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Personal Finance

Over 50 and considering divorce? How to prepare financially, before and after separation

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Divorce is increasingly common among people 50 and over – so common, in fact, that it goes by its own name: “gray divorce”. There are often major changes in someone’s finances and lifestyle after divorce, but the sooner you face your new financial reality, the better off you will be.

I once had a client who insisted that his # 1 goal after his divorce was never to be forced to sell his house and downsize. At the same time, she wasn’t listening to my advice on cutting expenses – like vacations – in order to afford her house. She maintained her pre-divorce lifestyle and quickly found herself in financial mess.

Unlike younger people who have time to start over and rebuild their financial lives, those 50 and over have less of a way to accumulate wealth. For this age group, setting priorities and making key decisions will help protect and preserve their wealth after divorce.

For those who have decided to divorce, one of the most important first steps is to provide detailed financial information to your lawyer. A family lawyer will want you to present to yourself a complete list of your assets and debts, as well as your income and expenses. Keep in mind that lawyers charge hundreds of dollars in hourly fees, so the more information you can provide them in advance, the less money you will spend on collating that information. If you don’t have a documented track record, start now and update it annually.

Compile the following information:

  • Assets, such as cash in the bank, retirement accounts, stock options and pensions, life insurance, principal property values ​​and vacation homes.
  • Debts, including amounts owed on mortgage, home equity, credit cards, and car loans.
  • Income items, which can be taken from the most recent tax return or about to be filed. Salary and bonuses, deferred compensation income, pensions, interest and dividends from investment accounts, rental income from vacation homes, and profit from a business are all items of income that must be documented. .
  • Most expenses can be gleaned from bank and credit card statements, or online bill payment statements. Make sure you know how to access online bank accounts and download bank statements for the past 12 months.

Plan to divide expenses into two categories: fixed expenses and variable expenses. For example, if the mortgage payment is $ 2,500 and the car payment is $ 750, these fixed expenses must be factored into the settlement agreement.

After divorce, there is a good chance that each person will have fewer assets and perhaps less income than when they are married. This usually means that financial adjustments need to be made to spending habits related to lifestyle.

It’s not as simple as taking the income generated by both people and halving it. Life will be different. There are now two households instead of one, both with fixed expenses; an additional vehicle may be required, as well as higher insurance costs.

It is important to understand the type of expenses that your new lifestyle can support. Here are some recommendations to help you adjust to a new financial situation:

Make sure you can comfortably afford the necessary expenses – food, clothing, insurance, car, house – and leave a cushion for unforeseen items. Temporarily put on hold the idea of ​​buying additional items – a brand new car or upgraded furniture. Remember to factor the savings into your budget. For clients who receive child support as part of the settlement agreement, we allocate it between child support used for living expenses, taxes and savings for the future.

Determine what your new goals are: stay home, travel more, be able to retire earlier? Map your cash flow and see how much you need to set aside for current living expenses versus future goals. Adjusting to a new financial reality means you might not have enough money to do everything you want to do, which is why prioritizing and compromising are important activities. Stay the course – don’t change your mind or financial strategy every few months. Review your financial plan every six months until you are very comfortable with the way things are going for you financially.

With less income, there will likely be less money to pay for the house, furniture, and improvements. If you lived in a $ 750,000 house during your marriage, you may need to remember a house worth $ 500,000 or less to pay for payments and expenses. Housing is one of the biggest fixed expenses of any budget, and you can’t buy groceries with the equity in your home. Downsizing can give you the freedom to achieve other financial goals with less budget constraints.

While everyone needs a getaway from time to time, don’t let this variable expense become a financial burden. Your family vacation may not be as glamorous on your new bachelor income. And it shouldn’t be a competition with your ex. It’s better for your kids to see the reality of your situation and see how you approach it head-on and adjust rather than looking away from reality.

Divorce is a major event that will change your life emotionally, psychologically and financially. Whether you end up breaking up or staying together, take the time to better understand your financial situation now, so that you can move forward with a financial mindset that will serve you well in the future.

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