|10 steps to a money-smart divorce
Keep separate property separate.
Assets you brought to the marriage separately (real estate,
vehicles, an inheritance, gifts, money you acquired before marriage,
etc.) are yours to take away from the marriage. You drive in with
an SUV, you drive out with an SUV. But if you put any separate assets
into a joint account, they may be considered joint property and
will be divided depending on the property
laws of the state in which you reside.
"If you're going to take separate money and give
it to the marriage, then either decide to kiss it goodbye or do
some loan documentation, because if you don't, you're going to lose
it," says Smith.
Separate debt also travels with you. For example,
if you brought a student loan into the marriage, you carry it out
with you, even if your spouse was helping to pay it off.
selling the house.
Traditionally, women tend to hold
onto the family home at all cost. Unfortunately, it's often
an emotional decision that makes poor financial sense.
"Studies say that women will keep the house and
give up the retirement money," says Hayden. "It is one
of the biggest mistakes women make. The problem with that is, many
times she's not going to be able to afford to stay in this house
anyway, and if they've been in the house for a long time, she could
stand to lose a good share of her capital gains exclusion, which
is $250,000 for singles and $500,000 for couples."
"I recommend that they look seriously at selling
that house, even though it's hard. It's an emotional tie that ends
up strangling the woman. She ends up losing it anyway, and she has
given up her retirement money. I ask women to just think a little
Smith agrees: "Sell the house and take what you
make and put it into something where you know that you're able to
pay your expenses and have a cushion, especially in an economy where
we have no clue what's going to happen."
Despite what your divorce decrees, if you don't change
the beneficiaries on your will, trusts, IRAs, pension plan and
life insurance, your ex could wind up with an unexpected windfall
in the event of your untimely demise. As long as you're at it, this
is a good time to review your various policies to make sure they
fit with your new circumstances. And don't forget to delete your
ex-spouse from these documents and policies and change your marital
status where applicable.
For some women, divorce adds another task: reclaiming your
name. If you are reverting to your maiden name, you may be required
to produce the divorce decree or document signed by your ex-husband
that acknowledges your new name in order to obtain a new driver's
license, passport or other identification. Use your new name to
announce your new marital status to your circle of contacts: your
doctors, employer, human resources department, children's teachers,
landlord, pharmacist, mail person, health insurer and clergy.
Don't forget to register your name change (and adjust
your withholding if needed) on your W-4 and other tax forms
and with the Social Security Administration. A mix-up could cause
you to lose valuable Social Security credits for your work, and
you may have to show proof of both names when applying for benefits.
Speaking of Social Security, if divorce finds you within chipping
distance of retirement, you will want to contact the Social Security
Administration. If you are at least 62, were married for at least
10 years, have been divorced more than two years, have not remarried
and don't qualify for an equal or higher Social Security benefit
yourself, you may receive benefits based on your ex-spouse's Social
Security record, even if he or she has not applied for benefits
that he or she is eligible to receive. If you remarry, you will
stop receiving benefits, unless this new marriage ends. If you are
raising a child younger than 16 years old from the marriage, you
may receive benefits on your ex-spouse's record even if you were
married for less than 10 years. In most cases, you can expect the
same amount you would have gotten if you had remained married, and
possibly all of it if your ex-spouse dies. The benefits you draw
do not affect amounts due to your ex's current spouse.
your health coverage.
Sadly, divorce often forces one party to sacrifice health care
coverage. Don't let this happen to you. One uncovered medical emergency
can cripple your finances. Under the COBRA program, you are guaranteed
18 months of health coverage, albeit at rates that might induce
cardiac irregularities. If you have no other avenue for affordable
coverage, keep the COBRA plan in place until you find one. "You
can't afford not to think about things you need such as health insurance,
disability and life insurance," says Hayden. "If you can't
afford all these things, you really should consider getting rid
of the house and downsizing."
yourself off and start living.
Yes, you've survived a train wreck. If you accomplished most
of these steps, you are more aware than you've ever been of your
true financial picture and what you need to do about it.
If you receive a lump-sum payout, don't splurge for
revenge or because you feel you deserve it. There is a wealth of
financial planning help online. Bankrate.com is a great place to
begin and, when you're ready, consider hiring a financial
planner to help you sort out your newly single money situation.
Financial experts recommend that you pull your credit
report three months after the divorce and clean up any loose ends.
Again, Bankrate has form
letters to help out with this task.
Most importantly, remember that living well is possible
whatever your net worth or marital status.
Jay MacDonald is a contributing
editor based in Mississippi.