Divorce dramatically changes your finances, regardless of your final settlement or child custody situation. Being mindful of the potential outcome and preparing as early as possible for your new financial reality will help you be ready. That’s especially important for expenses related to child-rearing as a divorced parent. Start preparing now for the costs of raising your child or children after divorce so you aren’t struggling to keep up with child-related bills.
Here are some strategies to help you prepare now to manage parenting expenses after your divorce:
Consider Your Taxes
Whether you and your ex filed taxes jointly or separately during your marriage, your filing status changes once you are single. This change will alter your effective tax rate. You may also have gone from two combined incomes to one, affecting your marginal tax rate. Your spouse may have taken deductions that are no longer available to you. And, only one parent can claim each child as a dependent. Your divorce decree should clarify which parent retains that ability. All of these things shift your tax picture.
Even if you typically prepare your taxes, you might consider working with a tax professional to prepare your first tax return after your divorce. They can help you understand your new situation and find additional tax credits or breaks.
Whether you work with an accountant or file on your own, until you completely understand your new tax situation, it is best to have extra money available in case you find yourself owing the IRS.
Note: Child support payments are not deductible for the payer and are not considered taxable income for the recipient.
Understand Your Decree
Your divorce settlement will outline child-related costs and how they will be split. That may include budget items like medical care, health insurance, childcare, tuition, clothing, and even activity fees. You must know how you and your ex will share these costs to budget accordingly. It also ensures you aren’t paying more than necessary based on the judge’s binding decision.
Fight for Sharing Expenses that are Important to You and Your Child
Before your divorce is final, consult with your family and divorce lawyer about any specific child-rearing expenses that are important to you. If, for example, your child is in a private school or an expensive daycare program, your attorney can negotiate to ensure your ex covers part of these costs. Maintaining continuity prevents your child’s routine and education from being disrupted due to financial concerns. Significant expenses could be anything from sports coaching to college tuition. Discuss them with your lawyer to see if it makes sense to include these as shared expenses in your divorce decree.
Because routine is so essential for children, you want to be able to keep as many elements of their life the same as possible. That means that switching from an expensive private school to a free public school or taking away their opportunity to attend a beloved summer camp program is not ideal. But footing the entire bill for expenses like that may not be feasible if you have to do it alone. By having your family law experts fight to get costs like this shared as a requirement of your divorce decree, you can help ensure these important programs continue to be a part of your child’s life.
Start Saving
It may feel challenging to save money when you are suddenly faced with covering all your life’s expenses that used to be shared. However, you should prioritize sufficient savings to deal with unexpected costs that will inevitably arrive. Commit to setting aside money each month, even if it is only a few dollars at a time, so that when you have to pay for the deductible on the cast for your child’s broken arm or their dance studio fees suddenly increase, you don’t plunge into a financial crisis.
Consider College
If paying for your child to attend college is a priority, it’s never too early to start working toward that goal. Your divorce settlement will outline which parent gets control of any education savings accounts funded during your marriage. You can continue contributing to that account or start a new one.
Add what you can, when you can, and remember that every dollar will help, and the money deposited will have time to grow and compound over time. If the balances seem low now, that’s okay. Make contributing to college savings accounts a priority, and you’ll give your child a great start toward their educational expenses.
Check Beneficiaries
If you have life insurance policies on yourself or your children, don’t forget to change the beneficiaries as needed. You likely don’t want your ex to receive your life insurance payout. Changing that to your child may make sense. If your divorce decree requires you or your spouse to have life insurance, ensure those policies are in place.
Divorce is also an excellent time to evaluate your existing coverage and adjust up or down as needed based on your new financial situation and living arrangements.
While divorce can create financial chaos, being thoughtful about future expenses and prepared for what is to come can help. You may even find that once the dust settles, your financial situation and future with your child are even better and more stable than when you were married. Thinking through the implications of the divorce, having a plan, and being flexible will all help you deal with the financial costs of raising children after divorce.
Video
Infographic
Divorce can significantly impact your finances. It’s important to be aware of the potential financial changes and to start preparing early for your new financial situation. Take a look at this infographic to learn some strategies for managing parenting expenses after your divorce.
