Fifteen DO’s and DO NOTs of Financial Planning in Divorce

Fifteen DO’s and DO NOTs of Financial Planning in Divorce

1. DO NOT become a victim.

The biggest mistake you can make is remaining in the dark about your finances. If your spouse has been handling all of the money up until now, it is time to become involved. The last thing you want is to be put at a disadvantage because of something you don’t know.

Make copies of financial records and gather all of the data you need to give your attorney, including account statements and documents that relate to your marital lifestyle. Additionally, if you believe your spouse may attempt to liquidate or retitle marital assets without your consent, you should notify the holder of the asset or property in writing and get a restraining order from the court. If this does occur, your attorney can help you hire a forensic accounting expert.

2. DO consider mediation.

While mediation is not for every couple, it can usually be a beneficial process for most divorcing couples. Even if you use mediation to handle one issue of your divorce, you are still saving money and emotional distress. Mediation also gives you more flexibility than a trial where the judge is making all of the decisions for you.

3. DO NOT let your emotions take charge during the process.

Trying to punish your spouse will end up backfiring. The best revenge is living well after it’s over, but battling over issues just to be vindictive will end up diminishing the assets left over for you and your family.

4. DO realize you have a common creditor – the I. R. S.

Working together with a divorce financial planner will minimize the taxes you have to pay during your separation and the divorce.

5. DO NOT disregard the impact of taxes on a settlement.

Before you agree to any propositions, consider the effect taxes will have on the offer and then agree or decline.

6. DO produce an accurate budget.

If you underestimate your expenses, you will often times find that you fall short post-divorce. Hiring a financial planner can help ensure you have enough once everything is said and done.

7. DO NOT fail to evaluate settlement proposals.

You should try to best gauge how a proposal will affect your finances in the years ahead. Consider factors such as assets, incomes, living expenses, inflation, alimony, child support, taxes, retirement plans, investments, medical expenses, health insurance costs and child-related expenses including education.

8. DO beware of settlement offers that look too good to be true.

Ensure that all of the offers you receive are reviewed by professionals and that your rights are being protected.

9. DO NOT use your lawyer more than actually needed.

Having a successful divorce does require hiring a great attorney, but make sure that you are using your attorney to protect your legal rights. Lawyers charge by hour and often times your questions can be better addressed by other professionals. You will be best served by consulting an accountant and financial expert for financial questions and a therapist for emotional issues.

10. DO factor in inflation.

The effects of inflation over the years can be dramatic. The Rule of 72 is a good way to estimate them. For example, for an inflation rate of 3 percent, it means that costs will double within 24 years ( 72 / 3 = 24 ).

11. DO NOT be emotionally attached to assets.

Sometimes, spouses fight tooth and nail to keep an asset that won’t pay off or they can’t afford, such as the family home. Not only will you rack up attorney’s fees and tension, but you won’t maximize your finances and could even compromise your monetary gain and savings.

It is usually best to let go of emotions and look at things realistically. Your lawyer or accountant can help paint a picture for you if you are hesitant to accept this.

12. DO update estate documents.

After divorce, many people forget to change the beneficiaries on their life insurance policies, IRA(s) and wills. If you want your benefits to go to your children, family, or charity and not your ex-spouse, you should let your attorney know so you can make the necessary changes.

13. DO NOT fail to consider your spouse’s eligibility for social security benefits.

If a couple is married for 10 years or longer, a non-working or lower earning spouse is entitled to derivative social security benefits on their spouse’s record. These derivative benefits do not impact or lower the worker spouse’s social security payments.

14. DO develop a post-divorce financial plan.

Two households cost more to operate than one. Financial planning can help you transition into this new phase more easily by prioritizing financial goals, developing realistic expectations and producing sound plans for division of assets and settlement agreements.

15. DO NOT fail to adequately insure the divorce settlement.

Your ex-spouses pre-mature death or disability can impact your settlement and result in a loss of alimony, child support or other payment agreements and property settlement plans. Life and disability insurance policies can guarantee that these payments will continue despite any unexpected circumstances.

Updated: 2014-02-20

Leave a Reply