Five Financial Considerations When You’re Going Through a Divorce

When a marriage comes to an end, the emotional toll can be exhausting. Yet staying level headed — especially about finances — is vital to your future well-being. Dividing assets that were once shared is a daunting task and can feel quite overwhelming. It’s important to focus on what you can control with your finances. If you are preparing for a divorce, here are five tips to help get your financial situation in order:

1. Start gathering information — Unfortunately, divorce can bring out the worst in some people. Even the most honest spouse may attempt to hide assets and income. To help ensure fair alimony and/or child support payments and an equitable division of your assets, make copies of your tax returns from the last five years. Also, understand and document your total net worth. This includes your investments and other assets, such as your home and vehicle, and your liabilities. Even if a person is dishonest with you, it’s likely he or she has been honest on your income tax returns out of fear of penalties, fines or prison.

1. Understand tax implications — Not all assets are created equal. In fact, dividing assets is quite complex, and it can be difficult to get a true 50-50 even split. For example, if your home and 401(k) are worth roughly the same amount, the tax implications and costs of maintaining and/or selling each of these assets will differ greatly. Consult with trusted legal, tax and financial advisors to make sure you understand the true value of your assets before you divvy them up.

1. Assess your debt — It’s important to figure out exactly how much you owe and to whom — and whether your spouse has accrued debt without your knowledge. Start by requesting a joint credit report from each of the three credit reporting agencies (Equifax, Experian and Trans Union). Next, go through the credit reports and identify which debt is shared and which is in your or your spouse’s name only. If possible, stop accruing additional debt and pay off as much debt as possible before you divorce. In reality, it doesn’t matter what your final divorce decree says about who has to pay the debt. If your ex is ordered to pay certain debts and fails to do so, a creditor will come after you to collect if your name is on the loan agreement.

1. Establish a solid foundation for your future — After your divorce, you’ll want to start out on the firmest possible financial footing. If you haven’t already, establish credit in your own name and set up your own bank account. Also, request a personal earning and benefits statement for yourself and one for your spouse from the Social Security Administration. When you reach the age where you can start collecting Social Security, you may end up collecting some on your spouse’s record. At this point, your spouse’s information will not be readily available to you.

1. Update your insurance coverage — Make sure that your spouse’s name isn’t on your medical or dental insurance, or any other insurance policies that you both own — and determine whose policies the kids should be on. You’ll also want to update and re-evaluate all your insurance policies — including auto and property — to make sure you have the right amount of coverage for yourself and your dependents. In addition, update the beneficiary designations on any personal insurance policies or other investments you own, as those designations override the wishes stated in your will.

For help making sound financial decisions during a divorce, consult with your financial, legal and tax consultants. They can help you understand the short- and long-term financial implications of your choices before you finalize them. Your financial advisor can also help you design a financial strategy that helps meet the needs of your new situation.

Jeff Mushen, MSF, CFP, ChFC, APMA, is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner ™ with Ameriprise Financial Services, Inc. in Edmonds, WA.  He specializes in fee-based financial planning and asset management strategies and has been in practice for eight years. To contact him, www.ameripriseadvisors.com/jeffrey.m.mushen.

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues.

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