Many issues and emotions grab your attention when you end your marriage. But you should come up with a financial plan to pay your expenses and secure your financial future after divorce.
First, know what assets you have and their value so you can negotiate a fair settlement. This may be complicated because you may be unaware of many assets that are held jointly. Begin by gathering documents such as financial statements, tax returns, wills, trusts, retirement account statements, insurance policies and property deeds.
Spouses may not know about debts the other spouse owe. To negotiate their payment, you need to locate any debt which you and your spouse may have to pay individually or jointly such as loans, credit cards, student loans and property liens.
During divorce, you also need access to cash. Along with legal costs, you must budget for expenses that arise during separation such as housing, transportation, childcare, utilities, and home maintenance.
A divorce also turns a two-income household into separate one-income households with the added responsibilities of covering household expenses and paying for children or other dependents. Decisions should address payment of daily expenses and whether it makes financial sense to keep large assets such as the family home because the mortgage and upkeep may be unaffordable.
Planning should also include financial future and retirement. Couples may need to separate 401(k) plans, IRAs, or other retirement assets. Distribution may have tax consequences, especially for spouses under 59½.
Tax consequences also apply to other issues. Beginning in 2019, spousal support was no longer included as adjusted gross income so the effective tax rate for recipients is lower. However, the payor can no longer deduct it.
You may also need to review life insurance, trusts and other assets that provided for your former spouse and dependents. Settlements should address how these kept or divided. Beneficiary information may need updated. Also, spouses could be eligible for their former spouse’s Social Security benefits under certain circumstances.
Settlements should also deal with heath care costs. These may be inequitable after divorce, especially for women for face higher costs. A spouse may lose coverage under their former spouse’s health care plan.
An attorney can assist with providing options on these issues. They can also help protect your rights.