The only thing worse than a bad marriage is a bad divorce. Unfortunately, many people going through divorce torpedo their future financial well-being. Don’t let that happen to you. Here are ten things you can do to keep from screwing up your divorce.
1. Get professional help. It may appear cheaper to settle your divorce without attorneys, but unless your situation is simple, do-it-yourself divorce can be expensive in the long run if you don’t get what you deserve or involved in legal battles over what your marital settlement says. I advocate taking a peaceful route to settlement whenever possible, but at the very least you should use a mediator to help you negotiate a settlement and your therapist to help separate economics from emotions. If you need more assistance to reach settlement, a collaborative or cooperative divorce team model may work for you. Before you sign, be sure your final settlement is reviewed by an attorney experienced in family law.
2. Get your share. Divorce is an uphill battle, but don’t give up too soon–you are entitled to half of everything you acquired during marriage. It may be tempting to give in to get it over, but remember – it’s your financial future at stake. Be clear on your position on two or three big issues, then be prepared to make concessions on the issues you care less about.
3. Insure your future. If you are receiving child support or alimony, it will end when your ex-spouse dies or is unable to work, so you need life and disability insurance as protection. If your children live with your ex, you may need life insurance on her to provide funds to help care for the children if she dies.
4. Terminate joint debt. Even if your spouse agrees to make all the debt payments, the credit card company can collect from you if you signed the application. Axe joint card accounts, and re-execute or refinance mortgages so that only the spouse responsible for making the payment is on the hook for the debt.
5. Consider taxes on support. If you receive alimony, set aside a portion of the money you receive each month so that you can pay quarterly estimated income tax payments. As an alternative, ask your employer to increase your withholding to avoid paying quarterly. If you are the one paying support, increase your paycheck by increasing the exemptions you claim at work.
6. Transfer retirement assets. If you are receiving a portion of your spouse’s IRA or other retirement account as part of the divorce settlement, effect the transfer as soon as possible. For IRAs, contact the IRA custodian to find out what paperwork they require. All retirement plans other than IRAs require a Qualified Domestic Relations Order to make the transfer. The QDRO is best drafted by a skilled attorney or actuary. Delay in drawing up the QDRO can be deadly if the employee spouse dies, so get the paperwork done as soon as you can.
7. Rev up your retirement planning. No matter what you’ve saved for retirement during the marriage, after divorce you’ll have only half of what you had before, and that’s likely to be far less than you’ll need. Get back on track by augmenting your retirement savings to make up for what you’ve lost in the divorce.
8. Cut your ex out of your will. Revoke family trusts, rewrite your will, and change beneficiary designations on retirement plans and insurance policies. If your estate is large, it’s time to do some tax planning to cut Uncle Sam out of your will as well.
9. Plan what to do with your home. Before separation, use joint funds to take care of any deferred maintenence on your home. If you wait until after separation, those expenses will be yours alone. Also remember, if you sell your house after getting divorced, you’ll be fully responsible for selling costs. (see related article: Divorce Planning Tips If You Own Your Home)
10. Don’t get married. Don’t tie the knot without a prenuptial agreement, that is. Love is grand, but don’t walk down that aisle again without a clear understanding of what’s yours and how the finances will work during marriage and when the marriage ends, either in death or divorce. A clear understanding will prevent money getting in the way as you grasp the gold ring and another try for wedded bliss.