Financially speaking, there are few things more devastating than a divorce. It can be worse than any economic downturn. A divorce can result in divided assets and lost household income, even in the most amicable of splits. But you may be able to minimize the damage by following these steps.
Enlist a team of experts
A divorce is usually a highly emotional life event, and for that reason, financial experts say it’s important to have trusted advisers by your side. Especially after a long marriage. You’ll need objective advice about how to fairly divide property that has escalated in value; calculate child support; ensure that you have sufficient health, life and property insurance; understand Social Security and retirement plan implications; and more.
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To help you get through this difficult process and to effectively separate emotions from the business at hand, it’s a good idea to work with the following experts: a divorce attorney; a certified divorce financial analyst or financial planner; and a mental health counselor. Having people who are not emotionally invested in the proceedings is key to avoiding common divorce settlement mistakes, such as agreeing to split assets down the middle without considering tax implications or incentives. If you don’t know a financial planner, www.plannersearch.org is a good place to start your search.
Organize all important documents
As soon as you know you’re getting a divorce, collect the following financial documents from the past five years, if possible: bank statements, credit card statements, tax returns, retirement account balances, and appraisals for valuable items, if applicable. One of the more common things to watch out for is one spouse funneling money out of a joint account long before announcing their intention to split.
In addition to looking for money
being secretly withdrawn from bank accounts, double-check tax returns for any income you don’t recognize. Then look for line items on the IRS forms that may be worth money and should be factored into the divorce money settlement. Have your accountant look out for issues such as capital loss carry-forward that could be worth tens of thousands of dollars or charitable contributions.Request copies of your credit report
It’s a wise move to know what’s in your credit report at this critical juncture. Request your credit report from all three major credit report bureaus–Experian, Equifax, and TransUnion–and review each one carefully during divorce proceedings. Spouses should look for loans or accounts they don’t recognize and work with an attorney to ensure that they aren’t responsible for any debt that was incurred without their knowledge. After the divorce is finalized, no one should walk away with a liability that is not theirs.
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You can order credit reports directly from the bureaus’ websites for a small fee, or you can order one free report per year from each bureau through www.annualcreditreport.com. It’s probably a good idea to order new reports after the divorce is final and after all joint accounts have been closed, just to make sure nothing is amiss.
Apply for a credit card to establish your own credit
Your credit score may decrease after your divorce, particularly if you don’t have accounts in only your name. To minimize any reduction, apply for your own credit card, preferably before your divorce is finalized and your score takes a hit. Pay down your balances on time to create a positive payment record and be careful not to charge more than you can pay back by the end of the month. Incurring debt and racking up interest charges during a divorce can make a bad financial situation even worse.
Protect your credit standing
One of the first things divorcing couples should do is separate their finances. This means closing joint bank and credit card accounts and opening new accounts in their own names. Be sure all closed accounts are fully paid off, even if it means transferring balances to your new account and paying them off yourself. That’s because late or stopped payments by either party on a joint account–open or closed–will damage both of your credit ratings. Also, if you share a mortgage or other valuable property, make sure your interests are protected in the divorce settlement. These measures can help prevent an economically struggling or vindictive spouse from amassing debt that could ruin your credit.
For additional financial considerations related to divorce, visit Practical Money Skills for Life, Visa Inc.’s free personal financial management site.