The following is a guest post by Amy Holewa of Financial Dimensions Group.
If you find yourself overwhelmed by finances, you are not alone. Recently, I was in a continuing education class and this statistic struck me: 59% of Americans are worried about not having enough money for retirement and only 16% have a written plan.
We are all worried about money at some point in our lives. When facing divorce this worry is compounded because of the worry about today. A phrase I often hear is “Am I going to be able to afford my life?” Let’s start with the basics.
Step one: What are my expenses?
To begin, I suggest evaluating the last six months of spending. If this seems overwhelming, start today by keeping a notebook of all purchases big or small. This will be tough to look at and you need to be honest with yourself. Don’t judge yourself. You are only looking for the truth about how you currently spend money. The old saying “knowledge is power” is true. Once you understand how and where you are spending your money you can then make informed decisions about how you will spend in the future.
Step two: What are the income sources and how do they fit with what you’ve discovered in step #1?
- Employment income: Changing your tax filing status may change your tax bill, resulting in more or less net income or take home pay.
- Child support: This is a non-taxable income to the recipient.
- Spousal support: In 2018, spousal support can be deductible for the payer and taxable to the recipient.
Step three: What are the assets of the marriage?
Not all assets are treated equal. Retirement account withdrawals are generally a taxable event where as taking home equity withdrawals are not. Does keeping the house work within your budget? Houses have additional expenses such as taxes, insurance and maintenance. Remember to add unforeseen maintenance costs to your budget and create a saving strategy for those dollars.
When considering taking money from a retirement plan for a down payment or debt reduction it’s important to get all the facts. Tax implications should be considered, and I recommend getting an estimate calculated. Realistic understanding of the timing of a retirement distribution will also help you make informed decisions.
Remember, you are not alone. There are resources such as financial planners, bankers and accountants that can help you navigate decisions in conjunction with your attorney. And always remember, no question is a dumb question.