Six Money Tips for Couples Before Divorce
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Navigating money and divorce can be difficult. When you’re going through a divorce, the last thing you want to do is deal with financial mistakes. Money is a major stressor in divorces. I know this because several of my friends have been through it. It is important to plan ahead and know how to manage your finances. Before you sign any papers, make sure you are familiar with these six money tips. Get a Full Picture of Your Finances
Before making any financial decisions, you need to know exactly what you and your spouse own. Collect all bank statements and credit card bills. Also, gather tax returns and investment records. Debts are often overlooked, but they must also be divided. One spouse may be unaware of hidden assets and liabilities if they are the one who handles the finances.
2. Open Individual Bank Accounts Immediately
My husband and I combined our finances several years ago, as many couples do. It’s important to separate your finances when a divorce is imminent. Open individual savings and checking accounts. Now is the time to manage your own finances! Track your income and expenditures and create a new budget for single life. Avoid making large withdrawals without seeking legal advice. You can better predict your financial future once you have your personal accounts. Understand How Assets and Debts Will Be Divided
Dividing property and debt isn’t as simple as splitting everything down the middle. Some states follow community property laws (everything gets split 50/50), whereas others use equitable distribution rules (dividing assets according to fairness). The assets that are divided include retirement and savings accounts, homes, cars and savings. Mortgages and credit card debts also fall under this category. Negotiation is key. Keeping a home you can’t pay for may not be a good idea.
4. Prepare yourself for unexpected changes in your credit score
Divorce may impact your credit in unexpected and unpredictable ways. Missed payments on shared credit cards or loans could affect both of your scores. Close joint accounts, or remove yourself to them so that you are not held responsible for the spending of an ex-spouse. Refinance joint debts to individual names if possible. This will prevent financial complications in the future.
5. Consider the Tax Implications of Divorce Settlements
Many people overlook the tax impact of divorce, but it can make a huge difference in your financial future. Tax consequences can be unexpected for alimony, child support, and property division. The sale of assets such as a home can trigger capital gains tax, and dividing retirement funds incorrectly can result in penalties. The filing status can also change. Deciding whether to file jointly with your spouse or separately during the divorce year will affect your tax bill.
6. Update Your Estate Plan and Beneficiaries
Divorce doesn’t just affect your present finances–it also changes your future plans. Update your will, life policies, retirement funds, and documents relating to power of attorney. Many people fail to remove their former spouse as a beneficiary. This can lead to legal issues later. Make sure you clearly outline guardianship arrangements and financial plans if you have children. Protect Your Finances Before it’s Too late
Divorce can be a very emotional experience, without the additional stress that money mistakes may bring. Using these tips and handling your finances with care can save you from financial problems during divorce proceedings. Consider your approach to ensure you don’t end up holding the bag. What tips would you give someone going through the same thing? What are the tips you would give to someone going through a divorce? What can you do when you feel stuck financially?
