While young adults are living together in increasing numbers, possibly avoiding the fate of being a split-up statistic, divorce rates have actually doubled over the past two decades for couples over 35, according to researchers at the University of Minnesota . When it comes to marriage, baby boomers may be two-time losers. But young or old, divorce, whether legal or laid back, can be an emotional — and financial – train wreck. Here’s how to get back on track.
The credit you deserve
After years of being in a joint financial partnership, it’s time to reestablish your individual credit identity. First, obtain a free copy of your credit report. The three major credit agencies are mandated by the federal Fair Credit Reporting Act to provide a free copy of your report once a year. The official website is annualcreditreport.com, or you can call 1-877-322-8228 to request yours.
In case you haven’t already; cancel any remaining joint credit cards so that neither former spouse is liable for the other’s debt going forward. If you don’t have a credit card in your own name, you might want to consider applying for one, in order to build your new credit history.
It’s also quite likely that you’ll be carrying a bit of debt with you out of the divorce, such as court costs and attorneys’ fees; perhaps some credit card debt, as well. You may be tempted to pay off those debts all at once with any cash acquired through a settlement, but it might be a better idea to preserve those dollars until you see how your after-marriage money situation works out.
Account for every account
Remember to update the names on all other accounts, such as life insurance beneficiaries and authorized users. You may also have to change the names on deeds and titles to property that was granted to you as part of the divorce settlement. Assets that may need to be retitled can include investment accounts, vehicles and houses. You may also want to consider refinancing any debt or mortgages that you have acquired in the process. And of course, you’ll want all of your bank and credit union accounts in your name only.
A fresh beginning
If you received the home as part of your settlement, think about if it’s financially feasible – or even emotionally beneficial – to stay. Not only do you have to consider the mortgage payment, but all of the associated expenses, too: insurance, upkeep, taxes, utilities and all the rest. Children can play an especially important role in this decision, depending on their age, school activities and social involvement. From a financial perspective, you will also want to weigh the tax consequences of a sale, though as a single-filing taxpayer you may qualify to exclude $250,000 of the capital gain from your income.
Emergency and retirement savings
The financial transition may be difficult, however you want to remember your short-term and long-term goals. First, having three to six months of income saved for unexpected expenses can help you get back on your feet. A Qualified Domestic Relations Order (QDRO) will guide the terms of transfer for any qualified retirement account, such as a 401(k) retirement plan or pension. If you are to receive such assets, a trustee-to-trustee transfer will prevent an unnecessary mandatory tax withholding.
Make a money plan
While few people may guide their personal finances by a formal budget, it’s a good idea to have at least a “back of the envelope” money plan. You may be facing new expenses on your own, such as rent or mortgage payments and even legal costs. The household income has almost certainly changed. Consider all spending as “up for review.” Total up every fixed expense, determine what can stay and what has to go – and then tackle discretionary spending, at least until you can get into a new financial routine.
Divorce can force you to think ahead, not back. And in matters of money – that’s a good thing.
Note: If you are facing a life changing event such as divorce or are suddenly single for other reasons and you need money management assistance, consider GreenPath, a financial management service that can help keep you on track.
Check out our brochure, Getting Married/Suddenly Single.
Guest Blogger: Hal Bundrick, NerdWallet
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