More On Tax Planningfrom The Advisor's Professional Library
- Cafeteria Plans The income tax treatment of cafeteria plans is key to their popularity. Learn how to maximize the tax benefits of these “flexible benefit plans”.
- IRAs: Eligibility The eligibility rules for contributing to traditional and Roth IRAs are complicated. Learn how to effectively use them in retirement plans.
Navigating the emotional shoals of divorce is never easy. Add in the problems of untangling shared finances and it gets that much tougher. A few simple tips can help you organize your finances before and after the dissolution of your marriage.
There’s a lot to think about beyond dividing the belongings. Who will make sure bills are paid before the divorce is final? Is there a plan in place for paying for college for your children? Have you made sure your retirement is funded?
If you are contemplating divorce you'll obviously hire an attorney to guide you through the legal land mines, but many forget that hiring a financial advisor to guide you through the financial land mines is also important. While these 10 critical tips can get you started down the right road, after the legal process has played out, one could be left with long-term financial problems if they don't get more detailed assistance. The Financial Planning Association has resources to help you through the wrenching divorce process.
AdvisorOne has complied the Top 10 Critical Financial Tips During Divorce:
1. Devise a New Budget
With your household income taking a hit, you need to sit down and make sure you can cover your monthly expenses. In addition to ensuring you live within your new means, it’s important to establish a cash emergency fund. Expenses for attorneys and other costs can mount. And don’t forget to include savings for retirement in any plan you devise.
2. Monitor Your Credit Report
Before the divorce is complete, monitor your credit rating to make sure you maintain a good rating. Remember that even debts normally paid by your spouse can reflect on your credit score.
3. Close Joint Accounts
Make sure that all joint credit cards, bank accounts and other shared accounts are closed, paid off or put in one person’s name or the other. Use your credit report to make sure you don’t forget any accounts. This will help protect your credit score from delinquent payments on the part of your former spouse.
4. Open Accounts in Your Own Name
After you close accounts that carry the names of both you and your spouse, you’ll want to establish credit on your own. Apply for credit cards and open bank accounts in your own name. Be sure to use a different bank than you used for the joint accounts.
5. Estimate Your Worth
Make a list of all the personal property you and your spouse have accrued. Estimate its worth. If you own a home, consult a real-estate agent to determine its market value. To further ease the divorce process, list the items that you “must” have in any settlement. As difficult as it might be, try to be fair.
6. Assess Liabilities
Once you have a list of your assets, you need to consider all your liabilities. That would include a mortgage and any other loans, credit card and other debts.
7. Update Beneficiaries
It might be easy to forget all the places your ex-spouse has been named as your beneficiary. Among the places to make a change are retirement accounts and insurance policies (don’t forget that policy you get as part of your employee benefits package). Remember to change your will and any other legal documents, such as a medical proxy.
8. Watch Those Taxes
Any divorce settlement can impact your tax situation. Make sure you are aware of how you will be affected so you don’t receive any April surprises from the IRS.
9. Insurance Needs
Besides health insurance, you’ll need to make sure other needs are met. Many times, one partner is more aware of the property, casualty, auto and other types of insurance carried by a family. It’s important you have enough insurance of all types to protect you and your children.
10. Settle If You Can
Divorce battles can be long, drawn-out affairs that can leave emotional scars on you and your children. If you can, agree to a division of property, alimony, child support and visitation rights without airing your grievances in court. Besides the emotional savings, you’ll spend a lot less money on the split.
More Top 10 lists from AdvisorOne: