Divorce is never an easy time. For starters, there is the emotional strain of a relationship coming to an end and this is even more complicated if there are children involved. Then there is the time and money lost to lawyers, etc. But the complications don’t end there are you might need to find a new place to live or even figure out how to make ends meet.
As such, managing your finances during a divorce is extremely important but it is often overlooked and with good reason as there are so many things to worry about when a relationship is disintegrating. However, bills don’t care if your marriage is going well or is on the rocks and for this reason, we will look at ideas on how to manage your finances during divorce.
Cover Your Assets, and Liabilities
Even if you aren’t independently wealthy, you will need to take stock of your financial position when you are going through a divorce. If you are not sure where to start, then it might make sense to sit down with a financial adviser. Not only will they help you map out your finances but this information will be useful for when you need to sit with your lawyers.
Beyond this, you should freeze any line of credit that you and your spouse have opened as a joint account. The reason for this is simple as you want to limit any joint liabilities to those that were in place on the day divorce papers were filed.
In addition, if you have any joint credit card accounts then you want to come to an agreement very early in divorce proceedings on how these will be managed. Ideally, any supplementary cards should be turned over on day one and any open balances should be paid off as soon as possible.
Then we get to the asset side of things – i.e. homes, cars, businesses, etc. In this case, you want to have a complete accounting of these items and, if possible, the bills of sale as this will help to prove ownership.
In addition, you may want to liquidate some of your assets to help cover the cost of a divorce. Granted this isn’t for everyone but in this scenario,you can sell mortgage notes or other items of value to get you some additional cash.
If you were like most married couples, then you have two incomes to help cover monthly expenses. However, getting divorced means that you are now on your own when it comes to paying the bills. This means that you will need to make a plan for making ends meet – starting with mapping out your income and your expected monthly expenses. Beyond this, you need to also look at when your cash will come in and the due dates of your respective bills.
Now if you are reliant on your soon-to-be ex-spouse for your monthly income, then you want to make sure the terms of your separation clearly spells out how much support you will receive each month and when it comes in.
Remember, that divorces can get tense and just because you are getting support doesn’t mean that you need to spend it all. Instead, you need to look at your expenses and figure out which ones you can do without as this will help you to save some of your support for a rainy day – something which could come in handy.
How can you achieve this? Well, it starts by breaking down your expenses and figuring out what you can cut out completely. Once you have done this, then you want to look at which expenses you can save money on. Maybe this can be achieved by getting a discount or switching providers altogether.
Prepping for the Tax Man
An often-overlooked aspect of financial planning during divorce is tax planning. Again, there are a lot of things going on during a divorce but you would be surprised how quickly tax season can come around when you aren’t prepared.
The first big hit comes from changing how you are filing – assuming you were married, filing jointly in your pre-divorce life. However, this is only part of the story. Another item of note are the potential tax implications of any asset sales or transfers as part of the divorce settlement.
For this reason, it behooves you to talk to your accountant or tax planner to figure out the specific implications in your case. If you don’t, then you risk getting hit with a massive tax penalty – talking about adding insult to injury.
Getting divorced is never fun but use these tips to make sure you protect your finances this way you can start your new life on a firm financial footing.