Life doesn’t always turn out the way we plan. Family is one of the bedrocks of financial stability and the statistics are not encouraging – about 42-44% first marriages end up in divorce. That figure has been coming down over the last 20 years but it is still a significant number.
It should be no surprise that divorce causes a profound disruption in one’s life, compounded if there are minor children involved. The emotional toll affects our thinking, focus and sense of direction. The legal aspects of it will be eventually resolved and emotionally most people recover in time. The change is lasting – but in spite of the turmoil it is not the moment to neglect one’s financial well being.
In many families one person takes care of the finances. If you are that person, great, you may continue managing your own finances with not much disruption – however if you are not that person, you will need to learn about your financial situation and learn quickly. Regardless of which of these roles you had in your former family, you could benefit from working with a financial advisor.
Here is a hypothetical calculation about John and Jane, a couple with two minor children who are divorcing. Illustration assumes some statistically common outcomes (Jane stays in the house and has children majority of the time), but should not be assumed to be exhaustive.
This is the illustration of the financial effects of divorce. John and Jane’s income has not changed, and before the divorce they enjoyed a healthy surplus that could be saved and invested for their future. After the divorce, both of their situations drastically worsened – their healthy surplus is gone and in fact they are on the brink of not making the ends meet.
The reason for this is that now they have to maintain two homes and that some of the expenses are not simply half of what they were when they lived together.
What happens now? Some lifestyle adjustments are inevitable – as the savings for retirement and children’s education cannot be postponed. Review of life insurance policies, wills, trusts and investment accounts is called for in order to align with the new reality.
Honey Badger Advisors is here to help you along the way to get back on the path to financial security.