This article is a guest post from Andy Masaki over at www.pennylessdad.com.
Untangling the varied emotions associated with a divorce is difficult, but untangling your finances in a divorce can be much easier.
All you need is a little knowledge to help you out and it is better if both of you make the decision to deal with your finances in a divorce together.
It is a bit difficult as your emotions are attached to your home, investments, etc. Unfortunately, you have no other option than to plan the right way to avoid misunderstanding and unnecessary stress in the future.
Here are 5 important areas where you need to make a decision to have a hassle-free financial life post divorce.
Decide about your present home – the property.
First of all, you need to decide whether either of you want to continue living in the house or if both of you want to sell the property.
If you want to sell the property and divide the proceeds, then get an idea about the fair market value and whether or not the property sale proceeds will be able to satisfy the remaining amount of the mortgage if you’re still making payments on it.
However, you should be prepared to accept a possible low sales price; just because it’s your home doesn’t mean that you’ll get the price you quote. The market value may be less.
If you want to continue as co-owners of the property, both of you need to sign a co-ownership agreement about the possible contingencies like maintenance, paying the taxes, one of you facing financial hardship, etc.
Be aware of the nature of your credit accounts.
To divide your credit accounts and decide how to repay the outstanding balances, first of all, you need to know whether they are joint or single accounts.
To do so, pull your credit reports and make a note about joint accounts, single accounts, and accounts where you’re an authorized user.
Before you divide the accounts and the balances, calculate how much debt you’ll be able to pay off.
Both of you can continue paying off the balances of joint accounts or close them if the age of the accounts doesn’t matter to you much. The age of your credit accounts can impact your credit score.
Both of you can also make an agreement to close the accounts and pay the charges later. By doing so, you can stop new charges incurring on your account.
It is advisable that you should have credit cards; it will be easier to have a good credit score if you manage them in the right way.
However, it is better not to use credit cards as an emergency fund. You should have a separate emergency account to tackle your financial emergencies, especially now that you’ll have to tackle them all by yourself.
Make arrangements for your tax payments.
While untangling finances in a divorce, you need to know that your tax filing status will change to single the year your divorce is legally documented. You may have to deal with alimony and new deductions based on your sole income.
It is always better to hire a tax professional to help you with this process since it is a bit difficult to file the taxes the first year. However, observe what your tax professional is doing so that the next time, you can do it alone.
Related: How to File Your Own Taxes with Ease
Check your insurance coverage.
Do you have your insurance coverage tied to your spouse? If yes, then it is better to negotiate with your spouse to change the required information so that you have one in your name from that date.
Make sure you also have the required coverage in auto, health and home insurance policies.
If needs arise, the insurance company won’t listen to you regarding this split; so, always have the required coverage and make it a priority to arrange it.
You should also build an emergency fund to tackle financial emergencies. There might be one which your insurance won’t cover. Also in most policies, you have to pay a deductible before your insurer makes the payment for the financial loss.
Gather knowledge about your investments.
This is where you need to make real calculations. You might have to seek help from a financial adviser to decide on how to divide the investments.
But before doing so, ask yourself if it will be worth continuing with the investment. Analyze each of your investments, with special attention to the joint ones.
If you think that a specific investment is right for you, make the decision whether or not you’ll be comfortable to keep it if your spouse is an aggressive investor. If not, have a talk to sell that investment and divide the money.
In the case of your retirement accounts, you can opt for a direct transfer, that can be a rollover from an IRA (Individual Retirement Arrangement) to IRA, or from 401(k) to IRA. Opting for this direct transfer will help you to file taxes.
Additional tips to make help you deal with finances in a divorce:
- Make sure you know the exact divorce law in your state.
- Sort out and keep all your financial documents and statements.
- Check your credit reports and scores and try to increase it, if required.
- Take some time before making any major financial decision.
- Monitor your monthly savings and expenditures.
- Plan a suitable budget and modify it from time to time.
What are some other tips you have for those dealing with finances in a divorce?
Andy Masaki is a freelance journalist living in Oakland. He works for Oak View Law Group, a leading consumer and bankruptcy law firm based in CA and operational across the US.
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