Divorce and finances can be complex. While a couple can run on their existing cash flow, divorce means two sets of bills, one for each person. Separation forces one to live in two separate dwellings. Separate bills will be due to lawyers, accountants, and mental health professionals. Financial decisions made in the short term will affect recovery time. In this article, we will discuss how to prepare for the fiscal logistics of divorce.
Prepare for the fiscal logistics of divorce
If you’re heading through a divorce, the first thing you should do is prepare for the fiscal logistical aspects of the process. Separating assets and liabilities will mean splitting your expenses. This will affect your credit, cell phone plan and auto insurance rates. It may also affect child support and alimony. So, it’s imperative to know your finances well before the divorce. Fortunately, there are several ways to prepare for the fiscal logistics of divorce.
Make a detailed inventory of your assets and liabilities. You may not know exactly what each asset or liability is worth, but you’ll need this information when it comes time for settlement negotiations. To get started, make a list of your assets and debts and gather copies of financial documents such as your most recent federal and state tax returns, pay stubs and brokerage account statements. Make sure that you get copies of these documents so you can easily identify each piece of the puzzle. The sooner you can prepare, the better!
Understand your rights
Before settling on a divorce settlement, it is important to understand your rights. Divorce is a very stressful time in anyone’s life, but the financial issues that arise during a divorce can compound that stress. If one spouse has more financial resources than the other, the divorce process can be even more difficult. Fortunately, there are a few steps you can take to help yourself and your children during this difficult time.
Gather all of your financial records. It is best to gather copies of all tax returns, pay stubs, bank statements, and any mortgage or loan documents that were jointly held. If most of your assets were in your spouse’s name, you’ll want to set up your own separate bank account. Separate your bank accounts, too. This can prevent any complications and ensure that your financial situation is protected in the event of divorce.
Divide assets
One of the most difficult steps in a divorce is deciding how to divide the assets that belong to both people. These assets can range from the home to the car and from retirement funds to collectibles. Divorce is a difficult time for anyone involved, but there are ways to ensure that you and your partner get the fairest deal possible. If you and your spouse don’t agree on how to divide your assets, it may be easier to go through a court process to determine the fairest way to divide your assets.
Before deciding how to divide your assets, you must first determine which one of you is the logical owner of the property. Once you’ve done this, you can go through your main list, item by item. Start with the items with the highest value first. If you’re unable to agree on the division, it’s a good idea to seek the assistance of a divorce attorney who can draft a settlement agreement. Make sure to make a list of your property and then discuss it with your spouse. If you have hidden assets, disclose them – it’s illegal.
Retain the family home
A decision regarding whether to sell the family home after the divorce is emotionally charged and often recommended by financial advisers. However, this choice is a burden for one spouse and can create financial insecurity for the other. In such a case, it is in your best interests to retain the home. Here are some tips to help you decide whether to sell or keep the family home during the divorce:
If you’ve bought the family home before you got married, the property may be considered marital. However, there are a few considerations you should take into account before making a decision. Your first thought may be to protect your home. Depending on how much equity you have in your home, this may not be enough to pay off the mortgage. If you’re a low-income earner, you may need to refinance the home to cover the remaining mortgage.
Transfer retirement assets
One way to save money and time when dividing retirement assets is to make beneficiary designations before the divorce. In most cases, the beneficiary designations will govern the distribution of the retirement funds. If you are planning to divide the assets, make sure to keep detailed records and understand the rules. It may be helpful to consult a financial adviser as well. For more information, visit the website of the IRS.com to learn about the benefits of beneficiary designations.
A qualified tax professional should review the terms and conditions associated with the division of retirement assets. Timing is crucial and early withdrawal penalties apply to younger owners. If you do decide to divide the assets during the divorce, make sure that you have a qualified domestic relations order to make the proper distributions. If the terms of the divorce agreement do not make clear who will receive what, you may face tax problems. However, if you do follow the legal requirements, the division of your retirement assets will be seamless.