Few of us get married thinking it will end in divorce. In fact, most of us expect to remain married for life. Unfortunately though, there are times when it doesn’t work out and divorce becomes the most viable option.
The emotional aspects of divorce are well-known, and there are a number of relationship issues that need to be worked through, especially if children are involved. What isn’t planned for, in many cases, is the financial toll a divorce can take.
Nicole Mayer, with the wealth management firm RPG Life Transition Specialists, recognizes that divorce can take a very serious toll on your finances. As you get ready to navigate a divorce, here are 5 financial issues you need to tackle to make it as smooth as possible.
1. Be Realistic About Up-Front Costs
“When you factor in lawyers, tax advisors, and time off work, the cost of divorce is greater than it may appear at the outset,” says Mayer.
She says that most divorces cost at least $20,000, and can become more expensive the more assets you own or children that are involved.
You may initially think that forcing a divorce through the court is the way to go, but you can save money by considering mediation. Mayer says mediation can reduce the cost by quite a bit, and it can also mean less acrimony.
2. Find Out What You Need Now
Focus on what’s going to help you survive financially. There are cases when divorce will devastate your savings and future financial goals, and you’ll have to rebuild.
However, you can protect yourself to some degree when you prioritize. “If you’re concerned about making ends meet during and after the divorce, that should inform your negotiation strategy,” says Mayer.
She suggests focusing on more liquid assets, like stocks and bonds, rather than trying to access retirement accounts. You can build your own retirement moving forward, and wrangling over access to long-term assets can reduce your ability to manage it right now.
3. Get to Know the Tax Situation
You should be aware that what you’ve done in the past with your joint tax return, and how that will effect you moving forward. Realize that you both can’t claim the same dependents, and you’ll have to figure out how that will work.
You should also realize that tax benefits accrued during marriage are considered negotiable in the divorce settlement.
And although you may be in the process of divorce right now, in the eyes of the IRS you are still married until the paperwork is final. So you may have to file jointly one last time until everything is finalized.
4. Change Your Beneficiary Information
One of the most neglected financial steps after a divorce is the beneficiary information. Many divorcees forget to change the beneficiaries on their accounts and insurance policies.
It’s important to realize that your listed beneficiary trumps what’s in your will every time. So, even if you make a new will, you need to change your beneficiary information.
Mayer also points out that you might need to change your child’s financial guardian if your beneficiary is a minor.
5. Make a Plan for the Debt
Joint debt is shared debt, which means you are both responsible for it. “Regardless of what settlement terms you secure, if one spouse does not pay ad debt you both incurred as agreed, the other is responsible,” she says.
In order to negate some of the risk, have your name removed from accounts that are your ex’s responsibility, or insist that your ex refinance the debt in his or her name only. In some cases it’s impossible, so you’ll just have to stay on top of the debt payments.
No matter your situation, make it a point to consider the financial implications. Talk with a financial professional who can guide you through this tough time.
This is someone separate from your divorce attorney, as they will be looking at helping you with other emotional and practical things. It’s not an easy time to think about it, but you’ll be better off in the end.