal with the issue head-on and actually use this “new normal” to your advantage. In order to do this, you’ll need to focus on one thing – readjusting and rebuilding your finances.
Post-Divorce Financial Planning: Ways to Increase Your Income
When you get a divorce, it stretches you to the limit. It tests you in every way imaginable. But you can use this test as an incentive to improve your circumstances and increase your income.
Increasing your income is important for everyone following a divorce. However, for those receiving alimony, it is of even greater significance.
In Pennsylvania, alimony is not often awarded permanently. When left to the court, judges have a lot of discretion, as the law only requires the award to be reasonable (see 23 Pa. Cons. Stat. § 3701(c)). Thus, alimony may last until the court believes the party has had time to become self-sufficient. Alimony also ends if the recipient spouse cohabitates with another person as a married couple would or remarries, as well as in the event of either party’s death. So, it is in your best interest and often required that you take time to gain financial independence and increase your income.
Some ways that you can get a greater income include the following:
- Go back to school and get a bachelor’s degree or a trade skill. Having a degree or professional certification greatly increases your earning potential and can lead to high-paying positions.
- Ask for a promotion at your job (or work harder to earn one). Exceeding your job expectations or output goals can empower you to negotiate a greater salary or get a promotion. While you may need more money because of a change in your personal life, don’t simply ask for a promotion because of your needs; show your manager or employer that you can handle the added responsibilities with examples.
- Start a “side gig” to earn extra money. The U.S. has a major gig economy, with over a third of the U.S. having a side hustle to supplement their income. Consider how you can join the gig market by starting an Etsy shop, driving for Uber Eats, or doing other side jobs.
- Use the evenings and weekends to freelance. Leveraging your existing skills for freelance work during non-traditional hours can supplement your primary income. For example, if you’re a web designer by day, take extra design work as a freelancer. This can apply to bookkeeping, plumbing, landscaping, construction, writing, childcare, and so much more.
- Look for a higher-paying, more fulfilling job. Seeking out new employment opportunities that offer better compensation and align with your interests can not only improve your financial situation but also contribute to overall life satisfaction post-divorce. However, it is important to note that substantial changes in either party’s income can lead to an existing alimony order being modified. If you are receiving alimony, consider whether a higher-paying job can support you should you lose spousal support.
- Continue sharpening your skills so you become more valuable in your profession. Ongoing professional development through reading, courses, and attending industry events can enhance your expertise, making you more valuable to employers or clients and potentially leading to higher income opportunities.
What can you do here and now to build a better future for you and your children (where applicable)? Surely, there are one or more things you can do to increase your income so you can have an even better life after the divorce. It’s just a matter of starting.
Post-Divorce Budget Tips
A well-planned budget can help you navigate the challenges of managing expenses on a single income and set the foundation for future financial success. Here are some key tips to consider when creating your post-divorce budget:
- Reassess your income and expenses. Review your new financial situation, including any changes in income, alimony, or child support payments.
- Prioritize essential expenses. Focus on covering necessities like housing, utilities, food, and healthcare before allocating funds for non-essential items.
- Create an emergency fund. Set aside money each month to build a safety net for unexpected expenses or income disruptions.
- Adjust your lifestyle. Be prepared to make changes to your spending habits to align with your new financial reality.
- Track your spending. Use budgeting apps or spreadsheets to monitor where your money is going and identify areas for potential savings.
- Regularly review and update. Revisit your budget periodically to ensure it remains relevant as your situation evolves.
- Plan for future goals. Include savings for long-term objectives like retirement or your children's education in your budget.
Post-Divorce Financial Planning: Rebuilding Your Savings & Retirement
Rebuilding savings and retirement funds after a divorce is a critical step in regaining financial stability and security. The process often begins with a thorough assessment of your new financial situation, including changes in income, expenses, and any division of assets from the divorce settlement.
This is where having a realistic budget can be helpful. You can see what expenses are essential and then make tough decisions about lifestyle adjustments to free up more money for savings and retirement contributions.
You will also need to determine your target retirement number. Knowing how much you need to retire can help you better plan how much time you will need to return to your pre-divorce retirement savings and your actual target.
One effective strategy is to maximize contributions to tax-advantaged retirement accounts such as 401(k)s and IRAs. If you're over 50, take advantage of catch-up contributions to accelerate your savings. You can also take advantage of employer 401K matching programs and aim to contribute at least enough to capture the full match – it's essentially free money.
For those who received a portion of their ex-spouse's retirement account through a Qualified Domestic Relations Order (QDRO), consider rolling this into your own IRA to maintain tax-deferred growth. Additionally, look for ways to increase your income through side gigs, freelance work, or career advancement to boost your saving capacity.
It's also crucial to reassess your investment strategy to ensure it aligns with your new financial goals and risk tolerance. This might involve rebalancing your portfolio or seeking professional financial advice to optimize your investments for growth while managing risk.
Rebuilding your savings and retirement funds is a gradual process that requires patience and consistency. Set realistic short-term and long-term financial goals and celebrate small milestones along the way.
Protect Your Finances by Filing for Divorce Online
Cairns Law Offices is known for our commitment to making the divorce process easy and accessible. We offer clients the opportunity to file for divorce online using our Divorce Wizard, which asks you questions similar to those asked in an initial consultation and allows you to get started on the filing process.
Looking for an affordable and efficient way to get divorced? Call our firm now to learn about obtaining an uncontested, no-fault divorce for only $299.
