Divorce and Your New Financial Beginning
Protecting your financial well-being during divorce
Dealing with the emotional ramifications of divorce is hard enough, and thinking about finances while you're dealing with it can seem impossible. But protecting yourself and your finances during the process can help ease some of your long-term financial, and maybe even emotional, turbulence. The following are some steps to take into consideration if you are thinking about or are currently in the process of divorce.
Know Your Credit Score
The first step you should take before the divorce even gets under way is reviewing your credit. Check your score, but go further than just getting the number. Review all the accounts open in your name. You will want to see if you have any debts, credits or liabilities of which you did not know. Confirm all of your current bank accounts and credit cards in your name; unfortunately, some spouses do open accounts without their partners knowing or do not include their partners' names on what are assumed to be joint accounts.
Divorce can bring out the worst in people, so take preemptive action to protect your credit. Consider closing joint bank accounts, and credit cards you may share with your partner. This protects you from the possibility of your partner increasing your debts or taking your assets.
Open an Account
If you do not already have a personal savings account, now would be an ideal time to open one. Divorces can be expensive and you will need to save for divorce costs and your day-to-day living expenses, which you'll now have to pay for solo.
Also, consider opening a credit card in your own name. Divorce can have a negative impact on your credit score, so it may be more difficult to qualify for a card or other loan later. Opening your own credit card now will allow you to begin building credit and credit history, which will help to mitigate the divorce's impact on your credit score.
You don't have to do it alone! Talking to an attorney, mediator or one of the Credit Union's Financial Advisors may help protect you and your money during the divorce. These professionals will provided you with legal and financial advice to help you better understand the complications of your divorce process and the options available to you.
Financial health is part of your broader wellness and protecting your health protects your finances. One way to protect both is to make sure that you're insured.
If you have your own coverage, you should be able to remain on your current plan. But it’s still worth contacting your insurance company to update information regarding emergency contacts, healthcare proxies, or next of kin.
If you're currently protected by your partner’s plan, things are more complicated. You should look into other coverage options. If you're employed, does your employer offer coverage? If not, what are the options available through your state's public insurance exchange? You might have a little time to make your decisions. Many insurance plans offer COBRA coverage. Named for the Consolidated Omnibus Budget Reconciliation Act, COBRA extends your coverage when you go through a life-changing event which impacts your insurance eligibility. It may allow you to stay on your partner's health insurance plan up to 36 months; but there’s a (small) hoop to jump through: you must inform the health plan administrator within 60 days of becoming officially divorced or you will not be able to receive the extended coverage.
You will want to do some research on COBRA, as different states offer different options. Also, COBRA does not guarantee full coverage; some plans may offer only partial coverage and it’s important to makes sure that the coverage available to you meets your personal health needs. CobraInsuranceDirect.com is a great resource where you can learn more.
Create a New Financial Plan
After your divorce you'll probably be living on less money than before. You should consider developing a new budget to reflect your current financial situation. This may mean cutting out any unnecessary expenses, like your daily coffee run. Develop a budget that includes your fixed expenses every month containing loans, savings and retirement. For more on the basics of budgeting, read Creating a Budget in 4 Simple Steps.
Also, starting your own or continuing to contribute to your Rainy Day Savings™ account would be a smart move. This way, youll have some money to fall back on for unexpected emergencies. Sticking to your financial plan the first few years after a divorce may help you land on your feet and grow your savings and your credit.
After your divorce it is extremely important to get legal and financial documents switched over to your name – everything from personal property to life insurance. If you do not want your now ex-spouse to inherit money and or benefits if something were to happen to you, it is vital to update your beneficiaries on your retirement plans and life insurance. Also, keep in mind you may need to update your income tax filing and your W-4 as well.
Without a doubt, a divorce can be one of the most life altering stages you may face. But, understanding your finances will help you through the divorce process and keep you on the right financial path.