Divorce is one of the most stressful events in our clients’ lives, in part because finances play such a significant role in the separation process. We spoke with Lucia Ramirez Levias of DuBois Levias Law Group about how one can prepare for financial stability through divorce.
Are there different stages of divorce and financial well-being?
Yes. Generally, the first phase of the divorce is where you move into separate households. For most people, this is the scariest time financially, because two households are a lot more expensive than one. It can be very stressful to figure out how to use the same income to cover two households. You may need to pull from an investment account or other resources to get through that initial separation period.
Once the divorce is final though, assets open up (selling the house, shifting retirement accounts) and so, there is typically more room to find pockets of money to support financial obligations.
Does this change based on the type of separation (traditional divorce vs collaborative divorce)?
During the first phase, there isn’t much of a difference financial between traditional divorce and collaborative divorce because the physical separation (moving to two houses) is about the same. However, in collaborative divorce, you might continue to live together while the divorce is pending or continue to live from shared financial accounts for a longer period of time, whereas partners in traditional litigation tend to separate their financials earlier.
What can people do before, during and after their divorce to protect their finances?
Beforehand – Get organized and know what you have! This is the most important piece – dig out the past two years of tax returns, W2s and collect some quarterly statements from your retirement account(s). If you have a student debt or car loans, get those statements. Knowing exactly what you have will make the process move more quickly and efficiently.
During – Prepare for the “sticker shock” of two households and budget accordingly. Remember – you may be covering the expenses of your household on a single income.