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Dealing With the Financial Impact of Divorce

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Know Your Obligations and How to Protect Yourself

The true cost of divorce is its effect on the family, but it's also very costly financially. Knowing your rights and obligations, and how to protect yourself, can make it less expensive and perhaps a little less painful.

Your Obligations

If there are children involved, their well-being should be both parents' primary concern. Unfortunately, this is not always the case. Spouses paying child support sometimes feel that the custodial ex-spouse is "squandering" the child support money, or that the child support is exorbitant.

Only half of all court-ordered child support is paid, and only half of that is paid in full. If child support is part of your divorce agreement, you are legally and morally obligated to pay it. Likewise, withholding of visitation rights shouldn't be used as a weapon to try to force a non-paying parent to cough up the child support payments. Don't use money as a weapon against your ex-spouse, or your children will end up as casualties.

Division of Property

The laws in your state help determine how your assets are divided in a divorce. Nine states (AZ, CA, ID, LA, NE, NM, TX, WA, and WI) are community property states, which means assets acquired during the marriage by either spouse will generally be divided equally. The remaining states are based on "equitable distribution," which does not necessarily mean an "equal" distribution. The court will consider many tangibles and intangibles in coming to a decision on how to divide assets.

People facing divorce sometimes don't get what they deserve because they are anxious to get it over with, or they hope to reconcile and don't want to alienate their spouse, or they want to get back at their spouse for real or imagined wrongs.

Divorce can have more of a financial impact on your future than buying a house or planning for retirement. Don't willingly give up what you have a right to, especially if you have custody of children, since your financial situation directly impacts them as well. And don't assume your attorney will protect you financially. In many cases it's worthwhile to spend the money to consult a financial planner to assess the real value of your assets, taking tax consequences into consideration, and to seek financial planning advice prior to a divorce settlement.

If you and your spouse can't come to an amicable agreement about the terms of your divorce, you will each most likely consult an attorney. But you may want to consider mediation or arbitration, which are less expensive than using an attorney to settle your differences, and don't require court appearances.

Marital Assets

  • House
  • Cars
  • Boats
  • Retirement plans
  • Cash value life insurance policies
  • Stocks, bonds, mutual funds
  • Stock options
  • Tax refunds
  • Accumulated vacation pay
  • Frequent flier miles
  • Loans to others
  • Artwork or antiques
  • Collectibles, tools

Before going to an arbitrator, mediator, or attorney, you should do your homework. List your marital assets and get appraisals where necessary (art, antiques, etc.).

Calculate how much child support will be needed to cover food, housing, day care, clothes, school supplies and activities, and other expenses. Get written confirmation from your spouse's employer of your spouse's salary, vacation balance, bonuses, and stock options. Have a good idea of your spouse's income potential by researching what his or her profession pays for more experience, and what benefits are typical.

Protect Yourself

Men tend to know more about financial matters, so it's important for women to educate themselves about finances. In any marriage, both parties should understand their tax returns and investments, and stay informed of their debts, investments, and family income.

Once it's clear that a divorce is in the making, cancel any joint bank accounts and open individual accounts. Cancel all credit cards and get new ones in your own name. Close all unused credit accounts, and notify your creditors of your change in marital status.

When your divorce is final and assets have been legally divided, change names on house deeds, stocks and bonds, and car titles, as necessary. Change beneficiaries on investments, retirement plans, life insurance policies, and savings accounts. Update your will. Check your credit report to make sure your spouse hasn't incurred debts in your name since your divorce or separation.

Divorce can be devastating financially to one or both parties, but educating yourself and taking a few precautions can reduce the impact on you and your children.

Have you been through a divorce? Do you have advice that might benefit others that are contemplating divorce? Post your thoughts and comments in the Financial Planning Forum.

HELPFUL DIVORCE LINKS:

Divorce Links from About.com's Marriage Guide
Divorce and Money
Divorce Online
DivorceNet
Divorce Central
Mediator Referrals
Divorce Attorney Referrals
Arbitrator Referrals
Debts in Divorce
Divorce and Retirement Assets

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