Your spouse might be laying the groundwork for divorce by displaying certain behaviors and actions.…
Going through the process of divorce is an emotionally difficult time in a person’s life, particularly if there are children involved. Despite the personal upheaval, there is much to organize to protect your financial interests and future life. Fidelity Investments, an American multinational financial services corporation, provides an overview of dos and don’ts that can help address the most important issues. Gathering information on these topics will streamline appointments with your family law or divorce attorney. Focus on what you can do from a logistics perspective and leave the emotional content for friends or a therapist. Rationally conducting your financial and legal interests will position you for success after the divorce. The following list contains things you should do.
Know the Law
Laws about asset division, spousal, and child support (if applicable) vary by state, so become familiar with your state law. Contemplate your living arrangements during the divorce and how you want to build your life when it’s over. Consider having a financial planner work with your divorce lawyer, as even minimal asset marriages can have consequences that affect your credit or retirement. The goal is to develop, execute, and protect a plan for current living expenses and reasonable retirement plans. Post-divorce budgeting and investment strategies are crucial to success.
Collect Pertinent Records
Include legible copies of all wills, trusts, tax returns, loan applications, banking information, and financial statements. Also include credit card statements, loan documents (including student loans), brokerage statements, deeds to real estate, car, boat, or other vehicle registrations. Gather both spouses’ current year-to-date pay stubs, tax assessment valuations of property, or real estate appraisals if less than six months old. If there is a business, the owner needs to produce year-end profit and loss statements and balance sheets. If there is separately owned property (prior to marriage, inheritance, family gifts), copy records that can trace and verify their existence. Legal proceedings will request financial disclosure going back three years, so gather at least this much.
Investigate All Debts
Know what you owe as it is crucial. Hidden debt is a common issue among divorcing couples. Your divorce attorney can assess the extent of your responsibility for these debts. This information is particularly important in jointly-issued loans and credit cards where you were not the beneficiary of the debt. Obtain a current and full credit report to unearth any surprises. Consider shifting to single accounts and closing joint credit accounts to protect your credit rating. Joint ownership changes usually require specific documentation that your divorce lawyer or financial professional can explain before you make any changes.
Document All Household Goods
You can take photos or videos around your home of art, antiques, sentimental items, jewelry, and watches. Many of these items are easily hidden or removed from the home, so document them as soon as possible. Your phone camera will store your photos or videos’ time and date information.
Update Legacy Documents
Meet with your estate planning attorney to review your will and estate plan. Check named beneficiaries on retirement accounts and insurance policies and make necessary adjustments. It is not unusual for an ex-spouse to receive an unintended inheritance as a direct beneficiary because of oversight.
Explore Social Security Benefits
When you reach age 62 (or full retirement age), your ex’s earnings history may be a bigger benefit than the one you have based on your own earnings history. Typically, a marriage must last ten years before this becomes possible, but if applicable in your situation, it may make a big difference in the bottom line of a future fixed income.
Keep an Eye on Legal Fees
Your legal experts include lawyers and paralegals who work on your behalf. Hourly rates can vary between who is billing you. Amassing documents and educating yourself about the divorce process makes time spent with your attorney group more effective and efficient and saves you some money in the long run.
Strive to Get Your Fair Share
While it depends on the length of your marriage and state law, you may be entitled to half of all assets acquired during your marriage or brought into the marriage. Know these laws. Even those assets that don’t interest you may be useful in negotiating a trade for what you want. Essentially, all assets can act as leverage. Did you help your spouse through medical, law, or graduate school? You may be able to recoup some of the cost of tuition.
Fidelity provides a checklist to map out the documents and information you need to gather to accomplish all you need to do. Now that we’ve discussed the things to do, the following is a list of things not to do.
Don’t Ignore Potential Tax Consequences
There can be much theorizing about financial scenarios during a divorce, and each scenario has different tax consequences. Many divorce decisions can lead to a higher tax bill. Regularly seeking tax advice about your financial options moving forward and any applicability of the Tax Cuts and Jobs Act 2017 can properly position you to pay the least amount of taxes. It is crucial to understand your tax consequences during and after divorce.
Don’t Overlook Health Insurance
Health insurance is critical to get right, particularly if you have children and their coverage is under your spouse’s policy. Insurance policies (coverage, networks of doctors) and pricing are complex. Carefully investigate options. Check out the Consolidated Omnibus Budget Reconciliation Act (COBRA), a government provision that will continue your current health care coverage for a designated time.
Don’t Split or Roll Over Retirement Accounts Without Documentation and Court Orders
Halving your 401(k) or IRAs without guidance may result in a taxable distribution from the account. You may also need part of the retirement money to cover divorce expenses. Your divorce settlement may allocate assets under a qualified domestic relations order (QDRO). Any withdrawal a QDRO alternate payee takes out of a 401(k) or 403(b) is currently exempt from the ten percent early withdrawal penalty, even if you are under 59½ years old. If you have no other access to funds to cover divorce expenses, you may opt to withdraw before a rollover. You will be responsible for the income tax on the withdrawal. Otherwise, those under 59½ who roll the money into an IRA and subsequently need that money will pay income tax on the withdrawal amount AND a ten percent early withdrawal penalty.
Don’t Lavishly Spend Money During Your Divorce for Vengeance or Spite
The temptation may be great but do not mix emotions with financial choices as it may interfere with asset division and even count as an advance on your share.
There is much fact-finding and document discovery to do. Although it takes time, it will lead you to a greater understanding of your financial situation during your divorce and what you will require to live successfully upon its completion. Following these dos and don’ts and completing the Fidelity checklist is a great headstart before meeting with your divorce attorney and making an easier and much more efficient experience. Please contact our Houston office today at (713) 582-5088 or schedule a consultation to discuss your legal matters.