The last thing you want to admit to your friends and family is that your marriage is ending. The emotional pieces are hard enough to navigate through, but people tend to forget about the financial complexities of divorce. Who will be responsible for the mortgage, car payments, child care, cell phones, cable, or insurance? Ideally, discussing these situations with your significant other should be a harmless topic, but in reality it tends to be the biggest elephant in the room.
While we all wish for an amicable separation, some situations are not as cut and dry as we would like. Trying to divide financial responsibilities can often lead to tense conversations. There are 4 main areas that should be explored:
- Family – your children need emotional and financial support. Children’s expenses can range from child care to education to extracurricular activities to saving for college. How do you as parents proceed to support the children’s current lifestyle or will there have to be major changes? Typically, the parent with the highest income takes on the role of providing child support. Therefore, how does the receiving parent decide how the funds are dispersed?
- Property – in most situations, couples purchase homes and vehicles in both names. Initial topics of discussion include transferring vehicles into one name, whether to sell the house, and how to split the home furnishings. Property sale proceeds can help each person establish a new residence, and/or car.
- Financial Documents – make yourself aware of any and all types of financial accounts. In For Richer or Poorer, we discussed having a balance sheet and disclosing all monetary accounts. Investment accounts could be shared, as well as credit card debt. The last thing anyone wants is a surprise debt posted to your credit reports.
- Beneficiaries, Wills and Estate Documents: once proceedings have ended, ensure all your personal financial instructions are updated.
- Life Insurance: Who is the beneficiary (ies)? Who is currently paying for the policy? Who will pay for the policy in the future?
- Medical Insurance: Talk to your employer and discuss sole policies or policies for a family. Consider how this cost deduction impacts your paycheck.
- Tax Filings: If the divorce is not final by the end of the current tax year, couples may still file “Jointly”. In a Joint filing, one tax refund will be issued. Have a plan for these proceeds. If your divorce is settled by the end of year, you will file as “Single” or “Head of Household”. ALWAYS consult with your CPA regarding your tax situation.
- Smaller Expenses – cell phones, cable, gym memberships, and vehicle toll tags are just a few of the smaller expenses that couples tend to forget are shared. While these are not necessarily time consuming tasks to register to a new name, they are items that can easily get lost in the bigger picture. Make a list of the smaller things as you move through this process.
While some couples file divorce with a complete picture of their future as two separate individuals, others struggle to wrap their head around where to start. These 4 topics are just a stepping stone to help relieve the stress of starting a new chapter.