InsightsHow to Financially Prepare for a Divorce
Divorce can be one of the most challenging events in a person’s life. Recent data from the CDC shows that an average of about 2 out of every 1,000 people in the U.S. have gone through a divorce. Adults over 50 are divorcing more than their younger counterparts. Since 1990, divorce rates for those over 50 have doubled, and for those over 65, divorce has tripled. Today, one in ten people getting divorced is 65 or older.1
One of the biggest challenges people can face is how to financially prepare for divorce, sorting through your finances, and figuring out how to divide them. The longer a couple is married, the more their finances are entwined. Each person has a unique set of circumstances and needs expert divorce financial planning advice to help prepare and plan for the future. Hiring a financial advisor can be just as important as finding the right divorce lawyer.
What To Do Financially Before Asking For A Divorce
You should start financially preparing for divorce before you discuss separation with your spouse. As you prepare to seek legal counsel, you’ll want to assess your current financial situation, including income, expenses, and debt. Key questions to consider include:
- Where will you live after divorce? Do you want to try to stay in your current home or move out?
- How will you pay bills and family expenses while in the process of negotiating a divorce settlement with your spouse?
- How will you divide jointly held accounts and mortgage, auto, and credit card debt?
- If you have younger children, who will have primary custody, and how will you and your spouse share financial responsibility for their well-being and education?
- What are the tax implications of divorce?
Here are some critical steps to help you prepare financially for divorce:
1. Locate Important Financial Records
The first thing you need to do is fully assess the state of your finances. How much have you saved? What do you owe? To better assist a discussion with your wealth advisor, you’ll need to present them with your most up-to-date financial records. By organizing these records, you can get a better look at the entirety of your financial picture.
Make sure to collect and share the following documents with your financial advisor:
- Tax returns
- Bank statements
- Loan information
- Copies of titles/mortgages to real estate owned
- Car lease/ownership papers
- List of personal property
- Retirement account information
- Investment account statements
- Employment information and Social Security statements
Having these documents will help you prepare for discussions with your attorney and financial advisor.
2. Order the Most Up-to-Date Copy of Your Credit Report
Credit reports, which can be obtained for free every 12 months, provide a detailed examination of how banks and lenders see your creditworthiness. It will outline any delinquencies and provide your credit score. Check your report carefully for any false information and resolve any issues immediately. Post-divorce, you’ll want to establish your own credit history separate from your spouse. Starting with a clean record will help.
3. Update and Change Documents
If you and your spouse have prepared a will or a trust, you’ll want to discuss it with your wealth advisor and attorney to determine how best to update it. If you haven’t drafted a will or a trust, now is the time to prepare one that protects your assets and directs them to new beneficiaries other than your spouse.
4. Name New Account Beneficiaries
Divorce affects your entire immediate family, not just you and your spouse. If you have younger children, you’ll not only need to determine who will have custody of them in the event of your death; you’ll also likely want to change beneficiaries of any accounts where your spouse is currently named, perhaps making your heirs beneficiaries on accounts such as:
- 401(k)s or other retirement accounts
- Life insurance policies
- Brokerage accounts
- Checking and savings accounts
A wealth advisor can help you make changes to beneficiaries and provide guidance on your state’s specific regulations relative to naming minors as beneficiaries on accounts in your name and how you might navigate dividing assets on jointly held accounts.
Seeking Professional Financial Guidance
While no couple enters a marriage with the intention of divorce, there are ways to minimize the financial impacts of divorce. A wealth advisor can help you financially prepare for divorce by assessing your financial needs, making a plan to address them, and helping you protect your assets for the future. KAR has a team of expert advisors ready to help you with your wealth management prior to, during, and after divorce. Contact us today.
This information is being provided by KAR for illustrative purposes only. Information contained on this site is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the publication of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the publication and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. The information provided here should not be considered to be insurance, legal, or tax advice and all investors should consult their insurance, legal, and tax professionals about the specifics of their own insurance, estate, and tax situations to determine any proper course of action for them. KAR does not provide insurance, legal, or tax advice, and information presented here may not be true or applicable for all investor situations. Additional information about KAR’s services and fees may be found in KAR’s Part 2A of Form ADV, which is available upon request or can be found at https://kayne.com/wp-content/uploads/ADV-Part-2A.pdf.
