smart spending

10 ways to avoid divorce disaster

7. Budget for a lifestyle you can afford

Be prepared to live a lifestyle that's within your means.

You may have enjoyed certain perks while married, but if you were the spouse who didn't bring income into the home, you may be forced to cut back or get a job. Likewise the breadwinning spouse who makes family support payments will likely have to rein in spending.

The custodial spouse often chooses to remain in the house to avoid disrupting the lives of school-age children, but it may not make sense to assume mortgage payments on a house if it's unaffordable, especially if it's worth less than the amount you owe.

"If you can't afford it, you can't afford it," Woodhouse says.

Further, let's assume that both spouses are on the mortgage note: What happens if you can't refinance?

If you receive alimony or other payments, it doesn't necessarily mean you'll be able to afford a mortgage payment on a single income. And with credit standards tightening, your credit score or income may not be high enough to qualify for a loan.

Figure out what you can afford by planning a budget that takes into account all your income including alimony, child support and employment income before deciding if you want to keep the house.

Your monthly housing payment in general should be no more than 28 percent of your gross income.

Bankrate's mortgage calculator can help you determine whether it's a good idea to keep the house or move.

8. Don't forget about retirement plans

Before deciding whether to claim a percentage or lump sum of your soon-to-be former spouse's retirement plan, it's usually a good idea to get a qualified domestic relations order, or QDRO.

A QDRO is a court order that creates or recognizes your right to receive all or a portion of the benefits payable under your ex-spouse's retirement plan.

Generally, retirement plans covered under the Employee Retirement Income Security Act, or ERISA, require a QDRO before benefits can be paid to an alternate payee such as an ex-spouse or dependent.

Individual retirement plans that do not fall under the ERISA umbrella can generally be divvyed up without a QDRO; however, some other plans cannot.

"State (public) plans typically have their own requirements, but they are usually not (regulated by) ERISA and city and county plans are generally not qualified plans," Boohaker says. "They have separate requirements and sometimes they are not even divisible. So it varies."

9. Hire a good financial team

You may think hiring a good financial team will be costly, but in the long run, not hiring one may end up costing you more once your divorce is finalized.

It may be difficult and costly to modify certain divorce agreements later on. Also, financial concepts are often tedious and difficult to understand. If you're perplexed, seek help.

"Obtain good expert advice early on," Boohaker says.

She says a lot of free financial information is available on the Internet, but some of it is not accurate.

A good financial team would consist of a financial planner and attorney. At the very least, they can review your settlement for problems and help you understand your legal rights.

10. Protect your property interests

Before getting a divorce, make sure that your name is on all deeds and titles of property, whether they are jointly or individually owned.

Just because you and your soon-to-be ex shared a beach house or mountain cabin doesn't necessarily mean that property will be considered divisible during a divorce.

In community property states such as California, where a 50/50 division of community property is mandated by law, property you inherited or received as a gift is generally off limits to your spouse.

Some high-net worth individuals protect assets accumulated prior to marriage with a prenuptial agreement.

This is to ensure that those assets cannot be touched during a divorce. However, a "prenup" can backfire.

Some courts view them with suspicion and will likely scrutinize them for fairness and compliance with state law.

"The fact that you're asking for a prenup before marriage could be seen as coercing one side to sign it," Baradihi says.

"Most of them end up (in court) if they are debated or argued after the fact under that premise."

advertisement

Show Bankrate's community sharing policy
          Connect with us
REFINANCE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed refi 4.00%  0.09 4.09%
15 year fixed refi 3.08%  0.12 3.20%
10 year fixed refi 3.13%  0.11 3.24%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.32%  0.02 4.30%
50K FICO-based HELOC 3.98%  0.02 3.96%
100K FICO-based HELOC 3.83%  0.02 3.81%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.75% --0.00 2.75%
48 month used car loan 2.99% --0.00 2.99%
60 month new car loan 3.19%  0.01 3.20%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.99% --0.01 0.98%
2 Year CD 1.22%  0.01 1.21%
5 Year CD 1.87% --0.00 1.87%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.76% --0.00 15.76%
Cash Back Cards 16.44% --0.00 16.44%
Low Interest Cards 11.04% --0.00 11.04%
 
Next
advertisement
FRUGAL NEWSLETTER

Discover new ways to cut costs and save more every day. Reduce your spending, not life’s pleasures. Delivered weekly.

advertisement
Partner Center
advertisement

Connect with us