Divorces are usually messy by nature, but when money is involved, things can get ugly pretty fast.
Because of the emotional and psychological pain involved, most people just want the process of separating from their one-time partners over with as fast as possible. In such a situation, it can be hard to think about your future finances, and the impact a divorce would have on them.
Facing up to your post-divorce finances sooner is crucial.
Long before spousal or child support is awarded or your post-divorce budget is in place, you’ll need to prepare your finances for the work ahead. It is important to protect yourself from the financial repercussions to the best of your ability.
Because each divorce is unique, basing your financial decisions on using another person's situation or blanket generalizations could hurt you. You have to access your situation thoroughly to make the right decisions.
Here are some tips which you can use to point you in the right direction.
Money is always a contentious issue in divorce. If not properly detailed, you could lose some of your hard-earned income or assets.
When the line has been crossed, and you are certain that your marriage is headed for a divorce, organizing all of your financial records is a good idea. It saves you time and money in legal proceedings.
Financial records you should prepare include:
It is also important to prepare records of all your marital assets and marital liabilities. These are assets and liabilities that were acquired during the marriage. These assets and debts could be acquired jointly or by one partner.
For example, any property that you or your spouse acquired during the marriage. It is equally important to mention that debts acquired during your marriage by you or your spouse as this would count towards total marital liabilities.
Non-marital assets, as opposed to marital assets, are any possessions you accumulated prior to marriage. The property you owned before getting married will probably still be your property, though the definition may be different in some states.
Likewise, you'll probably still be responsible for paying off any debts you had before getting married.
There are also properties acquired during your marriage that qualify as non-marital assets. These include gifts from third parties and any inheritances you alone have received. For instance, you would still own your substantial savings account if your parents left you one.
Legal costs associated with concluding a divorce can be rather high.
Take some time to research local legal fees on a per-case basis. Start setting money aside whenever you have an idea of what your legal costs will be.
If you feel you'll need one to help you through the process, you can also speak with many divorce attorneys and compare their fees (and reviews). Getting financially ready for the divorce process is one of the most difficult phases.
Although it may seem tempting, it is advisable to postpone procedures like changing your life insurance beneficiaries. All of your significant financial changes will be determined by the divorce proceedings.
The legal proceedings will take care of any beneficiary changes, will changes, retirement account changes, and other similar issues. The judge might award your spouse if you make these modifications before filing for divorce.
Making such changes without the court's approval after you've already filed could result in criminal contempt penalties. If you're unsure about a certain action, consult your lawyer.
In situations where each party is transparent, there is a free exchange of information. But you have to prepare for resistance. A situation may arise where your spouse will refuse to release documents unless legally forced to do so.
By compiling the necessary documentation before submitting it, you may be able to reduce the risk of conflict. Ask your lawyer about court-ordered remedies if your partner resists you at every turn.
You should open a separate account which you can use as an emergency fund, legal money, or rainy-day fund. This will help you deal with any expenses which you may not have anticipated.
It is reassuring to know that you have money on hand to deal with any unexpected situation, especially if the majority of your assets are solely held in the name of one of your spouses.
Consider the result you want from the divorce process before speaking to an attorney. If you could predict the future, how would life be in five or ten years? Are you more concerned with feeling secure or with keeping your current way of life?
Those decisions will be helpful in driving the specific assets you go after in your negotiation. Often people make the mistake of fighting for a property they can't maintain or manage when faced with taxes and maintenance costs. Investment accounts could also be squandered through poor financial decisions.
Here are some questions you can ask yourself as you financially prepare for a divorce
Going through a divorce is a painful process, which leaves a heavy emotional toll, as well as a financial one.
When it comes to your finances, preparing adequately can soften the blows to your pocket, or ensure you come out of the divorce process feeling cheated. Proper documentation of all assets and liabilities, and finance-related matters ensures that you get what's rightfully yours.
While you have to prepare for the extra expenses that come with divorce proceedings such as getting a lawyer or hiring an account, it is important to also have a long-term view and its outcome for your finances.
Having a 5 or 10-year plan allows you to put things in perspective and take better decisions regarding your financial future post-divorce.
