In preparing for the very challenging process of divorce, it's important to have a plan. However, before you can truly get started, you need accurate information from a source you can trust. While many going through a divorce will hire an attorney, this won't provide you with assistance in overcoming the unfamiliar financial hurdles you'll face. It's a common problem for couples going through a divorce. How will belongings be divided? Who will pay the bills? Is your retirement funded? Are things in place for your child's college fund? It's understandable to feel overwhelmed and anxious for what comes next.
Because divorcing couples fail to fully understand their financial situations, they are often left with a tangled mess even after the divorce is finalized. To break this pattern, education is the first step. The five divorce financial tips below will provide an introduction for what to expect as you work through the financial implications of your divorce.
1. Close All Joint Accounts
One of the first actions you should take is to monitor all joint accounts and create new individual accounts for yourself. This includes bank accounts, credit cards, subscriptions and anything else that includes both of your names. If you're having trouble remembering each account, check your credit report to ensure you don't leave out any shared accounts. For example, you may want to open a new savings account, start a new credit card, get a fresh cell phone plan or re-subscribe to regularly delivered mail from a new address.
2. Know the Costs
The costs of divorce can vary drastically depending on the number of factors that come into play. For example, if one spouse launched a business during the marriage, courts will divide debt according to equitable distribution laws in your state. Custody battles, contests and even having a high net worth can complicate and increase the costs of your divorce into the hundreds of thousands. In some cases, spouses may be required to pay alimony. All of these pieces must be factored in to estimate the total costs you can expect to incur.
3. Change Beneficiaries
If your spouse is listed as a beneficiary on any documents, such as your 401(k), insurance policy, retirement fund, 529 plan, savings bonds or an employee benefits package, be sure to update them. In some cases beneficiary designations will become part of the final divorce, in these situations you can always make additional updates at that time. As you organize all of your accounts, make time to check your credit report in the process. You can then identify anything on the report that is unfamiliar or could be a mistake.
4. Divide Small Assets
Often, judges have little patience for couples who dispute over smaller, less significant assets in court. Thus, another divorce financial tip is to amicably divide up all belongings you possibly can ahead of time. Dividing small assets may seem bothersome or unnecessary, but it can remove some minor issues from discussion and allow you to focus on the more important complex issues of divorce. Remember that changing these decisions later may lead to additional court costs, so be sure to address everything you need to early on. Arguing about possessions may end up costing more than the item itself.
5. Get Support
An obvious, yet often overlooked, option is to seek the help of divorce professionals. Some divorce experts include legal counsel, financial experts or mental health counselors. One of these professionals may be better able to make unbiased recommendations and council you from a place of logic and experience. For example, it may seem fair to split assets down the middle, but a financial professional can help you recognize tax implications, incentives or income differences that can make a difference.
If you're feeling lost or overwhelmed with both the practical and emotional demands of your divorce, good professionals on your team can help you through the process.
Have any questions? We're here to help!