Cost of Living Considerations in Your Divorce

Divorce is a life-altering event that can have significant financial implications. One important factor to consider during this process is cost of living and related economic inflation. Understanding how your divorce may be impacted by the cost of living in your local area can alter your financial decisions and these considerations are essential when planning for the future. 

In this post, we outline three things that will significantly impact your cost of living and how you can prepare for these changes post-divorce.

Housing Costs in Colorado

One of the most significant costs you will incur post-divorce is affording housing on your own. Unless you have a sizable down payment for a new home, significant equity in your current home, or plan to drastically downsize, a new mortgage or rental payment is going to cost between $2,500 and $3,000 per month minimum - if you have children living at home. When securing a loan or determining your budget, your housing (mortgage or rent) should not be more than 25-30% of your total income. That means you need between $7,500 and $12,000 per month in total income to live in Colorado comfortably, without a contributing roomate. Therefore, it’s important to determine where your income streams will come from and the reliability of those income sources so you don’t get in over your head with a large mortgage payment.

The Details of Your Settlement

Working closely with an attorney and financial advisor during your divorce can help you develop a settlement strategy that aligns with your financial goals. For example, if you know that housing will be your biggest hurdle in managing the cost of living in Colorado on your own, you may design your settlement in a way that allows you to retain the marital home in exchange for other assets that may be less impactful to your existing situation. While you want to avoid short-term thinking, the way you design your maintenance and divide your retirement assets could also help you solve for cost-of-living needs and give you more time to get back on your feet. The details of your settlement and the advisors that support your financial strategy during this time can greatly impact the way you manage cost of living challenges post-divorce.

Income and Tax Considerations

When you consider all sources of income, from child support to maintenance, to earned income and passive income, you’ll be able to design a budget that illustrates whether you have the resources to recover and eventually thrive based on the cost of living in your area. Based on your income from all these sources, you’ll likely have new tax filing considerations post-divorce, which may or may not work to your benefit. It’s best to work with a financial advisor who can help minimize your tax liability, identify new deductions or exemptions, and prepare you for any changes in tax payments post-divorce. You may also decide that it’s essential to go back to work full-time or invest in career training to improve your financial situation in a high-cost-of-living environment.

The cost of living considerations and economic inflation in a divorce require careful evaluation. Work with a team of professionals to consider everything from housing expenses to the specifics of your asset division, and sources of income along with the related tax implications. Seeking professional advice from divorce attorneys, real estate lenders, financial advisors, and tax professionals can help you navigate these considerations and make informed decisions for your future financial well-being. At A.M. Financial, we answer top questions you might have about your financial future and model different scenarios to structure what you need so you can recover and eventually thrive in a high cost-of-living state like Colorado. Contact us for a free consultation.