In any divorce, there are a lot of financial issues that have to be addressed – but most couples aren’t thinking much past the division of marital assets, the allocation of debts and issues of support.
What’s left? Plenty. Your marriage reshaped your entire financial profile, and divorce will do the same. Here are some of the most important financial concerns that can easily be overlooked:
1. Remember that credit scores matter
Your credit score has a big impact on your financial life, affecting your ability to secure loans, credit cards and even housing. Failing to address credit issues during divorce can lead to unintended consequences:
- If you have joint accounts with your spouse, any late payments or defaults on these accounts can harm both your credit scores. Close or refinance these accounts to protect your credit.
- Establish your individual credit history. Open new accounts in your name and monitor your credit report to catch any discrepancies or unauthorized activities.
If you have any concerns that your spouse might try to hijack your credit or anything else, consider investing in a credit monitoring system so that you can catch problems as soon as they arise.
2. Don’t forget about taxes
Taxes are another critical financial issue that can easily slip through the cracks during divorce. The following tax-related matters deserve your attention:
- Determine your filing status after divorce. This affects your tax rates, deductions, and eligibility for certain credits.
- Be aware of the tax implications of alimony and child support payments. They are treated differently for tax purposes, and these differences can impact your financial planning.
- Consider the tax consequences of property division. Selling or transferring assets can trigger capital gains taxes or other tax liabilities that you need to account for in your financial plan.
It may be necessary to hire a financial advisor to help you fully understand the potential tax implications of your decisions so that you can be prepared.
3. Protect your insurance coverage
If your insurance coverage is intertwined with your spouse’s, you may have several things to address as soon as possible:
- Determine how you will maintain health insurance coverage after divorce. You may be eligible for benefits through your own employer, through COBRA benefits or via the Affordable Care Act, but it’s essential to explore your options early.
- Evaluate the need for life insurance, especially if you have dependents or a support obligation. You might need to adjust beneficiaries or consider new policies to ensure financial security for your loved ones.
- Update property and auto insurance policies to reflect the new ownership and usage arrangements. This will help avoid disputes and ensure proper coverage.
Neglecting to address any of these issues can lead to gaps in your coverage and serious financial vulnerability.
4. Stick to a monthly budget
Divorce often results in significant changes to your income and expenses. Establishing a realistic monthly budget is the best way to make sure that you land on your feet:
- Account for any changes in income, and look at all revenue streams, including alimony, child support or potential job changes. Adjust your post-divorce budget accordingly.
- Consider any additional expenses related to the divorce, such as legal fees, moving costs or the expense of setting up a new household.
- If you have children, ensure that your budget includes their needs and expenses for things like education, healthcare and extracurriculars.
Seeking guidance from financial professionals or those who specialize in divorce can help you make informed decisions and navigate these complex financial waters with confidence. Remember, being proactive about your finances during divorce can pave the way for a more secure and stable future.