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Divorce In A Bad Economy - Should You Do It?

28th July 2011
By Denisa Tova, MBA, CFP,CDFA, ChFC, CLU in Divorce
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Tough times can make couples more financially dependent on each other, which could keep unhappy couples together. The economic stress adds fuel to an already emotionally difficult situation such as divorce. If you are a couple considering a divorce during these uncertain times, here is some information to consider.

Can you afford to divorce? You first need to understand the financial impact of dividing one household into two. Here are questions to ask yourself as you look at the options.

1) How much money will I need to live on post divorce? Create a realistic, post-divorce budget, breaking it down into three categories:

Determine what you will need to survive - basics such as food, shelter, clothing, insurance, minimum credit payments and medical.

Decide what makes your life livable — such as hair, nail
and beauty treatments, cable, dining out and entertainment.

Eliminate or drastically reduce creature comforts. In times like these, you just can't afford the luxury of these pleasing yet unnecessary items.

Next, add up the list of all potential sources of income. This includes salary, child support, maintenance and more. Subtract taxes and budgeted living expenses from total income to determine whether you will have a shortage of cash or money left over each month. Since you cannot spend more than you bring in, the budget is an important piece of this puzzle.

2) Should I keep the house or take more of other assets? Create a desirable property division scenario and compare it to a budget to determine if you can afford to stay in the house or refinance to buy out your spouse. If you are thinking of selling the house, include selling costs in your calculations.

3) What will my financial situation be like in three to five years after the divorce?

Project out how long your savings may last you. This is crucial if you need to tap into investment or retirement accounts to cover any monthly cash shortage. This is a very important step, and you should look at this issue very carefully. Be realistic with yourself about your expenses and spending habits so you can get a true idea of how long your savings will really last in the real world.

If you must tap into retirement accounts, remember that taxes are embedded in all retirement funds. Account for taxes, plus the 10 percent IRS penalty, when withdrawing retirement funds before age 59 ½.

The double whammy of cash flow limitations and the fluctuating value of investments call for creative solutions. A realistic, forward-looking budget, combined with a well-thought out division of property, could save you money and make life easier in the long run. Remember, you have only one chance to make the right decision.

Denisa Tova MBA, CFP, CFDP(TM), ChFC, CLU provides divorce financial expertise to divorcing individuals. She is a Certified Financial Planner(TM) practitioner and Certified Divorce Financial Analyst. You can find more information about Denisa Tova at:
Reprinted with permission of The Colorado Springs Gazette

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