Divorce and Your Finances
In additional to the emotional stress created by divorce, the separation process can also cause financial burdens to both parties involved. It is important to consider the aspects below in order to understand financial ramifications of the separation.
- Protect Your Credit Score. Until the divorce is finalized it is important to keep up to date on payments for all shared debts and expenses (ie. Credit cards, water bill, mortgage). Missing payments wills hurt both parties credit scores which may prevent you from securing additional credit at your separate households.
- Take Inventory of Shared Assets. It is advisable to collect about five years’ worth of financial data when determining your assets during a divorce. Important documents to have include tax returns, and statements from retirement savings or shared investments. Knowing what’s on the table will ensure that you are receiving your equitable share. Keep in mind where you reside as that can also effect how your assets are divided. Community property laws are followed by nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), and guarantee an equal split of all marital property from real estate to retirement assets. Every other state (besides Alaska) require equitable distribution, meaning a fair, but not necessarily equal, division of assets.
- Understand How Retirement Plans Will Be Impacted. The court may provide you with a Qualified Domestic Relations Order (QDRO) that will determine how retirement savings are divided. An example of how a QDRO can affect your finances is as follows: If your spouse has a pension, the way he or she elects to take it — and the QDRO — could impact you down the road. A standard election means you’ll stop receiving a share when your ex dies; with a QDRO, you might be able to get a survivor’s pension, typically half of the benefits your ex-spouse received.
- Update Your Beneficiaries. When setting up life insurance and retirement accounts, many people choose to elect their spouses as beneficiaries. After a divorce, you will likely wish to change your beneficiary designation or your ex-spouse will still be entitled to these benefits.
Divorce is never an easy process, but preparing for the financial impact can help ease the burden.