Finances During a Divorce

Divorce is not only an emotional split, it’s also a financial one. It pays to know your financial rights and responsibilities before you divorce.

Divorce can be financially devastating, so there are things to keep in mind before you divorce. Don’t be left in the dark.

A Daily Finance article Heading for a Divorce? First, Get Your Finances in Order suggests you first get a copy of your credit report to get a clear picture of debts and liabilities that you and your spouse have incurred. You could be surprised.

“Your spouse may have created debts that you are legally liable for, even though you weren’t responsible for paying those debts during the marriage,” the article warns.

In another article: Divorce and Your Finances – The 7 Most Costly Mistakes, author William Donaldson, CFP®, CDFA advises divorcing couples to have a complete understanding of their finances before divorcing. That includes knowing the value of your assets, joint checking accounts, insurance policies, debt and credit ratings and retirement accounts.

“Too often, a divorcing individual accepts an unfair settlement and finds that a few years later he or she is experiencing serious financial challenges,” he writes.

You should also consider the tax implications of divorce he adds, “The effect of your settlement on various taxes can be very costly if not addressed thoroughly. Capital gains, income tax, and alimony are just a few of the areas that may be impacted.”

A post-divorce budget is crucial too in keeping your finances in order. This budget should reflect your new status and reflect the changes in your finances. Budgets can serve as a reality check.

“One of the most common mistakes made post-divorce is the failure to budget based on one’s new lifestyle. We see this happen most often when one spouse keeps the home for the sake of the children or perhaps due to an emotional attachment. Because of the high value of the home, there are few other assets awarded in the settlement. The expense of maintaining the home and the lack of liquid assets often results in a rapid depletion of cash, leaving no choice but to sell the home,” he writes.