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Divorce? Don't let it bankrupt you
Kartik Jhaveri, Moneycontrol.com | February 16, 2007
In the previous articles of financial planning for women, we learnt about the starting steps of getting onto your own feet. Next, we understood the inherent multitude of risks women face and in light of that what must women do to mitigate the underlying risks.
Moving on, we will now understand how financial planning can help women in different stages of their lives. In part nine, we discussed the life stage of getting divorced/preparing for divorce. Here, we move onto another life stage.
Life stage: Divorced with/without children - working/housewife - all ages
Post-divorce life is like a double-edged sword. Some are happy and relieved to have freedom, while some get into depression and a big emotional low that may take some time to overcome. That said, the situation basically depends on the life that you plan to pursue/ are pursuing post divorce.
Given that the assets have been divided and legal orders have been passed, what do you need to consider now?
A lot of things need changes. Whatever is now yours needs to have your maiden name as the sole owner. If you are going to have properties, your name should appear as sole owner and joint names be removed. Likewise for insurance, bank accounts, credit cards, investments, bonds etc.
Regarding liabilities - if they are yours, the spouse's name must be removed and if they are your husband's, then your name to be removed, so that you do not have impending liabilities that hit you without knowledge. This needs to be done fast; and the more you keep this pending - chances of problems arising later simply multiply. Do not forget to keep copies of payments, receipts and other relevant documents in the process of getting changes effected.
The need to be back on track as soon as possible and have adequate cash support
Consider you cashflows. What are the sources of income you are likely to have? The possibility is that these could be the income that you earn; income from existing assets and maintenance and support (if applicable in your case). The primary prerogative is to estimate the cash or expense requirement, which in turn is also a factor of whether you are living by yourself or whether you have come back to your parents' home.
In the event that you do not have ongoing income i.e. if you are not earning, then it becomes far more important that you have cash support, which would essentially be from existing assets and/or maintenance. It is also important to note that there is no preset amount or defined formula for claiming maintenance.
It is expected that this will be in line with maintaining the standard of living but that said, it is still at the discretion of the magistrate and many other factors that the magistrate may take into consideration. Note that this may cease if you re-marry.
What is important is that you have about 30 per cent of your inflow as surplus after all expenses and taxes if any. This 30 per cent is not a rule of thumb but this figure is what will help you meet you future financial objectives.
Re-assessment of financial objectives
Quite likely that the priorities would have changed and hence financial goals need restructuring. The important concerns here are retirement, child support (if you have custody), or any other issue highly relevant to you. The secondary concerns would normally be maintenance of your personal and emotional aspirations.
First, lets talk about child custody - the orders of the court in this matter are never final and may be modified/altered at any stage till the child attains majority, as the child's well being is of paramount importance to the court. Here's another angle - what if maintenance and child support do not come through if financial situation of spouse changes?
Further, in the pre-divorce period, your goals could have been joint goals, being funded by joint resources. Going forward it would be ideal to depend on self-generated and/or your own resources via your own income and assets to ensure that a strategy is in place so that there are no sad surprises in future.
Another question to ask yourself is - whether you plan to re-settle in matrimony or not. To make things simpler - is this likely to happen in the next five years? If the answer is 'yes', then the strategy would be aggressive creation/acquisition of assets.'
If the answer is no then a self support system needs to be designed for the future years of your life and that this system must be robust to support you till death and also leave some estate behind if necessary. Alongside, goal re-planning for your lifestyle and emotional aspirations would indicate the resources you have, how long they will last how much you need to deploy additionally.
Lastly you need your will re-done completely - if you did not have one till date, all the more reason to create one. Everything has fundamentally changed; life, life goals and resources and as a result it is mandated that your overall financial strategy has a complete reworking.
Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at email@example.com
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