Divorce Preparation for Women: 11 Financial Aspects of Divorce to Keep in Mind
It’s time to talk about the dreaded D-word: Divorce. Divorce can be emotionally earth-shattering, or in some cases, liberating. However the cards fall, you may find yourself landing in a financially devastating position. Divorce often means financial haggling punctuated with a drop in the standard of living you have become accustomed to, so you’ll want to be prepared. As a woman, you need to take the time to educate yourself and be aware of all possible consequences that could arise.
If the end is near and divorce appears inevitable, it’s imperative that you try to protect yourself financially, so you’re not left wading alone through a puddle of mud. As you begin your financial preparation, it can be easy to get lost in the details, but focusing on the big picture should help keep you grounded. Divorce isn’t easy, but I encourage you to stay true to yourself, hold onto your values and keep your integrity. Doing so will help strengthen your confidence as you head into the next chapter of your life. Divorce preparation for women can be confusing and stressful, so knowing what to expect ahead of time will help make the divorce process a smoother experience.
Dividing marital assets can be a big headache; a real migraine that nobody wants. When separating assets, it’s important to stay strong and be fair throughout the process.
To begin, you need to know what your financial assets are currently and how they might be affected in the future. Take the time to create an inventory of everything; names, account numbers, addresses and phone numbers for all assets and debts. This may sound time-consuming, but you’ll be thankful you did it in the end. To keep things in a clear and structured format, use the Financial and Household Organizer at www.lorriallisoncraig.com.
Although state laws vary, income, property, or debt accumulated during the marriage is generally divided equally between spouses upon divorce. Yes, the good and the bad. State law is going to play a part in the negotiation process when determining your property settlement (dividing of assets). You will probably have to analyze various settlement options and may need to seek professional assistance in doing so. The consequences of not understanding and determining asset division before things are finalized can be financially debilitating.
It is absolutely critical to create a pre- and post-divorce budget as well as develop a strategy to provide for your needs. You’ll need to do your homework, taking your various options into consideration. Frequently, the expense of maintaining the home, lack of liquid assets and cash reserves results in a cash flow crisis. The budgeting process will help to determine the amount of temporary maintenance and child support you will realistically need or have to pay after the divorce. If you have the opportunity, make sure that the house and cars have been maintained properly so as to not trigger an unexpected expense later. Oh look, the furnace is out and the car needs new brakes, now what? After the divorce dust settles, you should establish a new financial plan to keep you on track and moving in the right direction towards financial stability.
You may be entitled to a share of your spouse’s retirement plan accumulated during your marriage. That also means that your ex may be entitled to a share of yours. A split of retirement funds like these requires a Qualified Domestic Relations Order (QDRO) issued by the court. A transfer from one person’s retirement account needs to be transferred directly to another retirement account in order to avoid a mandatory tax withholding. You don’t want to get burned on that one!
Impact of Taxes
You need to consider the impact of taxes throughout your divorce preparation. It is important to make sure all income and property taxes have been paid. When dividing property, sometimes two pieces have the same value but the cost basis (purchase price plus adjustments) may be significantly different. If a property needs to be sold, capital gains (profits) may be triggered and could be unequal on the different pieces of property. Plus, you could be in different tax brackets which would mean one of you would have to pay higher taxes. The capital gains tax could make it a very uneven division.
Record a video of your possessions. Yes, an actual video. If you’re the one that has decided to end your marriage, removing your personal property (not theirs), particularly that of sentimental value, and taking it to a safe location before informing your spouse that you will be seeking a divorce is usually a better option than trying to get it from them afterward. Hey, that’s mine! You may have to safeguard your assets by obtaining a protective order. Not fun, but it could be a necessary measure in an emergency. If your spouse has hidden or spent an asset, you may be eligible for some sort of remedy by the court, so having clear documentation of your belongings is essential.
In particularly bitter divorces, there can be the issue of hidden assets. If you suspect this, it requires professional help. Find a forensic tax professional and have them review past tax returns to look for inconsistencies. This includes individual, joint, business, corporate and partnership returns. A common trick is to put a “friend” on the payroll who agrees to give back the money paid to your ex after the divorce. Sounds sneaky, but it happens. Review your accounts for purchases you may not know about, such as investment property or vacation homes. They may reveal unusual deposits or withdrawals or a pattern. Brokerage statements can also be revealing. New accounts in the name of the children with the ex as the custodian may have the intent of hiding assets.
Protecting Your Credit
You should get a copy of your credit report to find out if there is anything surprising. Missed payments will severely affect your credit in the future. You want to be sure payments are made on time. There could even be joint or individual accounts with your name on them that you were not aware of. Talk about violation of trust!
You may want to freeze or close joint credit accounts, or inquire whether they can be converted to individual accounts in the name of the person who will ultimately be responsible for the debt. In addition to closing joint debts when possible and setting up your own bank account, it’s a good idea to establish credit in your own name if you don’t have any/much prior to divorcing (especially if your household income is going to go down). If you have been experiencing difficulty making payments, you should contact each company to see if they will lower payments and/or interest. You might be pleasantly surprised by how many are willing to work with you. And the ones that won’t? That’s okay, at least you tried! Protecting your credit is vital. It’s demoralizing trying to start a new life with bad credit.
Set up your own bank account, particularly if your paycheck is automatically deposited. This will prevent a surprise withdrawal. As mentioned earlier, you may take your half (not your ex’s) out of your joint account. You may also want to take your name off of joint accounts, because you can be held liable if your spouse over-draws that account.
Spousal support and child support may be temporary, if you get any at all. If you have sufficient income, consider investing this stream of alternate income for college education, or building a retirement fund. More often than not, custody is shared equally between parents which impacts who pays support to who and how much. Be prepared, you may have to pay your ex support because the custody is shared equally and you earn more than your ex. You might negotiate for funds to pay for job-training-skills that will make you more marketable.
Another important thing to keep in mind is that there’s a new tax law taking place beginning January 1, 2018. The law states that alimony payments will no longer be deductible to the spouse who pays them, thus creating the potential for even more difficult and acrimonious divorce settlements. The exemptions allowed for dependent children will be going away in 2018, so that will be a non-issue in the future.
You may be entitled to continued health insurance from your ex’s employer for up to 36 months (at your own expense) under a provision of COBRA, so you’ll want to look into this to make sure you’re covered. COBRA insurance can be expensive, but you’ll want to avoid gaps in coverage as well as being prepared for any medical expenses that could arise post-divorce.
As part of your negotiations, you should consider having your ex carry life insurance to ensure child support or spousal support is covered in the event of your ex’s death. You’ll want to be the owner and beneficiary of the life insurance policy. As owner, you would be notified of any changes, such as non-payment.
Discussing divorce is not a lighthearted topic and this is a lot of information to think about, but the financial aspect of ending a marriage is one of the most important decisions you will have to make. Being proactive can help make the process more fair and free from drama, setting you on a positive path towards the bright future ahead!