Avoiding the fiscal cliff in divorce

There has been much talk about the fiscal cliff and how to resolve it. The basic formula seems pretty simple- spend less and earn more. Anyone following the news lately knows that this was anything but simple for Congress. When it comes to divorce, many people face a similar fiscal cliff issues- do I increase my “debt ceiling”? And, what do I do when there’s not enough money to go around? Unfortunately for divorcing couples, you can’t just raise more money in the form of taxes (and there is no government fund for alimony. Yes, I have been asked that question). So that brings us to the common dilemma of the recently separated and newly divorced: How do you avoid going over the fiscal cliff? Much like our government, the formula is often the same.

 

1. Cutting spending: The unfortunate reality of divorce and separation is that each party has less money and more expenses. The family’s income now has to pay for two places to live and all the bills that come with two households. One person may be paying child support and/or spousal support to the other. Since each side has less money and more bills, the short term solution is either to raise the debt ceiling (take on more credit card debt of loans, which is not a good idea) or to cut expenses. Cutting down on spending is painful, especially when you are dealing with the loss and adjusting to the changes of divorce and separation. But it will be much easier to find things to go without in the short term that to pay off the excess spending in the long term.

 

2. Increasing revenue: Yes, the economy is still tough, but finding an additional source of income will help pay those additional expenses both parties now have (let’s not forget the cost of moving, buying new furniture, setting up all of those utility accounts, etc. And, yes, there are probably those lawyer fees too). In many divorces, after the combined income has been split in whatever way was agreed upon or ordered by a Judge, both parties often feel the loss of the additional income. Even if there is enough money to pay the expenses, there is less to put into savings and less for life’s little or not so little luxuries. Since you can’t increase taxes like Congress did, finding a way to earn a little more will help ease the transition from married to separated or divorced.

 

As we learned this week, there is no perfect formula for avoiding a fiscal cliff. But there are steps you can take to prevent your own fiscal and emotional crisis down the road.