Preparing for Financial Implications of Divorce
June 5, 2017
Money can cause a lot of friction in relationships and is often cited as one of the leading causes of divorce. But your financial problems won’t always end after your marriage does.
You may have to pay child support or alimony, and even if you and your partner both work, you’ll go through a reduction of household income once you’re on your own. It’s important to make a plan for your finances after divorce so you can be financially prepared to live on your own. Here are some areas you should address as you navigate your divorce.
Create a New Household Budget
Every household should have a monthly budget, which accounts for things such as housing, food, utilities, savings and even a little fun if you have enough left over. Your income will likely shift with your divorce, so you’ll need to create a new budget to reflect your new life. It should include contributions toward alimony and child support, as well as any bills that your former spouse handled independently.
You should also make agreements with your ex on other items to allow you to plan ahead, such as:
- Who gets your vehicles?
- If you have kids, who will pay for school lunches, field trips, sports fees and activities?
- If you have pets, who will care for them?
Even small expenses can add up if you’re not prepared for them. Before your divorce, take time to draft a new budget by using our budgeting worksheet, which will take you through each possible expense, ensuring you don’t leave anything out.
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Talk to a Financial Advisor
Perhaps you’d already seen a financial advisor before you began divorce proceedings, or maybe it’s still on your long list of to-dos. You should contact one on your own to ensure your wealth has been divided evenly, including any savings and investments. A third party can be invaluable to find things you may have overlooked during this physically and emotionally exhausting time.
Get Your Financial Documents in Order
Divorce requires a lot of documentation. You will need to have easy access to a number of things, including:
- Three years of income tax statements
- Mortgage information
- Pay stubs
- Retirement plan information
- Credit card statements
- Bank statements
- Insurance information
- Financial documents from prior divorces, if you’ve had any
You may even be asked to provide more than this. Start a file that includes two copies of each document listed above – one for yourself and one for the legal proceedings. You will want to keep track of what you have submitted so you can refer back to it if you need to.
Create Your Own Financial Accounts
You may have had joint accounts with your spouse when you were married, but you won’t want to keep using those once you begin your proceedings. Instead, set up new accounts and get your paycheck and any other income funneled directly into those checking or savings accounts immediately.
Even if you’re not sure how much you can save right now, you should start a savings account and try to put away a few dollars each month for anything unexpected.
Update Your Beneficiaries
Many people have their spouse listed as a beneficiary on a host of accounts, from insurance to retirement. Don’t forget about changing these things. Make a list of all the accounts your spouse could be named on and update them with new beneficiaries.
This includes your life insurance policies at work, for instance, which may be employer paid but still list your spouse as the beneficiary.
Get Your Assets Retitled
If you jointly owned things such as a car or house with your spouse, you will need to get them retitled in just your name. To retitle a car in Pennsylvania, you will need to take the current title to a PennDOT location and pay a fee. For a home, you will need to file paperwork with their county’s Recorder of Deeds. If you have joint loans on a car or home, you may need to go through refinancing in order to get the loan in just your name. The name(s) on a loan can also impact whose name a car or home can be registered in, so check with your financial institution about the steps you need to take to remove your former spouse if you’re keeping responsibility for, and ownership of, a formerly joint asset.
Revisit Your Tax Information
You may need to adjust your withholding for taxes based on your new marital status. Schedule an appointment with your HR department and a tax specialist so you don’t get an unwelcome surprise during tax season. If you are self-employed, you may need to recalculate how much you pay in quarterly taxes based on your income level. You could also be in a different tax bracket if your spouse earned a salary, which means you could owe less in quarterly taxes.
Start Your Financial Checklist for Divorce Today
Take this time to get your financial life organized, which will help you start fresh again. Many of these items only take a few minutes, but will protect your personal finances for years to come.
Find more money management tips and resources on our WalletWorks page.