By FPA member Cathie Restivo, CFP®
Last Updated: January 30, 2012
While taking care of your emotional health during a divorce is of the utmost importance, preparing yourself financially is one step that you can take that will help to reduce stress and strain now and for the long-term. Below is a checklist to which you can refer as you plan for a new financial future. Consider the steps that apply to your situation to pave a better life for yourself.
- Make copies of important documents: This includes tax returns, bank statements, employment contracts, brokerage accounts, real estate deeds, loans, marriage license, legal contracts, credit card statements, and retirement accounts. Include phone numbers, addresses and names of contacts at banks, loan offices, brokerage firms, etc. This will provide evidence for account balances should any money goes missing.
- Talk to a tax adviser: Since divorce is looming, discuss whether to file a joint or married filing separately return. Married filing separately allows a spouse to limit liability for any taxes their soon-to-be ex-spouse may owe. A tax specialist can advise which scenario is best for you.
- Obtain your own legal counsel: Don’t assume that the attorney your spouse secures will have your best interests in mind. Negotiate the fees, and make sure the individual is experienced in working with clients who are the lowest or highest wage earner, whichever you are. Money-Saving Tip: Using a court-approved divorce mediator instead of an attorney can save you a lot of money when it’s an amicable split and there aren’t a lot of assets involved.
- Stash some cash: Once divorce proceedings begin, you may not have full access to your money. Or, as we’ve seen in the news lately, your spouse could empty the bank accounts. Make sure you have some available cash to carry you through until the divorce is final.
- Protect your credit: Contact all three credit bureaus (Experian, Equifax and TransUnion) to place a “credit alert” on your credit reports in the unlikely event that your ex commits identity theft. Obtain a free copy of your credit report from any of the three agencies at AnnualCreditReport.com.
- Remove your name: Remove your name from all joint accounts, including all credit cards. If your spouse retains the car or home after the divorce, make sure your name is removed from the loan or mortgage. If you signed the application, then removing your name will not be enough. Make sure the accounts are closed, refinanced, or paid off before the divorce is final. If your ex defaults on a loan or runs up high credit card bills and your name is still on the documents, the lenders can come after you for payment. Plus, any negative credit behavior can harm your FICO score for up to 10 years.
- Consult a CDFA: A Certified Divorce Financial Analyst specializes in helping individuals make smart financial decisions related to long-term financial needs, and can be an advocate for either the low or high wage earner. This individual assists the attorney; he or she should not replace your legal counsel.
- Explore health care coverage: Find out about continuing health insurance coverage if you are included in your spouse’s plan. Money-Saving Tip: If your spouse is covered on your plan at work, ending that coverage will most likely save you money, unless you are required by the separation/divorce agreement to provide coverage. Check this out before you remove them.
- Change all beneficiaries: This includes anyone named in your will, insurance policy, employer retirement plan, bank accounts, etc.
- Establish your own credit: Open a credit card — a general card or possibly a card at one of your favorite stores, or both — in your own name prior to the divorce.
- Protect the cash value of life insurance: Some life insurance policies build up a value that can be withdrawn (“cashed out”) similar to an investment or savings account. Be sure to remove the name of your spouse so that he/she cannot drain those funds.
- Inventory your assets: Take pictures and obtain receipts for all assets that will be divided between the parties. Also, learn what custodial requirements are needed to make the appropriate transfers.
- Pick the right type: Laws vary from state to state, so talk with a legal adviser to select the right type of divorce for you. Your options may include the following: absolute, uncontested, no-fault, simplified, or limited divorce. You might also hear terms like pro se, collaborative, or cooperative when referring to the types of divorce, so be sure to talk with an expert.
- Take a break: Family conflict can elicit roller coaster emotions, so don’t make an important decision when you feel overwhelmed, depressed or upset. Whether your getaway break is a few hours, days, or even a trial separation, it’s good to stop, relax, and take some time to remember all of the good times you’ve had.
Divorce is a step that should never be taken lightly. There are also some major decisions that need to be made when children or blended families are involved. While this checklist is not intended to be a comprehensive guide on all of the steps to take, I hope it will help you begin planning for a secure financial future.
FPA member Cathie Restivo, CFP®, is the Regional Client Relationship Director/Certified Instructor at LFE Institute, Inc.