Divorce is devastating in many ways, but it takes a particularly hard hit on your finances. Your family will change, which means your finances will change in many ways. For some, divorce can result in bankruptcy or a large amount of debt. For others, divorce means that one parent who has been at home now has to get a job.
The best way to come out of a divorce on a level financial playing field is to be prepared during the process. The following are some aspects of divorce and finances you need to be aware of and those which you need to prepare for.
Child Support Obligations
If you have children with your former spouse, child support is a very important aspect of your divorce settlement. Child support is a payment paid to one parent from the other to help pay for the needs of the children. When the judge orders you to pay child support, you are held legally responsible to do so under penalty of law.
Once you divorce, you should alter your budget accordingly so that you can afford to make your child support obligations each month. This will be a new expense, and it may seem like a hardship at first. If this is the case, you have the opportunity to have your payments adjusted every so often. However, any adjustments have to go through the court and be approved by the judge.
You may also have to make alimony payments to your former spouse. Alimony differs from child support and is typically a temporary form of assistance until your former spouse is able to stand alone financially. Alimony is common in situations in which one spouse was a stay-at-home parent or worked a low-paying job.
Alimony impacts both of you in regards to budget. If you have to pay alimony, you need to create a line in your budget so you can be sure to not miss a payment.
If you receive the alimony payments, you should adjust your budget accordingly and use the money for your daily living expenses. Keep in mind, however, that alimony payments have an end date. You need to have solid financial footing before the end date arrives.
Another important financial impact on your divorce is the division of your property. Michigan is an equitable distribution state. Unlike community property states, an equitable distribution state does not guarantee the equal division of marital property.
Before you start the division process with your legal counsel, you need to make a list of all assets acquired in the course of the marriage. This includes your home, vehicles, recreational vehicles, life insurance policies, retirement funds, and so on.
While you calculate assets, also calculate your debts. This will include a mortgage, credit card debt, home equity loans, student loans, or anything else for which you applied jointly. The debt will be divided in the divorce as well. The judge will look at your entire financial history and divide everything according to what he or she believes is most fair and equitable.
Once the division of property is over, be sure you change the names on all legal documents which now are only owned by yourself. This includes the deed to your home, the title to your vehicles, and any financial accounts.
Also, remember to change your beneficiaries on your life insurance plan and remove your spouse from your health insurance policy if applicable. In addition, take this time to change your will and estate plan to remove your former spouse so that he or she will not receive an inheritance from your estate.
Divorce is a difficult process, but it does not have to wreck you financially. Work everything out and be prepared for the major changes coming your way. If you need assistance with your divorce, please contact us at Armstrong, Betker and Schaeffer, PLC.