Top 3 Financial Tips for Divorcing Moms

Divorce can be very complicated and take a huge emotional toll on you. The last thing you need is for your divorce to be financially unnerving, on top of that. One of the biggest questions divorcing moms have is “am I going to be financially OK after the divorce?” Unfortunately, this is not always easy to answer, but the most important thing you can do to put yourself on a path to financial security is to start getting financially savvy!

Knowledge is Power

According to “The Divorce Revolution: The Unexpected Social and Economic Consequences for Women and Children in America,” a man’s standard of living usually increases by 10% after a divorce, while a woman’s standard of living drops by 27%. The study found that one of the contributing factors is that women are more likely to be unaware of the family’s financial status, to begin with.  It is incredibly important to do the research on your financial situation, and fully understand it, so you will be better prepared when it comes time to negotiate your divorce settlement.

Determine Net Worth

Know the value of your assets and debts from your marriage. To calculate your and your husband’s net worth, add up all your assets and then subtract all of your liabilities (debts). Make sure you know the monthly cost of your home and have your house appraised, since the value may have gone up significantly since you purchased it. Collect recent statements from all bank, investment, and retirement accounts.

In addition, make sure that you include the value of any 529 plan savings accounts. Be sure that there is discussion about how educational costs will be covered in the divorce agreement.

Have any businesses or collections, such as fine art, valued, as well.

Understanding the Tax Impact

Divvying up stocks, bonds, 401(k) plans, IRAs, pensions, and other investment accounts can be a daunting task. The bottom line is the share of marital assets you get after the taxman gets his. Say your spouse handles all the investments and offers to split them 50/50. Sound fair? Maybe and maybe not.

Be sure to look at the value of your assets relative to your spouse’s on an after-tax basis, and then decide if you like the deal. For example, some assets are taxed at a much higher rate than others, making them, essentially, worth less.

Many people are unaware that investment accounts have hidden costs, like taxes and surrender charges that you need to take into consideration before liquidating or splitting them up.  It is best to hire a financial professional to help you come up with a property division settlement; they will be able to help you see your whole financial picture while taking tax issues and future valuation of assets into consideration.

Long-Term Value

Key to keep in mind is to not give up long-term value for immediate gain. When looking at what assets you want to walk away with after this divorce, make sure you take into consideration the long-term value of these assets, not just the current value. If you give up a pension, for example, in exchange for keeping the house or up-front money, you may feel short-changed when you reach retirement age. A retirement account can be very valuable down the road.

The house is also a valuable asset, but most likely will not grow in worth as much as a retirement account. You also do not have to replace the roof of your investment account or change the boiler.

You should also assess whether you can really afford to keep the house. Will you be able to take on the entire responsibility of house payments, taxes, insurance, upkeep, maintenance, and other related household bills? Does the household income support these financial obligations, now? Will you be able to cover anticipated increases in expenses, such as real estate taxes or utilities? What about unexpected expenses, such as a new water heater or major appliance? Is there a chance your personal income might decrease?

If this information seems overwhelming, remember you do not have to face your divorce alone. Build a strong professional team of financial advisors, attorneys, therapists and divorce coaches to advocate for you and surround yourselves with trusted friends and family to support you emotionally through this journey. The knowledge of your financial situation and your support system will be the greatest assets to help you protect yourself while navigating your divorce.