7 Steps to Protect Your Finances in the Event of a Divorce
A divorce is no respecter of persons. Even those who have been married for 30 plus years are having increased rates of divorce. It is estimated that 25% of divorce filings are among couples over the age of 50. This can have a serious impact on retirement plans and the ability to fund your retirement. If you find yourself in this situation there are a few steps that will help you protect yourself.
1) Know What You Own. Complete an inventory of all your assets including life insurance policies to retirement accounts. Confirm whether the assets are held jointly or individually. In common law states, all property is typically divided 50/50 regardless of title. Other states have laws that create joint property based on how the asset was acquired or how long the marriage lasted.
2) Know Your Debt Balances and Debt Ownership. Separate debt that is held individually versus debt held jointly. Both divorce laws and lending contracts will determine your level of liability. If you signed for a debt, a divorce agreement stating otherwise will not prevent a lender from suing you. If you live in a common law state you may find yourself legally liable for debts you never signed for.
3) Move Assets, Debts, and Accounts into Single Accounts. The cleanest way to separate possessions and debts is to transfer balances to single accounts and close joint accounts. This may require refinancing some debts. From a legal standpoint it will line up the divorce agreement with your legal obligations.
4) Create a Plan For Two Residences. This might include selling the family home and splitting the proceeds enabling each party to purchase or rent a place of your own. It may mean one stays in the home and the other moves. Finding a realistic way to maintain two homes will reduce the chances of foreclosures and other credit issues.
5) Don’t Forget Your Credit. Letting your credit go will make it more difficult to get reestablished somewhere else. Utilities, rental companies and lenders all pull credit to determine both eligibility and deposit requirements.
6) Be Prepared To Divide Retirement Accounts and Other Assets. There is a provision with IRAs and 401Ks that allow for rollover distributions in the event of a divorce. A financial planner can assist if you need assistance. Not following IRS rules could result in paying taxes on any funds you receive.
7) Update Your Will and Account Beneficiaries. This is the time to create a different contingency plan which includes updating wills and policies that contain a beneficiary. Powers of attorney should also be revised, if you have one.
A divorce does not have to be a financial disaster. Taking steps to protect yourself and the wealth you have built will result in a stronger financial position when the final decree is made. With everyday living costs revamped, taking the time to recheck finances, monthly budgets and progress towards retirement will help you get back on track.