Divorce is probably one of the most unfortunate thing that can happen to most people. It shatters dreams of having a perfect marriage and a partner you hoped to spend rest of your life with. It's is even more traumatic for children involved in the relationship. While most people do everything in their power to avoid such a drastic and sad outcome, sometimes you don't have much of a choice. In fact, it is much better to separate and start your own lives instead of making everyone suffer through a painful relationship. Divorce can also have long lasting implications on your financial life if you did not pay close attention to your financial matters during divorce process. It is already a very difficult process to starting out on your own once again but it could be a nightmare if your financial life is destroyed by Divorce. So make sure you take care of your finances and don't make it worse by ruining your financial life due to divorce.
To protect yourself financially during and after a divorce you should pay close attention to some of the issues that we are going to discuss in this article.
Know your financial situation
As you begin the divorce process, sit down and identify the issues that are likely to be at play in your divorce. You may want to:
 Make a detailed list of your assets, and think about the other issues that may be contested. This is important
even if you have a mutual understanding of assets and a spouse who is willing to work out a amicable split.
Stay organized: keep updated files of all your bank, investment and credit card statements, tax returns, and other pertinent financial data. Contact your credit card issuer to cancel authorization that you may have added for your spouse.
Review your credit situation if you have joint accounts. This is a very critical issue. While you can close joint bank accounts and open your separate accounts, you need to order your credit report and monitor it close to make sure no new credit line is open in your name or as a joint application. Sometime financial mess is the reason for the divorce and you want to make sure that your good credit is not going to be destroyed by a spouse who is out for revenge.
Don't get emotionally attached to an asset. Too many time a spouse decides to keep the house because of the sentimental reason instead of financial reasons. If you want to keep the house but can't afford the mortgage payment on your own, it's time to let it go. Put it on the market and split the proceedings. There is no reason to allow bank to foreclose on your house and ruin your credit history. Remember, you must use your brain instead of your heart in financial matters.
What a divorce could mean to your plans for retirement
In terms of a retirement plan, a divorce may lead to a Qualified Domestic Relations Order (QDRO), which is an order to:
Split and change ownership of retirement funds giving a divorcing spouse a share of the retirement funds held for the other’s benefit. If your spouse did not work or didn't have a retirement account, you're probably going to be a big loser here since half of your retirement account is pretty much gone after QDRO.
Review your W4 deductions and check if you have a dependent care or Flexible spending(FSA) account. These accounts may have been set up with you were together and may not make any sense to keep them in their current form. Contact your Human Resources(HR) department and seek their advice on how to handle these account.
Potentially split other financial assets, as well as the value of your home. If you have title to your vehicles, you can split them based on the value. Once ownership is final, make sure you get a new title removing your spouse from the joint title. Also, if there is a loan on the vehicle, make sure lender is notified and loan is transferred to the new single owner of the vehicle. You also need to contact the auto insurance company to make sure correct coverage is maintained on the vehicle with only authorized drivers.
Things to do once the divorce is final
Here are some things to consider once the divorce is final, to help take care of your financial well-being. This includes:
Reviewing insurance policies to make sure coverage is adequate. This should include auto as well as homeowner policies. If you had life insurance policy you may want to check the coverage and beneficiary information. If originally you had your spouse listed as beneficiary, you may want to change it to either your child(ren) or your parents/siblings. If you're adding your parents/sibling as beneficiaries, make sure you make them aware of the policy and who to contact if something unfortunate happens to you.
Reviewing and updating your beneficiary designation on retirement plans, bank accounts and any other asset that you may have acquired as a result of divorce.
Reviewing banking and investment accounts. Make sure ownership information is correct.
Updating your will, power of attorney and other important legal documents.
Updating your budget. This is a very important item. You need to figure out if you can afford to live on your current job or if you need to get a second job or move in with friends/family to address short term financial difficulties.
Reassessing your financial and retirement goals. Make sure you understand your new retirement options. For example if your joint adjusted gross income(AGI) was over $160,000 as couple, you were not eligible to contribute money to Roth IRA account. You may now be eligible to contribute based on your sole income.
Working with your financial professional to put a new strategy in place that addresses your new situation
Any relationship can heal. No matter how painful or destructive your relationship may be there is always hope for improvement and restoration. However, You need to make sure that you're preparing yourself financially for that healing process.
|
