A divorce affects couples on various levels from the emotional to the physical and especially the financial state of each party involved. According to Romano Law, P.C., financially-complex settlements can take years to negotiate as each party might want a significant stake in a wide variety of assets.
The agreement states how much is divided, and who gets what. And, many times, post-divorces finances can quickly take a turn for the worse. But, you can prevent that by having an understanding of what it takes to ensure you protect your finances during a divorce.
Check your credit
This should be a no-brainer, but you will have to get a credit report. Then, you must remove your spouse’s name from any joint cards. The last thing you want is for them to go on a spending free-for-all after the divorce, and you end up stuck with the bill.
Also, knowing your credit score will give you an idea of what you can and can’t purchase during this trying time. For instance, if you need a loan–you’ll have provide a sufficient credit history to qualify.
Review your life insurance policies
This is a critical issue as it can become catastrophic. Remove your spouse from the policy and ask to be named both owner and beneficiary. As a result, you have full control over the premium payments.
This can be arranged during the settlement agreement, but it always helps to double check. You need to know how your settlement will be paid in the event of an ex-spouse’s death.
Think of Social Security benefits
If you were married for over 10 years, you will have the ability to collect on the Social Security benefits of your ex-spouse. And, you can do this even if your ex-spouse has had several marriages or is currently remarried.
Yet, if each marriage lasted 10 years, then each ex-spouse can collect a benefit. Plus, the ex-spouse won’t even know because the collection is kept between you and the Social Security Administration.
Change your will
Now is the time to disinherit your ex-spouse. They’re out of the picture, they agreed to divorce, so you don’t want them to inherit any more of your finances. This can be quite tricky if you forget to disinherit your spouse, and you remarry. Surprisingly, the will is commonly overlooked.
But, it’s more than just the will–you must consider all your beneficiary designations like your IRAs, 401ks and other documents. If you die before your divorce is finalize, your ex-spouse could inherit all your property.
Then, what if your ex-spouse remarries and leaves all your property to their new spouse and kids? Ouch. What happens to your own children? As a result, it is crucial to write up a new will as quickly as possible and to remove your spouse from all beneficiary designations ASAP.
Create a new spending plan
As a single person, your budget and spending will have to change. Depending on the settlement, this could be a dramatic change. Whatever the result, it is important to create–and start getting used to–your new plan right now. The longer you wait, the harder you will be. First, you must subtract all your monthly expenses from your current earnings.
This is the amount you have left to spend. But, you should always add a cushion since unexpected expenses do occur. Start by listing everything you’ve spent money on in the last three months. This can take some time, but it will give you a better picture of your overall spending habits than only writing expenses and income from a month prior.
There are transactions that happen on a quarterly basis such as a work bonus or changing your car’s oil. And, don’t leave anything out. Make it as realistic as possible.
You can follow the 52/30/20 rule where food, utilities and rent take up 50 percent of your income. Then, cable, Internet and cell phones take up 30 percent of your income while debt payments, retirement funds, investments and savings take up 20 percent of your income.
Divorce is never easy, and neither are post-divorce finances. So, be proactive now to ensure you don’t suffer later.