Divorce can cause big changes on the family financial situation. Studies have shown that parents (especially mothers) find themselves living in poverty or a substantially lower income bracket after their divorce. Even the non-custodial parent with a fairly decent income can their life strained financially more than they expected. Financial planning can help you avoid this shock and help you form a better idea of what you can expect. Here are things to consider:
Financial planning tip #1: Expect unexpected expenses:
After a divorce, former spouses typically find themselves spending more than they otherwise would on everyday items. This is because they end up having to replace small little things that they used to take for granted; items such as camera, tools, towels or kitchen utensils. These small purchases for items that used to be shared can collectively add up to a big expense.
Financial planning tip #2: Determining child support:
Have you calculated the amount of money that you will expect to receive, or that you will be paying in child support? If not, you should do so. The amount of child support varies from state to state, but you can find general guidelines on how support is calculated by clicking on the links included in the resource box for this article.
Research shows that child support payments will not completely cover the cost of raising a child on your own. So don’t expect it to if you’re the one receiving child support. You should also have a contingency plan in place to cover yourself in the event that child support doesn’t arrive for several months.
Financial planning tip #3: Considering your credit score:
It’s possible that your credit score could take a hit after the divorce. This might make it harder to get car or home loans, and may also raise the interest rate on the credit you do have access to, which you should factor into your budget.
Financial planning tip #4: Expenses can rise when you expect them to fall:
Many divorcing couples erroneously assume they’ll have half the costs after divorce. This simply isn’t true. While the cost of living per household may go down overall, it will actually rise substantially on a per-person basis, because you no longer enjoy the economy of scale. Each of you must maintain a separate residence, separate utilities, a separate panty, etc.
Your food bills will be reduced, but they will not go down by half, as many people assume. The cost of cooking for one person (with or without the kids) is not much less than cooking for the family. So expect to spend as much as 75% of your current grocery bill on food.
The same goes for things like car insurance. Rates will typically go up on a per-person basis as you’re now dividing policies between two households, and many insurance companies offer an automatic discount for married couples. So you can’t just divide your current policy by two. So you will have to budget added cost for this type of change in your policies.