The Top 7 Pre-Divorce Financial Considerations
There’s a lot to consider when planning for a divorce. One of the biggest aspects to consider is your financial situation post-divorce. How you proceed now can affect you financial standing in the future. The last thing you need after settling a divorce is to run into credit or debt problems. Making financial adjustments before the divorce is finalized can save you from a lot of stress and headaches.
1) Marital Asset Division
The biggest financial considerations center around dividing up marital assets. Not all assets are created the same, which means you need to obtain solid valuation information when deciding how to split everything. The consequences of not understanding the value of assets and finding out when it is too late can be financially and emotionally devastating!
2) Credit Standing
Another very important financial consideration in your divorce is to find out what your credit rating is. You should get a credit report now to determine if there are any blemishes that will hinder your future ability to borrow money. If there are mistakes on your credit file, or if a reported debt has been paid off, contact the reporting agency to rectify the situation.
Credit Karma provides an excellent free credit reporting service. They offer you access to your credit score without having to sign up for a membership or charging anything to your credit card. You’ll also be able to use their credit score simulator to find out how various actions will affect your score.
If you have a history of irregular payments on outstanding debts, you should contact the individual companies to see if they will lower the payments. Once you have made regular payment for six months, they should remove the blemish from your report.
3) Credit Establishment
Once you have determined your credit history, a wise financial consideration is to establish credit in your own name. When applying for a card, keep in mind the varying level of interest rates. A lower interest rate equates to lower monthly payments. Also be aware of whether the interest rate is variable or fixed. A teaser rate on a variable rate card may be enticing, but your wallet will later erode when the introductory rate is over, and the rate then soars to over 20%. With this in mind, try to choose a card with lowest fixed rate possible.
4) Child Support Budgeting
Child support can be particularly taxing on your bank account. It’s best to start budgeting for child support ahead of your divorce so that you come out in good standing. It can be difficult to estimate how much you may end up having to pay as regulations and laws differ from state to state. However, there are a couple of good online child support calculators you can use to obtain an accurate estimate of how much you may end up having to pay out.
5) Bank Account Set-Up
Another financial consideration is to establish your own bank account. If your paycheck is automatically deposited to a joint account, have it switched to an individual account in your name only. You may also want to take your name off joint accounts, since you can be held liable if your spouse over-draws on that account. If it seems likely that your spouse will clean out all the accounts, take your half and put it in your own account. If he is a signer on the children’s accounts, you also need to have his name removed, or have the money transferred to a different account.
6) Insurance Coverage
Your insurance coverage also needs to reflect your change in status. If both names are on a policy, and your spouse has an uncovered liability, you can be held responsible. The best financial move is to take your husband’s name off the policy, or get your own policy (and take your name off his). If you don’t already have an insurance provider, you can shop for the best insurance rates online.
7) Tax Filing
If you are separated, as a financial consideration, you can file your taxes separately as “Head of Household”. Determine who gets to claim the children as dependents during your legal separation. Keep this deduction if at all possible; it can mean more money in your pocket with the earned income credit. If you are claiming the children as your dependents, make sure that your husband doesn’t also try to claim them. The last thing you need is an IRS audit.
