According to one major study, after their marriages terminated, women over age 50 saw a 45% decline in their standard of living while men’s standard of living fell by 21%. This illustrates that financial planning is an important issue for divorced couples.
Getting started
The first step in preparation for divorce property division is creating an inventory of your assets, liabilities, income and expenses. Other action items include:
- Preparing a detailed balance sheet and budget
- Gathering and organizing documents to verify assets, debts, income and expenses
- Timely paying bills to preserve your credit scores
- Staying reasonable and amicable with your spouse to reduce fees and preserve your family’s relationships
- Deciding how to address financial assets, real estate, debts, taxes and spousal support in divorce negotiations
Financial assets
Financial assets include bank accounts, stocks, bonds, mutual funds, life insurance, retirement plans, options and pensions. Non-working spouses may have to rely on these assets to pay living expenses after divorce. There may be tax consequences and penalties for early distribution.
Real estate
Real estate includes the couple’s primary home, vacation property, rental properties and business properties. The primary home usually causes the most complications because of the family’s sentimental attachment.
Keeping this home may be too costly, however. Before deciding on its disposition, spouses should seriously consider it costs, and possible capital gains taxes.
If one spouse keeps this property, its mortgage will need to be refinanced. Otherwise, the spouses may sell the home and divide the proceeds, or one spouse can buy out the other’s share.
Debts
Refinancing a mortgage and other debt, even if it involves one spouse, requires requalification, possible denial and many credit inquiries. This can have financial consequences for each party and impact their credit scores.
The spouses also must address other debt. Student loans and credit card debt should be divided as part of the property settlement.
Taxes and support
Both spouses must change their tax filing status from “married filing jointly” to “single” or “head of household” if the couple has children. Couples must decide who will receive the child tax credits.
Costs for childcare and their health care and insurance must be divided. Parents receiving child support must also consider that the support may not cover all these costs.
Individual property
Spouses acquire lots of property during their time together such as vehicles, boats, furniture, art, collectibles and family heirlooms. Many have strong attachments to their pets.
These items may have an exaggerated significance during division. Couples should be objective, fair and reasonable during negotiations.
Attorneys can assist you prepare a plan that meets your financial needs after divorce. They can help pursue a fair and reasonable decree.