For some couples, finalizing a divorce doesn’t several all ties—especially when it comes to finances.
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Permanent alimony is the amount of money ordered by a court to be paid by one spouse to the other at determined intervals after a divorce. For some newly-single people, these payments are crucial to their budgets if they didn’t work during the marriage. But some states are putting these lifelong payments under the scope and are considering legislation to end it.
The divorce process can be emotionally and financially draining, and experts recommend former spouses that rely on alimony payments to start planning accordingly and making necessary budget adjustments.
With any financial situation, have a clear understanding of your financial picture, says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “Ultimately, alimony is a form of income that needs to be factored into your budget. But sources of income, including alimony, can change so people need to be aware of disruptions to their income.”
Whether you receive permanent alimony or are moving from permanent to a modified settlement, understanding those future payments will help you adjust your budget accordingly.
“The time periods [for alimony payments] are getting shorter and shorter,” says Randy Kessler, founding partner of Kessler & Solomiany. “[Alimony] is gender neutral across the country but it’s disappearing.”
Since many people have contributed to retirement accounts and may receive pensions—these may get split in lieu of alimony. “You shouldn’t need lifetime alimony if you get a sufficient retirement,” says Kessler.
Whether you receive alimony depends on the length of the marriage, the marital assets and incomes and the divorce negotiations.
“If you’re going before a judge, [getting alimony] is only as easy as the state law and what the judge allows,” says Tracy Stewart, certified public accountant and personal financial specialist. “If you’re going to do a collaborative divorce or some other settlement that’s out of court, [getting alimony] is only as difficult as what the two of you can agree on because there’s no judge involved.”
For people out of the divorce process and gearing up for their new life, experts provide the following tips on how to readjust your finances:
Plan for Your Career
Kessler says alimony should be considered a subsidy and used to help get back into the workforce.
“It takes steps to be self-sufficient. Look at alimony as a bonus but prepare if you’re not going to get it.” Rarely does this money cover all living expenses.
To guard against being dependent on this source of income, try and re-enter the workforce as soon as possible to get another source of income.
Stewart advices talking to a career advisor and taking an aptitude test to understand your strengths and skillsets. “It has to be what you’d be good at as well as what you want to do, your talent and interest,” she says. Since time is of the essence, someone may not have the time to try out many different careers to identify the best fit.
You can also use your alimony to fund an education or training program, says de Baca. This can help update or enhance your skills to help land a job quicker.
If you’re thinking of starting a business, “sit down with a CPA who advises small businesses and let that person guide you through what it takes to be a successful business and whether you’re suitable to be a business owner,” says Stewart.
Stewart suggests being realistic about the demands and qualifications of a job or business before taking the plunge.
“The risk is they get to the end of alimony and the person isn’t earning what they aspired to,” says Stewart. “They consistently quote a salary but then don’t realize the time it takes to build up the business to make that money.”
Downsize Your Home
Stewart suggests living in the least expensive house that meets your needs. “Downsize so you can sock away some savings,” she says. “Your expenses to maintain the house will be a lot lower.”
A bigger house tends to not only have higher mortgage payment but also costs more to maintain and brings higher utility bills.
Budget for Your New Lifestyle
Your daily expenses could be similar both before and after a divorce, but your income may be much different. De Baca recommends monitoring your budget for unexpected events, including losing alimony, to avoid getting into debt.
“Have a plan for possible lifestyle changes that you’re facing after the divorce,” says de Baca. “It may take a little time for anyone to get used to the lower income and managing your budget can take practice—you don’t want to get trapped into overspending.”
Kessler suggests cutting back on the non-essentials. Instead of shopping at your usual stores, be thrifty and don’t spend money on things you don’t need.
Get Strict About Saving
Whether for retirement or other long-term goals, savings should be included in your budget as an expense—if you’ve a shortfall, you have to cut somewhere, says de Baca. To protect you and your family, don’t forget to look into your life insurance, long-term care and disability also.
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