Going through a divorce can be a traumatic and painful experience. It is easy to become overwhelmed by all of the changes that such an event can bring into a person’s life. As difficult as it may be to try to think about life after the marriage is over, it is crucial that a person going through a divorce take steps to ensure their financial health after the divorce is final.
Take a Financial Inventory
One of the first things people need to do when going through a divorce is to take a financial inventory and determine how the separation is going to affect his or her short and long term financial situations. The first step is for a person to get a complete picture of his or her current assets and liabilities. Financial advisors recommend that a person going through a divorce obtain copies of all financial records and keep them in a secure location after reviewing them carefully.
Having a clear picture of what each asset is worth verses what expenses are associated with it will give a person a better idea of what he or she should negotiate for in the property settlement. For example, it might make more sense for a person to ask for a portion of a retirement account rather than the marital home if the spouse cannot afford the monthly mortgage payments on a single income.
Then it is advisable to consider what he or she will need to replace after the divorce and how expenses will change after the divorce such as rent, alimony or child support.
The next step would be to predict and begin to plan for future expenses such as a child’s education cost or increases in auto insurance payments when a child is added to the policy.
Each party should get a copy of his or her credit report so that he or she knows what accounts are linked to his or her name. Then the couple should cancel all joint credit cards or each spouse should remove the other’s name as an authorized user from his or her credit card accounts. Doing so will prevent one spouse from running up credit card debt in retaliation or prevent one spouse from being financially responsible if the other spouse fails to make payments on his or her credit card debt.
People going through divorce should systematically go through financial documents and legal titles to update the names on them. On life insurance policies, retirement accounts, investment accounts and other assets that have named beneficiaries, it is advisable to remove the ex-spouse’s name as the beneficiary and name a different beneficiary.
Furthermore, life insurance needs may change as a result of divorce, so it is wise to review insurance coverage. A person may need less coverage or may want to have an ex-spouse increase coverage in the event that he or she dies and will no longer make child support payments.
Additionally, removing an ex-spouse’s name from property deeds and car titles is crucial for protecting those assets after the divorce.
Even though a divorce may bring turmoil and uncertainty to a person’s life, one way to make the situation less stressful is being proactive and taking steps to ensure financial security after the divorce.