CAN STUDENT DEBT CAUSE DIVORCE?

Large amounts of student debt can ruin your financial picture. But can it also ruin your marriage?

There’s no denying that college tuition can lead to piles of debt, putting of homeownership, and sacrificing retirement savings, but a new report shows that it also might lead to failed marriages. According to the report, done by Student Loan Hero, 13% of divorced couples say that student loans were what ended their marriage. The statistic makes sense. Money problems are often the root cause of divorce, and for a long time now, student loan debt has been one of the biggest financial issues facing our nation. That financial issue can also spill into your divorce as you work to iron out the intricacies of child support, spousal support, and how to make it on your own with only your income.

FINANCES AFTER DIVORCE

You’ve decided to end your marriage. That doesn’t mean the end of your emotional life, and that definitely doesn’t mean the end of your financial freedom. There is nothing easy about ending a marriage. You’re going to feel out of place for a while. Everything is new. Chances are you’ve had to rearrange your schedule to now pick up the kids from their dad’s house every other weekend. It might mean you’re not spending Christmas with your parents so that the children can spend Hanukkah with their mom’s family. You might need to set up an automatic child support and spousal support payment to your ex-husband for every third week of the month. Or maybe you need to call your now ex-wife to make sure that she drops off the soccer cleats at the school that your son left at his house over the weekend. Regardless of what the situation is, things have changed. And that means your financial situation has. But just because everything is different, that doesn’t mean you should steer your course for financial ruin. Yes, losing a second income is hard. It can be especially hard if you were living off of one income and now have to go back to the land of the full-time worker. These are some tips and tricks that can help ensure that your divorce doesn’t translate to financial ruin.

TIPS FROM THE EXPERTS

Here are some tips from some financial experts; certified divorce financial analyst Eva Sachs, Emily McBurney, an attorney and qualified domestic relations orders (QDRO) expert, and certified divorce financial analyst Donna Cheswick.

BUDGET

Sachs says the first step toward financial independence is balancing your income with your expenses. This can be hard to do if you’ve never had to in the past. He advises you sit down and look at how much money is coming in from various avenues like work, alimony and/or child support payments, and then assess how much of that is going toward living expenses. “Think of it as a spending plan rather than a budget,” she says. “Knowing where your money goes is key, especially after divorce. These will be many new expenses you might not have thought about prior to your divorce; this is a critical time to refrain from spending money you don’t have.” 

Who Are Your Benefactors? Most likely your spouse was your main benefactor before your divorce. So one of the first things you need to do, according to McBurney is update the beneficiary on your life insurance and retirement accounts. “Review all of your accounts and insurance policies and change the beneficiaries. A divorce does not automatically terminate your former spouse’s rights to be the beneficiary on your retirement plans, bank accounts, and life insurance policies –- even though your divorce decree might say that your former spouse has waived all rights to the benefits,” she says. “You will need to formally submit a change of beneficiary form to each financial institution. Otherwise, the benefit will be paid to whoever is listed on their forms at the time of your death – regardless of your divorce.” Take this opportunity to reflect on the people in your life that are around to support you and encourage you. This can be a hard step, changing your beneficiary, because you’ve never imagined having to remove your spouse. Additionally, you’ll want to revise your will, says Cheswick. “Meet with an estate planning attorney to discuss your state’s laws regarding possible updates to your will, power of attorney and advanced directives,” she suggests. “You want to be sure that your former spouse is no longer entitled to any distribution in the event of your death. And if your settlement agreement requires one party to maintain life insurance on the other, then there needs to be a method in place to be sure this is actually occurring. Just because the former spouse says they will do something, doesn’t mean that they are following through.” 

Emergency Funds. When you and your spouse were married, you knew you could rely on each other if one of you lost your job, had a medical emergency, or if something in the house needed immediate repair. But now if anything unexpected pops up, you’re going to alone. This can be scary. But if you’re smart about it, and plan for it, it doesn’t have to be. Sachs recommends, to help protect yourself, create an emergency fund that you continue adding to whenever you have the chance. “An emergency fund should equal three to six months of your living expenses,” she says. “If you can swing it, I recommend six months because you’re now single and need an even bigger cushion if you are not able to work or an emergency occurs.” 

Really Finalize. Even though the divorce papers are signed an finalized, according to Cheswick, your work isn’t really complete until you’ve ensured the assets awarded in the settlement have been distributed. This means doing your due diligence and following up with your spouse and all the shared accounts that you used to have. If the information and assets have not been transferred to you, you will need to ensure that they are. “I can’t tell you the number of people who will contact me months (and unfortunately even years) after their divorce is finalized and there are still outstanding items which have not been resolved,” she said. “Remember that the agreement is a legally binding contract that you both signed and agreed to uphold. If one party is failing to comply with the terms of the contract then the other party has every right to take steps to ensure their compliance including going back to court to have the agreement enforced.”

You Still Need to Plan for Retirement. As the divorce gets closer to being finalized, Sachs advises looking to ways of maximizing your retirement savings. “Don’t let divorce stop you from planning for your future,” she said, “Investing in your 401K plan will allow you to save for retirement. You can begin by saving a small amount each week and then let it build slowly or make payroll contributions that match your employer contributions. Don’t stop thinking of the future!” Just because you are no longer going to be sharing your golden years with your ex-spouse, that doesn’t mean that you can’t have the time of your life. Getting your financial situation under control is the first step to taking back your life and claiming your bright future.

FREEDOM

After your divorce is finalized you’ll be able to reclaim your life and do things you’ve always wanted to do. Follow whatever it is that your heart desires. By doing so you are offering yourself to the world and finding your own unique way that makes you feel alive. You can choose to stay shut in by the pain of loss and old wounds, but remember that the world will continue to turn. Don’t you want to be a part of it?

WORKING WITH A DIVORCE ATTORNEY

If you are facing a divorce, you should work with a divorce attorney that can take a look at your specific situation and give you advice based on it, rather than approach it with a one size fits all mindset. Your specific situation will be particular to you and your marriage and the way your life was set up during the marriage. This might mean major financial decisions regarding retirement funds, property, child support and custody, and alimony. A divorce attorney will work with you to help you decide how you want to tackle these elements of your marriage and divorce, while also providing guidance and support. They will be able to lead you through the process while keeping you from procrastination and caving into pressure. They’ll also be able to help ensure you meet all the required timelines while ensuring that you get a fair case and trial should you need to go to court. Lastly, they’ll be able to help you find the freedom and new life you are seeking – one that is entirely on your terms.

For advice on divorce, you need the expert law firm of 619 DIVORCE. Schedule a consultation today.

(619) DIVORCE
225 Broadway
San Diego, CA 92101
Phone: (619) 431-3131