Category: Financial Planning
Questions/Answers
Why is the development of a budget important during the divorce process?
The development of a budget during the divorce process is imperative for the divorcing individual. The budget is a road map that determines how much of the monthly budget is in fixed expenses, such as rent or mortgage, car payment, taxes and insurance. The flexible portion that can be cut back usually deals with food, clothing and entertainment. Most of the time, budgets have to be cut back because the same amount of income that used to support one household is now supporting two households.
Helpful Tips and Facts
Don’t Forget to Update Your Beneficiaries!
It’s happens more than you think.... you get divorced and you forget to change the beneficiary designations on your retirement plan (IRA / 401k) or your life insurance policy. Years later when you pass away, your ex-spouse could get all the benefits... even if you had remarried; even if you wanted the children to get it. Keep in mind, your divorce decree may state that the beneficiary will be changed, but you still need to contact the financial institution and follow their rules to change the beneficiary. This will prevent any problems down the road. Also, don’t be too quick to make the changes when you are just separated... you may have to wait until the divorce is final.
Update Beneficiary Designations
Once the divorce is over, make sure to check all retirement accounts, IRA’s, insurance policies, and annuities to update beneficiary designations. Chances are you may not want to leave that money to your ex-spouse for their consumption. Yet, without updating the beneficiary designation, that’s the exact right that they will have. Regardless of children or a new future spouse, whoever is named as your beneficiary is the individual who will get the funds, so be sure it is the person you want to have receive them. Generally courts cannot undo the “wrong” beneficiary receiving the assets, because the beneficiary designation is not a part of the probate process at death.
Are Fixed Expenses Really "Fixed"?
Some simple ways to attack the budget problem are to look at some of those items we called fixed expenses, and see if the entire expense associated with them really is “fixed”. For example, if the household has cable television, how many of the channels in the package are really watched? Could the cable package be downsized to something more economical that still provides most of what is actually used? Another good example might be your home phone service – are all the features really used, or are there call forwarding, multiple lines, or other services that really aren’t needed. Adjusting services like these may only save $10 or $15 dollars each, but added up these savings can be significant.
Need a Financial Diet?
The first step if you discover the need for a financial diet is to look back at the variable expenses – the shopping, eating out, home or personal items, and the “fun” money. You need to take a hard look at these expenditures and ask yourself: are these necessary? Do you really need that $4 dollar cup of coffee at your favorite coffee shop, or do you just enjoy it and find it more convenient? Do you really need to shop or buy things for the home, or is it just a habit that you enjoy? The reason that budget cuts in divorce are hardest is because they require us to cut out the things that added enjoyment to life – at a time when emotionally we’re probably already short on positive experiences. But rest assured, sooner or later in life there are often ways to gradually add those enjoyment aspects back in.
Budget Shortfall
If you are getting ready for, or are going through a divorce, and feel that dollars are tight, you should realize that you are not alone. Be careful of falling into the trap that many people encounter: knowing that money is short and continuing to overspend. This won’t help solve the problem; in fact it makes it far worse. What will help rectify the situation is tightening up the budget. Think of it like a diet – it’s rarely pleasant at first, but it is possible, and often it can have beneficial impacts in the long run.
How to Create a Budget
With a budget, the easiest place to start is by listing your fixed expenses: cost of rent or mortgage, utilities, phone, cable, etcetera – all of the things that are regular expenses that are virtually essential to day-to-day living. After listing all of those items, then list the variable expenses – these are items such as entertainment, eating out, shopping – the items that aren’t necessarily required but are normal expenditures during the month. The expense side of the budget is only part of the equation. It is also essential to list out your income sources. Look for dollars from employment, from the other spouse as an initial arrangement for supporting the kids, investments, or perhaps rental income. The big question is – are there enough funds to meet the budget, or is there a shortfall?
Surviving Divorce: Financially Where to Start
If you’re getting ready for, or going through a divorce, there are important financial preparations to make. Step number one is to make a budget of your expenses and income, and compare how the two balance out. This fundamental building block can be the first step to regaining control over your situation and restoring calm, at least to part of your emotions. Once both the expenses and the income have been determined, then it is time to compare the two. This is the critical point that often helps you work towards solutions. Once you find a way to balance your income with your expenses, financial balance returns.
Annuity Buyers Beware
No one should every buy an annuity without making certain he or she understands what the contract entails, including the terms and conditions governing withdrawals and fees.
Finance Blues
For most people, financial turbulence follows a divorce the way a wake follows a ship. People are often overwhelmed by the debt that have incurred as a result of divorce. Before turning to bankruptcy, Consumer Credit Counseling Services or debt consolidation may be a better option.
Fee Arangements with Financial Planners
Some fiscal advisors will charge a flat fee for consultation with respect to and/or development of an actual complete plan relating to all financial issues. Others work on commission, meaning they will earn their actual income through the sale of specific investments. It is important to remember that this type of professional, because of the nature of his or her work, might intentionally or otherwise have outside bias with respect to their advice. And lastly, some will be compensated through a combination of both a fee and a commission. Given the fact that financial planning can be very detail oriented and potentially critical to a person’s future financial stability, these types of professionals and their services are being retained more and more often.
Dividing the Assets
A divorce financial analyst can help a divorcing couple evaluate their joint assets, advising about the pros and cons of each decision.