January is often referred to as “Divorce Month” based on the observation that divorce filings tend to spike at the beginning of the year. Couples may wait until after the end of the year, allowing them to complete year-end financial matters, such as receiving year-end bonuses or finalizing tax-related issues.
Divorce is a challenging life event that takes an emotional toll, and unfortunately, soon-to-be former spouses are not always rational about the division of assets or decisions they make, as they may have financial repercussions down the line. Assembling a team of experts to help prepare for monetary changes before the divorce is final should allow you to weather this life change. In addition to your attorney, you should consider adding a financial adviser, an insurance agent, and a CPA to your team, as these experts can help keep your focus on significant issues, such as asset division, child custody, and spousal support. They can also help you establish a budget that reflects your new financial reality.
One of the first steps is to eliminate or minimize any outstanding debts like credit cards or unsecured loans. You’ll also want to obtain your credit report and, in some cases, start building credit of your own.
Dividing assets can be one of the most complex aspects of divorce. Understanding the legal framework in your jurisdiction is crucial, and a lawyer or mediator will guide you through the process. Typically, assets acquired during the marriage are subject to equal distribution, which may not necessarily mean a 50-50 split but a fair and equitable division, considering an asset’s associated expenses, potential capital gains, and future growth.
Compile a comprehensive list of assets, including real estate, retirement accounts, investments, and personal property. Consider engaging the services of a certified appraiser or valuation expert to determine the value of significant assets like real estate, a closely held business, or valuable collections. Once the assets are identified and valued, work with your legal counsel to negotiate a fair division that aligns with your financial goals and priorities. It’s important to address immediate needs and long-term financial objectives such as retirement and education planning. Evaluate the tax implications of different asset divisions to optimize your financial position.
Insurance also plays a crucial role in securing your financial future post-divorce. Health insurance is a primary concern, especially if you were previously covered under your spouse’s plan. Explore options such as COBRA or individual health insurance plans to ensure continuous coverage. Life insurance is another important consideration, particularly if there are children involved. A life insurance policy can provide financial support for your children’s education or serve as income replacement in the event of your untimely death. Update beneficiaries on existing policies and consider acquiring new coverage to align with your post-divorce financial goals. Additionally, review and update property and casualty insurance policies, including homeowners or renters’ and auto insurance, to reflect changes in ownership and coverage needs.
Financial planning for divorce is a complex process that requires careful consideration and professional guidance. Remember that seeking the advice of financial professionals, including a divorce attorney and a financial adviser, is essential to making informed decisions that align with your long-term financial goals.
If you have questions on how a divorce may affect your financial future, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the January 6, 2024 “Henssler Money Talks” episode.
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