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For
both spouses, but especially for women,
divorce can be difficult to deal with
not just emotionally but financially.
The best way to handle the financial
impact is to think of divorce as
starting over and to do your best to get
your finances in order before you even
sign a divorce agreement.
Check your credit.
Check your credit report before divorce
proceedings begin and after you have
negotiated a divorce decree to ensure
that your spouse has done nothing to
affect your credit.
You can check your credit by contacting
any or all of the three major credit
bureaus and asking for a credit report:
Equifax (www.equifax.com
or 1-800-685-1111); Experian (www.experian.com
or 1-888-397-3742) and Trans Union (www.tuc.com
or 1-800-888-4213). Credit reports are
available for free or for a nominal
charge.
Change your records.
A first step when starting over is to
change all of your financial records,
including your will. Notify your spouse
in writing about your intentions, but
take your spouse’s name off your bank
accounts, charge cards, investments,
insurance policies, retirement accounts
and other records.
Be especially careful about balances on
joint credit cards. A divorce decree may
make one spouse responsible for paying
off balances, but if the spouse fails to
make the payments, creditors may try to
collect the money from the other spouse.
Creditors are not parties to the divorce
decree, so failure to pay off debt could
affect your credit rating, even if your
former spouse was supposed to make the
payments.
Check your taxes.
Consider the tax implications of your
divorce settlement. If you receive
alimony payments, the payments will be
tax deductible to your spouse and
taxable as income for you. Talk to your
tax advisor.
Consider retirement
benefits.
If your spouse has a retirement plan,
you may be entitled to a share of the
assets. The court may issue a Qualified
Domestic Relationship Order (QDRO) on
your behalf, which prevents your spouse
from assigning retirement plans assets
and which creates your right to receive
retirement benefits under the plan. The
QDRO will allow you to transfer money
from the retirement plan into an IRA
without paying the usual 10% tax penalty
for withdrawing funds.
Social Security assets should also be
considered carefully. If your spouse has
worked and if you were married for at
least 10 years, you may be entitled to
either half of your spouse’s Social
Security payments or your own, whichever
is higher. You should inquire with the
Social Security office to understand
your options.
Consider health insurance.
Were you covered by your spouse’s plan?
How will you and your children be
covered after the divorce?
Know your partner’s assets.
Property is typically divided by
“equitable distribution,” which isn’t
always “equitable.” Assets owned by
either spouse before the marriage
generally return to the spouse, while
assets accumulated during marriage are
generally divided equally. Inheritances,
gifts and property that are titled to
one spouse or the other typically are
not divided equally. If your spouse has
property in his or her name, you may not
be entitled to receive a share of it.
Know your partner’s assets,
and know how much you will need to
support yourself and your children.
Be practical.
To prevent a costly, contested divorce,
couples need to put their emotions aside
and be practical. Each spouse should
define the two or three issues that are
most important to them and be prepared
to make concessions on issues that are
not as important. Arguing over minor
issues can be counterproductive and, in
the presence of attorneys, expensive. A
long, drawn-out battle over distribution
of assets can result in more of your
assets going to pay attorney’s fees.
If you and your spouse are able to
approach divorce objectively, consider
using a mediator, who will typically
help you settle more quickly and at a
lower cost.
Know if you can afford your home.
Ownership of the family house is
typically one of the most hotly
contested issues, but it is not always
in a divorcing spouse’s financial best
interest to gain possession of the
house. The spouse who gains possession
of the house may be unable to keep up
mortgage payments and upkeep, and could
end up losing the home.
Keep a budget.
While the two-income family has become
the norm rather than the exception, one
spouse usually has a higher-paying job
than the other. The wife, more often
than not, earns less, but typically
still raises the children. Child support
payments help, but typically do not
completely replace lost income.
Given the cost of negotiating the
divorce settlement and the need to
replace one household with two, both
spouses may need to adjust their
lifestyles for some time after a
divorce. After a settlement is reached,
both divorced spouses should assess
their overall income, establish
short-term and long-term goals, and set
a budget accordingly.
Become familiar with bill paying.
It is typical in most marriages for one
spouse to pay all of the bills. Before
the divorce, both spouses should prepare
for their financial independence by
becoming familiar with family assets and
bill-paying procedures.
Will Smith can be reached at the Mid
Atlantic Agency in Raleigh. |
