What Price Divorce?
With the rate of divorce on the increase, more and more couples are learning the hard way what mistakes they should have avoided in their financial lives. To help understand some of the issues involved, THAT MONEY SHOW invited Gary Schatsky, a fee-only financial advisor, president of ObjectiveAdvice.com (http://www.objectiveadvice.com), and a board member of the National Association of Personal Financial Advisors, to tell us what we need to know when planning a separation or divorce. Specifically, Schatsky said, do the following:
Plan your finances
- Do you have cash to live on during and after your divorce? If you're working, this may not be a problem, but you should plan where your income will come from, and balance it with your expected monthly bills.
- Do you have debt in your name, or is it all joint debt? You don't want to be burdened by your spouse's bills during a costly divorce. Set up your own bank accounts before the separation and start paying your own bills.
- Be sure that you have a credit history in your own name before filing for divorce. Get a copy of your credit report and work toward improving your credit. You may need to borrow during or after the divorce. For information on obtaining your credit report, read our MakingChange article on credit..
Consider the Tax Implications
Very often, when property is split equally in a divorce settlement, it's not really equal. Different levels of tax must be paid on some items, and none at all on others. For instance, property settlements and child support are tax free, but the receiver of alimony must declare it as income, while the giver of the alimony may be able to deduct it. Additionally, IRA or retirement accounts are taxable when they're liquidated, while a cash settlement of the same value is not. A financial planner can help you make sure your equal settlement is really equal.
Change Beneficiaries
For wills, insurance policies, and retirement accounts, be sure your ex-spouse isn't still listed as the beneficiary after the divorce is finished, unless, of course, that's what you want.
Get Professional Help
When divorce cases drag on, the attorney fees, depositions, and other litigation costs can be overwhelming. In fact, divorce is now the fourth leading cause of bankruptcy in the United States. Seeking the best help in advance can make all the difference.
- A good financial planner can help you make decisions about budgeting during and after the divorce, and advise you on settlements and fair distribution of marital assets.
- Don't be afraid to interview several attorneys. Finding a lawyer who understands your situation and is able to help you achieve a fair settlement is crucial.
- Mediators perform a vital role in helping divorcing couples reach agreements on settling joint debts and dividing marital assets. This role may also extend to making decisions about children, assets held for children, and other complicating issues.
For more information on how you can achieve your financial goals, visit our archive.
