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Five Steps to Protect Your Money During Your Divorce

Getting a divorce is one of the most challenging life-transitions you can experience. Add the uncertainty about your money, the experience can get even more stressful. Here are five steps to help keep your finances intact during—and after—a divorce:

Step 1. Assess your finances and make a budget

Start by reviewing your income, retirement accounts, investments, and insurance policies. In fact, gather those documents and save them to a flashdrive for your lawyer. Next, make a budget that reflects your income and projected monthly expenses. Include both your personal debts and debts you share with your soon-to-be Ex. Be sure to think about NEW expenses such as finding new housing or buying a car on a single income and legal costs.

Step 2. Target shared debts first

Debt on joint accounts can be an issue. Despite whatever your marital settlement agreement or final decree says, your creditors will continue to consider both of you liable for the shared debt. Keeping those accounts open may pose problems later if your Ex falls behind on payments or simply refuses to pay them. Paying off those debts pre-divorce can help you avoid those issues.

Step 3. Divide assets thoughtfully

You and your Ex might agree about dividing shared assets equally and that’s good. But consider the following:

If the two of you will be in different income brackets post-divorce, consider the tax implications of holding on to various shared assets. Consider, some retirement funds are after-tax accounts, meaning taxes were already paid on contributions, and eligible withdrawals will be tax-free. Others are pre-tax accounts, meaning you will owe taxes on withdrawals.

For assets that come with tax obligations, the higher-earning party will likely pay higher taxes from keeping them. On the other hand, the lower-earning party may have a harder time paying the taxes.

You may also find that you and your Ex have different needs. If you own a home together, for example, carefully consider liquidity when deciding whether either of you will keep it. If one of you needs access to the equity tied up in the house, it may make sense to sell it.

Step 4. Revise your will and other documents

As a general rule, divorce will not automatically remove your Ex as the primary beneficiary of your estate and other assets. Designate new beneficiaries for your estate, life insurance, annuities, and retirement accounts! Don’t do this until after the divorce is finalized as doing so may violate the temporary domestic order in place during the divorce.

Step 5. Make a Plan B

If your marital settlement agreement says your Ex must pay spousal support (alimony) or child support payments to you, prepare for the possibility that they will fail to pay or pay late, especially these days of Global Pandemic and Economic uncertainty. Keep money in an emergency fund to cover expenses, such as childcare, in the event your Ex fails to pay.

In the end, be sure to consult your tax professional and financial advisor before entering into any marital settlement agreement. Do not depend upon your family law attorney to offer you tax and financial advice. Review the proposed marital settlement agreement with these professionals prior to giving your family law attorney authority to close the deal with your Ex’s lawyer.

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