|
No matter how intense your emotions, it's important to
remember that ending a marriage is in fact a business deal. Here are moves to
make sure you don't get taken.
By Jay MacDonald, Bankrate.com
When your marriage breaks up, the last thing you feel like doing is crunching
numbers. You're hurt, perhaps angry, and possibly overwhelmed with anxiety,
fear and despair. You're focused on the past and present, not the future.
But as many divorced couples learn the hard way, this is precisely the time
you need to get a grip and pay close attention to your assets and your
financial future, lest both slip away in the flood of emotion.
"First and foremost, it's a business deal," says Gayle Rosenwald Smith, a Philadelphia family lawyer and
author of "Divorce
and Money: Everything You Need to Know." "That means you've got
to get rid of your emotion any way you need to, whether through therapy or
going to a gym. Because your divorce should be based on one thing: your
property settlement. It's a matter of numbers, that's all it is."
Financial educator Ruth Hayden, author of "For
Richer, Not Poorer: The Money Book for Couples," agrees, but admits
that's easier said than done.
"At least 80% of money is about self-management, about emotions, and 20%
is about quantifying and computing," she says. "The counting part
is easy; it's the emotional part that's hard."
Clear the decks and set sail
Since money is the No. 1 cause of divorce, it's safe to assume that splitting
the financial sheets won't be easy. Here are 10 steps to help you cast off,
steady your financial ship and set sail for the solo voyage ahead.
1. Pull your credit report.
2. Open individual bank, credit card and brokerage accounts.
3. Close all joint accounts.
4. Keep separate property separate.
5. Consider selling the house.
6. Change those beneficiaries.
7. Reclaim your name.
8. Check your retirement.
9. Guard your health coverage.
10. Dust yourself off and start living.
Pull your credit report. "Pull your credit report before the
divorce so that anything in dispute can be resolved before the divorce is
final," says Hayden. There are three major credit reporting agencies: Experian, TransUnion and
Equifax. Be sure to get a copy of your
report from each of them. (You can order the reports here.)
The reports are the quickest and easiest way to get an overview of the
outstanding loan balances, mortgages and credit card debt that you and your
spouse will eventually divvy up. (Here's more: "How
to read your credit report.")
Open individual bank, credit card and brokerage accounts. You also
need to do this before the breakup is official. It will be easier to get a
credit card and bank account in your own name while you are still married and
share joint assets and debt on credit cards, mortgages and loans. Hayden says
this is especially important for a woman who has never established credit in
her own name. "It's easier for a 15-year-old to get a credit card than
it is for a 50-year-old divorced woman. She just gets deleted," Hayden
says. (For more, read "4
steps to building great credit.")
Close all joint accounts. A divorce can take time. To avoid acquiring
additional joint debt (or suddenly losing shared bank assets) during the
legal process, close your joint credit card and bank accounts. You will,
however, still be jointly responsible for paying off the balance of the
closed accounts. Cancel the accounts in writing and be sure to request that
they report each account as "closed by customer" to the credit
bureaus.
Closing shared accounts is a critical step and one that is too often
overlooked, says Smith. The more you remain connected to your ex-spouse
financially, the more you are at risk. If possible, pay off joint credit card
balances by check from your individual bank accounts or through balance
transfers to your individual credit card accounts.
"In a property-settlement agreement, couples often split their debt. One
person takes the MasterCard and another, the American Express. Well, that's
an agreement between the two of you, not between you and the credit card
company," says Smith. "What will happen is, one person declares
bankruptcy down the road and the credit card companies come after the other.
You might be better off each borrowing in your own name and each paying off
the credit cards so that you come out of the marriage without any joint
debt."
Cover your assets
Keep separate property separate. Assets you brought to the marriage
separately (real estate, vehicles, an inheritance, gifts, money you acquired
before marriage, etc.) are yours to take away from the marriage. You drive in
with an SUV, you drive out with an SUV. But if you
put any separate assets into a joint account, they may be considered joint
property.
