When you decide to tie the knot, it's exciting. It's romantic. It’s also fraught with the potential for severe financial consequences if the marriage fails.
Unfortunately, divorce happens — even though nobody walks down the aisle thinking their marriage won’t last. To avoid getting wiped out financially should you divorce, it’s wise to align your financial planning with divorce contingencies early on. Here's how.
Educate Yourself About Your Partner’s Finances
Get to know your partner’s financial circumstances from the beginning, so you know what you're working with before you get married. Make sure you know your partner’s:
- Existing assets
- Credit rating as this may impact things like your ability to buy a house, rent an apartment, and get certain types of insurance
Total household income and expenses — how much is saved and invested, and how much debt is owed
- Keep a Professional Life After Marriage
If you are the spouse who stays home with children or has a job that pays less, it is essential to remain current with professional skills and certifications, network with colleagues, and have some money coming in.
It might seem unnecessary when your household income is adequate. However, if you get divorced and don’t have a job, you could be out of luck if you have huge gaps on your resume. It’ll be much easier to find a job if you’ve stayed active in the workforce, kept up your skills, and maintained professional relationships throughout the marriage.
Have an Emergency Fund
All couples should have an emergency fund not only for unexpected expenses but also for extra protection in the event of divorce. This can make the difference between being able to move out right away versus having to stay in an uncomfortable situation until finances improve after a divorce.
Ideally, build up emergency savings with at least 6 to 12 months of living expenses. If you and your spouse are splitting up, you don't want to dip into any retirement funds if things take longer than expected or you need to pay for legal fees.
Once emergency savings are in place, get more of your dollars working on your behalf. Start by automating savings into a retirement account, an investment account, and college savings account if you have children. This will ensure that you don't just spend the money instead of investing it.
Maximize your retirement savings each year by taking advantage of any employer matching for a 401(k). If you have no workplace retirement plan, set up an IRA and max out your contributions. Both types of retirement plans offer tax advantages you won’t want to miss out on.
The rules change from time to time as to the maximum allowable contribution. Check this link from the IRS for more information about contributing in 2022.
Hire a Financial Planner
A financial planner will help you ensure that your assets are protected and organized in case of divorce. They can also help you figure out if your income and expenses will allow you to live separately from your spouse.
The financial planning process will help you clarify any steps you need to take now to protect yourself in case of divorce. Remember, divorce isn't just about dividing up household income — it's also about dividing up property, retirement accounts, and other assets that will give each spouse a secure financial future after a split. If you're over 50, make sure to read this article.
Divorce is never fun, but by taking these simple steps now, you can ensure you won't end up financially devastated if it does happen. We would be happy to review your financial situation to help you plan for divorce contingencies and ensure the right strategies are in place for you both. Contact us today.