Divorce is tough enough without having to worry about the financial burden that comes along with it. Unfortunately, divorce will disrupt your finances – that part is unavoidable. Suddenly your incomes are being divvied up to pay for two sets of bills, rather than one. Fox Business writes that financial problems can ensue because your income hasn’t changed, yet you’re now paying for two of everything. But, there are proactive things you can do to help make the process a little less painful. Have a plan and make sure you’re financially organized – you can’t get your finances on track if you’re not sure what’s going on with them. Take a look at these seven ways you can manage your finances through a divorce.
1. Meet with an adviser
This is something you can do before the separation process even begins, if you feel as though your marriage is headed toward divorce. Get an idea of what your tax returns and monthly bills are, and begin preparations by setting aside some emergency cash to have through the separation. “And make it a priority to seek professional financial help. It’s most ideal to meet with a financial adviser before or at least during the divorce process rather than after the divorce is finalized,” according to USA Today.
2. Assess your assets and liabilities
If a go-between is needed to help with this part, consider enlisting the help of a financial adviser. Create a net-worth statement that identifies marital and individual assets, as well as the debt that is held by both of you. Debt includes any credit card balances, mortgages or lines of credit. Investopedia suggests freezing any home equity lines of credit, in addition to brokerage accounts. When you’re assessing your wealth, it’s also important to look at your anticipated income from dividend-paying stocks or any business or income that may come from a rental property or other joint venture.
3. Protect your credit standing
One of the first things you should do during the divorce process is separate your finances. Close joint bank and credit card accounts and open new accounts in your own name, advises Practical Money Skills. This can help you protect yourself from a spouse who may either be struggling financially or feeling vindictive. By closing the accounts and ensuring they’re fully paid off, you’re protecting your credit from being ruined by any debt that your spouse may decide to rack up. While you’re at it, check your credit report. MSN Money recommends reviewing your history to make sure your spouse hasn’t missed payment on any joint accounts, opened any credit cards in your name, or damaged your credit in any way.
4. Set up a new budget.
It’s time to figure out your income and expenses, as well as your spouse’s income and expenses, writes Money Smart. To do this, gather your utility bills; credit card bills; investments; property deeds, mortgage papers and home loan details; savings and transaction account statements; tax records; insurance policies; superannuation accounts; will and estate plans; and business documents. You need to review your finances as a whole in order to determine how much income is necessary for both of you to live on your own.
5. Be aware of short- and long-term effects
When you’re divvying up assets, keep an eye out for all of the short- and long-term effects the settlement may have. You can do this by projecting the impact of the settlement on your retirement, education and cash flow needs. Be sure to also revise who is the beneficiary of your retirement savings plans, insurance policies, along with any other assets, writes Investopedia.
6. Consider tax implications of a settlement
“The couple should also take into consideration the tax implications of the sale of any homes or property, as well as the tax implications of the payment and receipt of any alimony and child support,” according to Investopedia. Keep in mind: No gain or loss in income is recognized when assets are transferred between couples within one year after your divorce date. The transfer can occur within six years after the divorce, though, if a separation or divorce agreement instructs the parties to make the transfer.
7. When kids are involved, you need to evaluate their costs and ensure they’re financially protected
In order to keep a child’s lifestyle the same through a divorce, parents need to negotiate expenses and child support. Each state has guidelines for judges to start at when it comes to child support. That amount can be adjusted after the divorce based on a person’s income (raises or job losses). In order to get a sense of how much you spend on your kids, review 12 months of bank and credit card statements, according to Fox Business. Analyze what you’re spending on your kids for clothing, groceries, transportation and dining, in addition to their extracurricular activities.
It’s also important for the person who’s paying child support to have a life insurance policy and disability insurance. “The life insurance beneficiary should be the children or structure the policy such that the money is used to raise the children. Disability insurance will replace lost income if the person paying child support becomes disabled,” says Fox Business. Finally, remember to negotiate medical costs to determine which parent will pay out-of-pocket expenses and how you’ll pay and reimburse each other when needed.
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