"If you're going to take separate money and give it to the marriage,
then either decide to kiss it goodbye or do some loan documentation, because
if you don't, you're going to lose it," says Smith.
Separate debt also travels with you. For example, if you brought a student
loan into the marriage, you carry it out with you, even if your spouse was
helping to pay it off.
Consider selling the house. Traditionally, women tend to keep the family
home at all cost. Unfortunately, it's often an emotional decision that makes
poor financial sense.
"Studies say that women will keep the house and give up the retirement
money," says Hayden. "It is one of the biggest mistakes women make.
The problem with that is, many times she's not going to be able to afford to
stay in this house anyway, and if they've been in the house for a long time,
she could stand to lose a good share of her capital gains exclusion, which is
$250,000 for singles and $500,000 for couples."
"I recommend that they look seriously at selling that house, even though
it's hard. It's an emotional tie that ends up strangling the woman. She ends
up losing it anyway, and she has given up her retirement money. I ask women
to just think a little bigger."
Smith agrees: "Sell the house and take what you make and put it into
something where you know that you're able to pay your expenses and have a
cushion, especially in an economy where we have no clue
what's going to happen." (For more perspectives, read "Should
you keep the house in a divorce?")
Change those beneficiaries. Despite what your divorce decrees, if you
don't change the beneficiaries on your will, trusts, IRAs, pension plan and
life insurance, your ex could wind up with an unexpected windfall in the
event of your untimely demise. As long as you're at it, this is a good time
to review your various policies to make sure they fit with your new
circumstances. And don't forget to delete your ex-spouse from these documents
and policies and change your marital status where applicable.
Reclaim your name. For some women, divorce adds another task:
reclaiming your name. If you are reverting to your maiden name, you may be
required to produce the divorce decree or document signed by your ex-husband
that acknowledges your new name in order to obtain a new driver's license,
passport or other identification. Use your new name to announce your new marital
status to your circle of contacts: your doctors, employer, human resources
department, children's teachers, landlord, pharmacist, mail person, health
insurer and clergy.
Don't forget to register your name change (and adjust your withholding if
needed) on your W-4 and other tax forms and with the Social Security
Administration. A mix-up could cause you to lose valuable Social Security
credits for your work, and you may have to show proof of both names when
applying for benefits.
Look ahead, move ahead
Check your retirement. Speaking of Social Security, if divorce finds
you within chipping distance of retirement, you will want to contact the Social Security Administration. If you are 62,
were married for at least 10 years, have been divorced more than two years
and have not remarried, you may receive benefits based on your ex-spouse's
Social Security record, even if he or she has not applied for benefits. If
you are raising a child younger than 16 years old from the marriage, you may
receive benefits on your ex-spouse's record even if you were married for less
than 10 years. In most cases, you can expect the same amount you would have
gotten if you had remained married, and possibly all of it if your ex-spouse
dies. The benefits you draw do not affect amounts due to your ex's current
spouse.
Guard your health coverage. Sadly, divorce often forces one party to
sacrifice health care coverage. Don't let this happen to you. One uncovered
medical emergency can cripple your finances. Under the COBRA program, you are
guaranteed 18 months of health coverage, albeit at rates that might induce
cardiac irregularities. If you have no other avenue for affordable coverage,
keep the COBRA plan in place until you find one. "You can't afford not
to think about things you need such as health insurance, disability and life
insurance," says Hayden. "If you can't afford all these things, you
really should consider getting rid of the house and downsizing." (For
articles and advice on health insurance, see the "Save
on health insurance" section of MSN Money.)
Dust yourself off and start living. Yes, you've survived a train
wreck. If you accomplished most of these steps, you are more aware than
you've ever been of your true financial picture and what you need to do about
it.
If you receive a lump-sum payout, don't splurge for revenge or because you
feel you deserve it. There is a wealth of financial planning help online.
When you're ready, consider hiring a financial planner to help you sort out
your newly single money situation. (Try MSN Money's tool, the Advisor Finder,
to locate qualified planners in your area.)
Financial experts recommend that you pull your credit report three months
after the divorce and clean up any loose ends.
|
