Yahoo Finance 7 Best Money Moves To Make While Navigating a Divorce
Going through a divorce can be an emotionally difficult situation. And to make matters worse, it can also be a financially challenging one to navigate.
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In addition, divorce proceedings can be lengthy, and it can take months for a divorce to be finalized, sometimes leaving financial matters in a murky state.
Yet, some experts say that it doesn’t have to be that way, and that there are some money moves that can be helpful to alleviate an already often stressful situation.
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1. Assess Your Financial Situation
Being married often means having joint accounts, filing taxes together as well as a slew of other financially intertwined matters. In turn, experts recommend that assessing where you stand financially and taking stock of every financial aspect of your life is key.
“The most important thing for someone going into a divorce to do is to become knowledgeable about their own family finances,” Reid A. Aronson, partner at family and matrimonial law firm Aronson, Mayefsky and Sloan, told U.S News & World Report.
2. Think of Your Financial Life Post-Divorce and Make a New Budget
After a divorce, many things will financially change as spouses will no longer share money obligations. For instance, housing might become pricier, as the burden of a rent or a mortgage will rest solely on one person’s shoulders.
In turn, experts said that it’s crucial to start thinking about some upcoming lifestyle and financial changes as early as possible.
“Many of a family’s largest expenses, especially housing, are going to be much higher post-divorce. This means that for the vast majority of people, their lifestyle post-divorce is going to have to change because the family income cannot maintain two households at the exact same level that it maintained one household,” Aronson said.
As such, it’s also crucial to create a new budget based on the new income and the new or modified goals to work from.
“Include kids in this process if possible, and then create (and modify) the budget based on these new goals,” said debt and consumer finance expert Sean Fox, President of Debt Resolution at Achieve. “You will probably benefit from keeping a spending journal or log for a few weeks, seeing new spending patterns and being aware of exactly where every dollar goes.”
3. Make Changes and Update Important Documents
Another crucial aspect to take care of is making changes to several financial matters, such as changing beneficiaries and updating your will.
“During times of transition — especially divorce – it’s key for you to review all your estate planning documents and beneficiary designations to make sure the documents reflect your current wishes and heirs,” said Sharon Klein, president of family wealth, Eastern U.S. Region at Wilmington Trust.
According to Klein, while some planning might have to wait until the divorce decree is final, documents such as wills, powers of attorney, and health care directives, can and should generally be updated while divorce is pending so your soon-to-be ex-spouse inherits the minimum possible and is not able to make important financial and health care decisions for you.
4. Assess All Your Assets and Liabilities
As Justia explained, you should carefully assess and list all your assets and their respective proper documentation. These can include jewelry, real estate, cars and art, for instance.
What’s more, make sure you have all documents regarding your joined liabilities. These can include mortgages and loans.
During these assessments, many experts recommend not making any secret moves.
“Transparency by both parties reduces your legal fees and time in court. If you are trying to hide the sale of an asset or a bank account, your partner is probably doing the same,” said Robert Persichitte, CPA, CFP, CFE, affiliate professor at Metropolitan State University of Denver and financial planner at DeLAGify Financial. “In that scenario, the only ones who win are the lawyers and accountants you pay to unwind the obscured, hidden mess you created.”
Another factor to consider is that certain assets are not easily divided, such as physical property like a house, said Stephen Kates, CFP, principal finanicla analyst, Annuity.org.
“If a piece of property cannot be divided, then it may be necessary to decide what assets will be given up or received in exchange for one spouse to retain ownership,” said Kates. “Deciding what assets are most important to you before any negotiations or division will make this process easier.”
5. Check and Monitor your Credit Score
As Experian noted, while checking your credit score might not be top of the list when going through a divorce, it is still extremely important to do so. And while a divorce does not impact a score, there are some events that can happen during a divorce that might affect it.
For instance, if you don’t close joint accounts as soon as possible, you might be in for unpleasant surprises. In the same vein, if someone misses a bill payment due to mismanagement or miscommunication, it will negatively impact your credit.
“Everyone — whether divorced or not – needs to obtain and check their credit reports periodically,” said Achieve’s Fox. “But in the case of a divorce, it’s imperative to check much more often, at least while going through the divorce and for a few years after.”
6. Take Care of Any Debt
As Fox explained, you should take care of any tax debt and for instance, if there is Internal Revenue Service (IRS) debt, think about consulting a tax expert.
“Both people in the marriage bear responsibility to make sure that they don’t create a tax liability the other spouse is not aware of,” said Fox.
Then, make a plan for handling any existing debt, such as credit card debt on jointly held accounts and include this discussion in any work with attorneys.
Also, make sure you contact all creditors.
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“If you have any jointly held credit cards, gas cards, retail store cards, etc. – or other debts incurred during a marriage in community property states — keep in mind that there is shared liability — and thereby sharing of potential negative impacts on credit scores, added Fox.
7. Build or Beef up your Emergency Fund
An emergency fund should generally cover three to six months of living expenses, according to experts, and as your financial situation will change, having a safety net is wise to be prepared in case of unexpected events.
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