Carefully Planning a Money-Smart Divorce
When your marriage breaks up, the last thing you feel like doing is crunching numbers. You’re hurt, perhaps angry, and possibly overwhelmed with anxiety, fear and despair. You’re focused on the past and present, not the future. But as many divorced couples learn the hard way, this is precisely the time you need to get a grip and pay close attention to your assets and your financial future, lest both slip away in the flood of emotion.
First and foremost, it’s a business deal. That means you’ve got to get rid of your emotion any way you need to, whether through therapy or going to a gym. Because your divorce should be based on one thing: your property settlement. It’s a matter of numbers, that’s all it is. At least 80 percent of money is about self-management, about emotions, and 20 percent is about quantifying and computing, the counting part is easy; it’s the emotional part that’s hard. Since money is a major cause of divorce, it’s safe to assume that splitting the financial sheets won’t be easy.
Pull your credit report before the divorce so that anything in dispute can be resolved before the divorce is final. The reports are the quickest and easiest way to get an overview of outstanding loan balances, mortgages and credit card debt that you and your spouse will eventually divvy up.
Open individual bank, credit card and brokerage accounts. You also need to do this before the breakup is official. It will be easier to get a credit card and bank account in your own name while you are still married and share joint assets and debt on credit cards, mortgages and loans. This is especially important for women who have never established credit in their own name. A divorce can take time. To avoid acquiring additional joint debt (or suddenly losing shared bank assets) during the legal process, close your joint credit card and bank accounts. You will, however, still be jointly responsible for paying off the balance of the closed accounts.
The more you remain connected to your ex-spouse financially, the more you are at risk. If possible, pay off joint credit card balances by check from your individual bank accounts or through balance transfers to your individual credit card accounts. In a property-settlement agreement, couples often split their debt. What will happen is, one person declares bankruptcy down the road and the credit card companies come after the other. You might be better off each borrowing in your own name and each paying off the credit cards so that you come out of the marriage without any joint debt.
Keep separate property separate. Assets you brought to the marriage separately (real estate, vehicles, an inheritance, gifts, money you acquired before marriage, etc.) are yours to take away from the marriage. But if you put any separate assets into a joint account, they may be considered joint property and will be divided depending on the property laws where you reside.
Traditionally, women tend to hold onto the family home at all cost. Unfortunately, it’s often an emotional decision that makes poor financial sense. Studies say that women will keep the house and give up the retirement money.
I recommend that they look seriously at selling that house, even though it’s hard. It’s an emotional tie that ends up strangling the woman. She ends up losing it anyway, and she has given up her retirement money. I ask women to just think a little bigger. Change those beneficiaries.Despite what your divorce decrees, if you don’t change the beneficiaries your ex could have an unexpected windfall in the event of your untimely demise. As long as you’re at it, this is a good time to review your various policies to make sure they fit with your new circumstances. And don’t forget to delete your ex-spouse from these documents and policies and change your marital status where applicable.
Reclaim your name. For some women, divorce adds another task: reclaiming your name. If you are reverting to your maiden name, you may be required to produce the divorce decree or document signed by your ex-husband that acknowledges your new name in order to obtain a new driver’s license, passport or other identification. Don’t forget to register your name change and other tax forms and with the Social Security Administration. Check your retirement.
Guard your health coverage. Sadly, divorce often forces one party to sacrifice health care coverage. Don’t let this happen to you
Most importantly, remember that living well is possible whatever your net worth or marital status.