Kiplinger.com recently posted an article entitled “Keep an Eye on Finances During Divorce.” In it, they pose 6 questions relative to finances that the divorcing parties should ask and know the answers to. Though the article’s focus is on late in life divorce, I think these questions are relevant for all divorced or divorcing moms. In this post I offer some additional thoughts on each of the six areas.
The six questions are:
- Where’s the money?
- What are the tax consequences
- How can we split our retirement savings?
- Should I keep the house?
- Will I still be insured?
- How should my estate plan change?
1. Where’s the money?
If you’re a breadwinner mom, odds are that you’re handling a good part of the family finances already, so you will have a good idea of your assets. But if you don’t, or if you suspect there might be additional bank accounts or other assets, try to get as much information as you can about them so they can be considered in the split. In addition to assets, some of which are outlined in the Kiplinger article, don’t forget about debt. You don’t want to wind up holding the bag, so to speak.
2. What are the tax consequences?
The Kiplinger article raises some good points to consider about the tax implications of what kind of assets you keep and receiving or paying spousal maintenance (alimony). A companion article, “Tax Planning Guide for Getting Divorced,” offers some good points for consideration.
3. How can we split our retirement savings?
This one can get complicated. My former husband and I kept things simple by each keeping our own retirement accounts, but if the amounts differ significantly, you may have to give up a portion of your account (if you’ve been the primary breadwinner), or vice versa. You’ll want to consult a pro for any splits in retirement accounts, both to make sure it’s done properly and to avoid any unforeseen tax consequences.
4. Should I keep the house?
Most professionals say no, though many divorced moms ignore that advice and stay anyway, at least until they discover it’s too much upkeep or until the kids are gone. I chose to stay; planning a move at the same time as divorce was just one too many things for me to handle. But that’s often not feasible, and there are hidden pitfalls, as I discovered after the fact. You can read about 5 of them in my post “5 Hidden Pitfalls of Staying in Your Family Home.”
5. Will I still be insured?
This is another simple question with a complex answer. There are many kinds of insurance and many different state laws that govern how divorce affects insurance and beneficiaries. If you have life, health, disability, or other similar kinds of insurance, you’ll want to update the beneficiaries on those policies so that the proceeds do not go to your former husband if something happens to you. Many attorneys will provide you a checklist of things to take care of once the divorce is final, and updating beneficiaries is often on the list. If you have life or health insurance through your husband, you’ll want to make sure those policies are considered during the divorce settlement process. You may negotiate a period of time for transition, or you may need to find other insurance right away. Ask your attorney about beneficiaries during the divorce process. Sometimes you cannot make changes until the divorce is final, but you may be able to find alternative means of directing insurance proceeds where you want them to go.
6. How should my estate plan change?
If you have an estate plan, during the divorce proceedings – or afterwards for certain – you will want to consult your estate planner (attorney, financial advisor, etc.). If you have a will, that’s one thing you will definitely want to get updated quickly. Other estate planning items should be addressed individually. If you don’t have an estate plan, don’t worry. Do get a will in place, if for no other reason than to address guardianship of your children. The rest can come as you recover from the initial divorce process and begin to assess your financial circumstances post-divorce.
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