Divorce financial planning is often like navigating a labyrinth.
You think you know the way, but suddenly every turn seems unfamiliar and fraught with potential pitfalls.
The path to independence post-divorce can feel just as daunting and scary. Particularly when it relates to your monetary situation. You worry whether you’ll be financially okay, whether you’ll have to severely compromise your lifestyle, and whether you can kiss your retirement dreams goodbye.
But here’s what I want you to know – no woman should have to go through this alone. That’s where divorce financial planning can play a vital role – acting as your compass in these uncharted territories.
The Financial Implications of Divorce for Women
Divorce will very likely have a major financial impact on your life, but what that impact looks like will depend on not only your resources or potential wealth potential, but how you much you’re willing to proactively plan your finances.
For women in particular, navigating divorce is often more challenging because inherently, females face wage inequality and wealth gaps.
In fact, a study shows that in 55 per cent of opposite-sex marriages, men are the primary or sole breadwinners, earning a median of US$96,000 to their wives’ US$30,000. (Source: Pew Research Center)
Pew also found that in 29 per cent of heterosexual marriages today, even when women and men earn about the same (roughly US$60,000 each), women spend about 5 more hours per week on caregiving and housework than their partner.
Understanding these disparities and preparing accordingly is crucial for any woman in a marriage and knowing that they could someday, go through a divorce process.
Unveiling Hidden Financial Challenges
Apart from broader economic issues like wage disparity or asset division complexities during divorces; there are hidden challenges many women face which could impact their post-divorce financial health significantly.
It’s more common than many couples think. I know this because I’ve worked with thousands of men and women. Hidden bank accounts or credit cards often surface during legal proceedings and can complicate matters further.
Maintaining comprehensive financial records becomes paramount not only for transparency but also ensuring fair distribution of assets. You should always know what income is coming into your household and where and how that money is being spent. While it’s understandable for any couple to have some discretion over their own accounts, marriage is a partnership in all sense of the word – and that includes moving in the same direction towards life goals.
All relevant documents such as tax returns, investments, car and house ownership, insurance policies etc., play pivotal roles in shaping your future cash flow needs and obligations including child support payments if applicable.
And yet, many women I work with tell me they didn’t know where these papers were and more importantly what assets and liabilities they had. Being proactive and understanding your net worth will give you a better sense of what any landmines you could be dealing with and how to negotiate a better settlement.
Decoding Asset Division
The divorce process is complicated by dividing marital assets. It’s not just about splitting real estate or retirement plans down the middle – there are tax implications and financial decisions that need careful consideration.
For example, investment accounts are taxed only above their cost base at capital gains rates upon sale, and how and when that happens will depend on the type of account one has.
So while cash assets have no immediate tax consequences and its value is easily understood, an investment account or even a pension that’s worth $200,000 could be worth a lot more in 10 years time. It could also have different tax consequences.
And let’s not forget that a change in real estate ownership will most likely require a mortgage payoff or refinancing, impacting cash flow after the divorce.
This is why I always stress the importance of having a team of financial and legal professionals work together.
Negotiating Child Support Payments
Child support calculations can be complex as they factor in elements like each parent’s income level, custody arrangements, and the number of kids involved. Yet these figures may not always cover all costs associated with raising your little ones.
In fact, a significant number of custodial parents are mothers who often struggle to receive full child support payments. This creates an undeniable strain on single moms tasked with meeting their children’s financial needs independently.
This is why crafting a strategic plan ensuring adequate child support amounts while managing ongoing and future expenses effectively becomes paramount. This includes maintaining detailed bank statements showing how received funds have been used towards fulfilling your children’s necessities. A trusted financial advisor often can guidance around creating an effective budget strategy tailored specifically around your new cash flow dynamics.
Securing Retirement Plans
Amidst a divorce, it’s very easy to overlook one’s long-term financial situation. Yet, securing retirement assets fairly during this tumultuous period is crucial.
Studies show that women typically have about 40-50% less wealth in retirement and they are likely to live longer in retirement compared to men.
Updating Beneficiary Designations
The aftermath of a divorce will require prompt action in updating your beneficiary designations on key accounts like insurance policies or investment portfolios.
If left unchecked following a separation, old beneficiary designations could result in unwanted outcomes such as family conflicts and having your ex-spouse (or his family) inadvertently receiving funds you never intended them to have.
Estate Planning Considerations
In a divorce, estate planning cannot be overlooked as it can have serious financial implications. The stakes are high: an outdated will or power of attorney can lead to confusion, legal disputes, and unintended beneficiaries receiving assets.
It’s crucial then for women navigating this process to turn their attention towards re-evaluating these plans post-divorce.
Don’t let the financial challenges of divorce leave you and your kids in a financial lurch. Building the right financial know-how by using the divorce planning checklist above sooner than later will dramatically increase the likelihood of you having a more secure financial future, and ensure you negotiate a fair settlement.