Atlanta Financial Blog
Are you prepared for alimony to stop? Three ways to improve your finances if you’re getting alimony
January 7, 2020
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home.
I bumped into her a week later at the supermarket and asked her where she was planning to move.
She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
Luckily for her, it’s been a seller’s market. Her home quickly sold. After she closed on the sale, she moved to a smaller, older rowhome one suburb over.
Gina was a good neighbor and I was sad to see her go. Unfortunately, many divorced women find themselves in a similar situation to Gina. Having a good plan in advance may have allowed her to stay in the home she’d lived in for two decades.
- Adjust your mindset.
Too many alimony recipients view it as a permanent paycheck. But it’s not designed for that. Alimony is intended to bring two separate households closer to financial parity following a divorce. This is particularly important if one spouse left the workforce to raise children while the other spouse continued to work outside the home during the marriage. In most cases, alimony isn’t forever. Generally, the length of alimony is related to the length of the marriage, and the relationship can vary greatly from state to state and depends on many other factors as well. In addition, if you remarry or your ex-spouse dies, that “paycheck” you’ve come to depend on will stop. Are you mentally and emotionally prepared for that?
- Review your current budget and estimate your future expenses.
You do have a budget already, right? If not, this is the time to create it. You won’t be able to project the future of your finances (after alimony stops) if you aren’t tracking your spending now. First, review your historical and current expenses. Don’t forget to account for discretionary spending that doesn’t happen every month, like vacations, holidays, birthdays and other special occasions. Compare that to your income. Assume both your bills and discretionary expenses will increase by 1% to 3% every year. Now deduct your alimony income from that budget. You may find, like my neighbor Gina did, that you’ll need to make some changes in order to live comfortably.
- Think of alimony as an investment.
One of the best ways to use your alimony payments is to invest in yourself. That doesn’t mean taking exotic vacations or weekly spa days. Consider using it to pay for additional education or training to further your career. While that doesn’t sound nearly as fun as a trip to a luxury resort, the benefits will last much longer–and may actually make you MORE money in the long run. At the very least, you should direct a portion of your alimony payments into a long-term savings account.
An experienced financial advisor can make a huge difference in helping you plan for your best financial future. Reach out today – we’d love to connect.
At Atlanta Financial, we have been by the side of women divorcing for more than 30 years. Through our DivorceFIT™ process, we will walk with you through the big picture financial issues all the way to the smallest of details that need to be addressed as you go through divorce and after. Our goal is to help you transition to the next phase in your life on solid financial footing.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019. With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare. However, some of the changes will be significant. I have tried to highlight what may impact the majority of our clients and readers.
The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70. The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner. I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.
When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.