Anyone who has gone through a divorce can tell you what an emotional drain the whole process can be. You are not in the ideal state of mind to be making important financial decisions that will have both an immediate and lasting impact on your financial future.
Here are some of the most common money mistakes that are made while getting a divorce.
Copy Your Records. Before your divorce, make you sure to make copies of all your financial records. Put them away in a safe place away from your spouse. These documents should include, but are not limited to, personal and business tax returns (for the last three years), bank and brokerage statements, pay stubs, life insurance information, credit cards, receipts of larger purchases, 401k and pension statements, list of stock options and other benefits. Copy anything that you think you might want to refer to down the road. If you can make digital copies and save them on a thumb drive, even better. Obtaining copies of records through the discovery process while in the midst of a divorce is more difficult and can be expensive.
Get Copies of Credit Applications. Obtain copies of any credit or mortgage refinance application, especially those completed in the 12 months prior to separation. Those applying for loans tend to list all possible assets and income in order to qualify for credit. As a result, this can be a good source of asset discovery when one spouse believes that the other is withholding information on marital property.
Don’t Let Your Attorney Do The Talking for You. If you and your spouse are able to have constructive discussions together, you’ll both save money. If you both have your attorneys do the talking for you, the meter is running at $500-plus per hour and it can add up fast. Get over your anger and talk about what can work for the two of you. Hopefully, there are some win-win solutions out there.
Follow The 5 D’s For Alimony Deductibility. If you want deductibility for spousal support that you pay, it must be paid in dollars, under decree or written agreement, and cease upon your ex-spouse’s death. After the divorce you must keep your distance (live separately form your ex), and payments cannot be designated as non-taxable child support. The recipient spouse will pay taxes on the marital support received.
Joint Debt. Any joint credit cards, mortgages, or credit lines remain the responsibility of those who signed the application, regardless of what the divorce decree says. If your ex-spouse is late or defaults on a payment, YOU will responsible and it will impact your credit rating. Refinance any mortgage that was obtained in both names, cancel and credit cards or lines of credit that were obtained or incurred during the marriage.
Understand Your Social Security Benefits. If you have been married for 10 years or more, you are eligible for 50% of your ex-spouse’s benefit or 100% of your own accrued benefit, whichever is larger. This does not impact your ex’s benefit and it is not a negotiation point in divorce.
Review and Make Appropriate Changes to Your Beneficiary Information. After the divorce is over, be sure to change the beneficiary information on your 401k, IRA’s, life insurance. People often change the titles on these accounts, but forget to change the beneficiaries. If you’re making your minor children your beneficiary, be sure to select a custodian for these assets.
