One of the things that couples who have newly split up must consider very seriously is the financial effects of living on one income after divorce. Financial changes in divorce can have far-reaching consequences, especially if the married couple or civil partners have been used to sharing their expenses and pooling their income for several years.
The situation can be even more challenging when there is a significant imbalance between what each partner earns or brings into the marriage or civil partnership. For example, if one person is a stay-at-home parent or homemaker and has not built up savings or worked in a paid job for a while. All this must be taken into account when adjusting finances after divorce. Living on one income after divorce can be very difficult if one or more sources of money that was previously coming into the household is taken out of the equation.
Working out how to protect both parties from the financial impact of moving from two incomes to one is key. Areas such as spousal maintenance, child support and dividing assets such as property, savings, pensions and business interests must be done fairly and with the intention of providing enough for both parties to live on.
Spousal maintenance and child support
This is a hugely important part of working out how to cushion the financial impact of moving from two incomes to one. Spousal maintenance is a payment that is made to the lower income partner or spouse intended to help them make ends meet and get themselves to a stage where they can support themselves properly. The amount to be paid is calculated on a case-by-case basis, taking such factors into account as length of the marriage or partnership, contributions made by both parties and both partners’ future earning capacities
Child maintenance is calculated in a very similar way. But it is designed to financially support any children from the union. It is normally paid by the non-resident parent to the parent with whom the child lives, or spends most of their time. Amounts and arrangements can be made informally between the parting couple, or they can ask the court and authorities to help them come to an agreement – and make sure the money is paid.
Planning for retirement
Divorce and weather the financial impact of moving from two incomes to one can have a significant impact on both parties’ retirement plans. This is especially relevant if one or both people’s pensions are made part of the financial settlement. Pensions can be dealt with in various ways after a divorce, from a 50:50 split where one person gives the other lump sum or makes regular payments to the pension pot being left untouched in return for another asset being signed over, such as property or business interests.
Other retirement plans could be affected by the financial impact of moving from two incomes to one. For instance, a second property or holiday home that was intended to be a base for travelling or relocation in older age may have to be sold to generate an income for one or both parties. Mortgages on second homes – and indeed first ones – can leave a serious dent in the wallet, adding to the financial impact of moving from two incomes to one
Create a budget, seek advice
In order to minimise the financial impact of moving from two incomes to one, it is imperative to seek professional advice from a solicitor. Your first step should be to draft a budget and work out what you will need to pay for after divorce , and what you will have coming in to spend. This may need to have several iterations before you get to a sensible, sustainable version.
Other key actions include exploring avenues for generating extra funds, consulting a financial advisor and looking for area to cut back on spending. Close any joint bank account to ensure everything is fully divided and deal with any open lines of credit to ensure debts continue to be paid and no-one is left with unmanageable repayment amounts.