Separation and Divorce are an unfortunate circumstance in which to find oneself. Divorce is often one of the reasons people end up in financial hot water. But, with a little thought and contemplation you may avoid many of the unpleasantries often associated with this dilemma.
Proper preparation is key for successful meetings with your attorney or financial adviser. Make lists of all the issues to be discussed and questions that you have.
Don’t hide things. Everything that could be useful generally is. You don’t want the person that is representing you to have something sprung on them at the last minute. Not cool!
Be organized. Be the person who keeps good records including notes concerning important communications.
Establish Your Own Credit.
Close joint accounts. You don’t won’t to be held responsible for the reckless spending nor the delinquent payment record of a soon to be former spouse.
Open and maintain individual accounts. Be sensible when doing this. Systematically request credit limit increases.
Keep in mind that even if the separation agreement or divorce document says you aren’t responsible for payment it doesn’t count in the eyes of the creditor. Only until the account has been paid in full and closed or you are removed from all liability are you then “off the hook.” Otherwise, you are just as responsible as the day you joined the account.
Know Your Finances
Make copies of all important documents: tax returns, bank account statements, mortgage statements, mortgage notes, HUD-1s from existing properties (for basis), leases, utility bills, insurance statements and policies.
Know what you OWN. List assets and accounts: Real property, partnerships, companies, corporations, checking, savings, investment accounts, retirement and pension accounts.
Know what you OWE. List all of your current debts: Start with the ones that you pay on a regular basis. Now, consider those that you may not pay but that you may have some liability for their maintenance.
While it is imperative to know what you own and owe, it’s also important to understand what your spouse may own and owe individually. You must understand the difference between marital and non-marital property.
Get Financial Advice
Understand the consequences of certain financial moves and choices (selling a home) and the ensuing cost and tax problems that it might entail.
Alimony & child support. Alimony is deductible from the gross income of the payer spouse and is included in the gross income of the recipient spouse. Child support is a non-deductible expense and is not recognized as income. While you cannot claim these payments, you can claim your child as a dependent if you pay more than 50% of your child’s living expenses.
And don’t forget the recapture rule for real estate that has been depreciated. This is an IRS procedure for collecting income tax on a gain realized when the taxpayer disposes of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation.
Have a BUDGET. Plan for Your Future
Create an accurate picture of your current income and expenses. Be realistic.
Take into consideration inflation and its affect on housing, food, utilities and medical costs.
Don’t forget grocery bills, utilities, entertainment, insurance premiums and education costs for your children or yourself. Many will find that going back to school is desirable.
Maintain CREDIT SCORE
Get a copy of your current credit report with FICO scores. I can help you with that.
Know what’s there… don’t be surprised. There may be errors or misunderstandings. Now is the time to get it fixed. Don’t wait until there are timelines for performing contractual obligations i.e. settlement dates!
Don’t remove your name from the TITLE of anything until you are off the debt. Nothing!
If you are the major bread winner or counting on them then you might consider a term life insurance policy. This is especially important if you have minor children or will be counting on your former spouse for support.
Disability insurance is even more likely to be an issue. Statistically, you are more likely to become disabled than you are to die prematurely.
A common method is to be named the beneficiary of your former spouse’s policy. Should they pass during the time of the coverage you would then be awarded the payout. Another structure involves taking out a policy for yourself where the other spouse is paying for coverage.
Avoid EMOTIONAL Attachment
Reduce these… be realistic about affording anything you keep. Including the house.
And don’t spend $500 in attorney fees arguing over a $50 lamp.
Keep the Welfare of Your Minor Children in the Forefront
Sure, this whole episode is rough on you but, it’s probably just as tough if not more so for your kids. And they may not be able to voice their misgivings quite so easily.
By no means does this list purport to be complete. It’s a starting point for consideration only. It is NOT meant to be legal or professional advice and can not be construed to be such. No advice, just ideas and discussion.
It is an emotionally difficult time; no need to make it a financially arduous time as well.