Divorce is hard. It uproots your life, your routine, your family, and your finances. But divorce doesn't have to be financially devastating. If you plan, you can come out the other side successfully. Consider these eight steps to protect yourself financially during and after your divorce.
Enter into a Separation Agreement
Decide up front who will pay the bills, temporary child custody and visitation plans, and any financial support. A separation agreement is a legally binding document, so you want to make sure that you carefully consider any financial arrangements before you sign.
Will the two of you split the mortgage payments until the final disposition of your property? Will one of you have primary custody of the kids? What kind of support will the children need? It's also a good idea to consult your divorce attorney to ensure that you've considered all of your needs.
Separate Your Debt
If you have joint credit card accounts, you are still responsible for any debts that your spouse accrues on a card. If you have the money to pay off joint accounts, do so and then close the account. If you can't pay them off, consider dividing up the debt and transferring to separately held credit cards. Always cancel joint credit accounts once you pay them off.
Monitor Your Credit
If you and your spouse co-mingled financial accounts, your credit affects theirs and vice versa. Even couples with the best of intentions can accidentally harm a partner's credit by paying bills late or missing a payment. In the worst-case scenario, your partner has unique access to your sensitive financial information, and you want to be sure that you monitor your credit activity while they do.
Establish Separate Accounts
If you have joint bank accounts, open a new one on your own. Split your jointly held accounts down the middle and transfer your balances to separately held accounts. You will need to ensure that you transfer any direct deposits or withdrawals to your new account.
Once you are divorced, ensure that you change the beneficiary of your life insurance or retirement accounts. If you have children, you may want to consider setting up a trust as the recipient of the funds until they are old enough to receive them legally and mature enough to handle finances.
Maintain Control of Assets
If you can't agree as a couple, a court will split most of your assets down the middle. There are exceptions for pre-marital assets and inheritances, however. Regardless of how you think the court will split your assets, don't let your ex-partner have complete control over your financial or other assets. Even if your ex-partner handled all of the finances during your marriage, you need to stay informed to protect yourself. Don't let someone you trust take advantage of you or drain your resources during a drawn-out divorce process.
Monitor Your Cash Flow
Sit down and determine your expenses for the month and the year and where your money goes. You need to plan what you'll need to survive financially on your own, pay your bills, and support your children. Make a list of the income you'll have after the divorce and then a list of expenses, including necessary and discretionary expenses. You will feel much more in control once you have a financial plan for life after divorce.
Plan for Taxes
Even if you divorce, Uncle Sam wants to be paid. So, think about the tax implications of your divorce settlement. Alimony is no longer tax-deductible as of 2019, so if either of you receives spousal support, alimony may decrease as a result. If one of you takes the retirement accounts and the other your residence, you may have differing tax outcomes. So talk to your accountant and make sure you prepare for the next April 15th.
Figure Out What is Most Important to You
Finally, you should think about what is most important to you financially. Do you want college funds for the kids? Or would you rather stay in the home you owned together? Do you need a cushion so you can go back to school? Consider ranking your wants and needs and focus on getting the things you want the most. Almost no one will get everything in a divorce unless your spouse feels exceptionally generous, so set your priorities and stick to them.
Divorce will always be difficult, but it doesn't have to be devastating. If you consult your attorney and make a plan, you can ensure that you protect yourself financially during and after your divorce. If you are considering divorce or you're already in the thick of it, the attorneys at Caulder and Valentine can help. If you're in the Shelby or Gastonia areas of North Carolina, give us a call. We can help you prepare and help you gain peace of mind.