Divorce is one of the most painful, disruptive life experiences you can have. Given the emotional stress and turmoil that goes along with many divorces, dealing with financial details may be the last thing you want to tackle. Paying attention to the details, however, can mean the difference between making a new start and having your past haunt you far into your future.
Besides finding a good divorce attorney, you’ll also want to enlist the help of a financial advisor and estate planning attorney. These professionals may be able to see your situation more clearly than you can, and they’ll help you to look out for your own interests. They also will have enough experience to warn you of pitfalls you might not even know you’ll be facing.
Next, you’ll want to take stock of your financial situation. It’s important to know what you and your spouse are working with, so that you can reach a fair and equitable division of your assets and debts. This is especially important for you to do if you have not been the one in charge of the money during your marriage. Find out exactly what property you each own, including retirement accounts and investments. Also find out what you owe – including mortgage debt, credit card debt, and loan balances. To help with this, you can request copies of your credit report from all three credit reporting agencies. These reports will list your accounts and the payment history for each.
Once you know what your financial picture looks like, it’s time to start separating your accounts (after consulting with your attorney, of course). You’ll want to close joint checking and savings accounts, and you and your spouse will want to open individual accounts. The same is true for any joint credit accounts – close your joint accounts and decide what to do with your joint debt. You may even want to consider transferring existing debt to your new account and paying it off yourself. This is because missed or late payments on a joint account will hurt the credit of both account holders, regardless of who is responsible for making the payments.
You’ll want to consider the tax implications of your financial decisions – selling property or investments can result in capital gains or losses, and moving money from one retirement account to another can also trigger tax consequences. You’ll want to work with your attorney and/or your financial planner to make sure you don’t end up with unintended tax bills.
Once the divorce is final, check your credit reports once more to make sure that the actions you took as part of the divorce were accurately reported. You may want to meet with a financial advisor to make a plan for your new, individual financial goals. If you take precautions to protect your finances during your divorce, you should have a solid foundation to build on.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.