See where you may stand financially after your divorce
Putting aside the very real emotional issues, you should consider what you and your current partner own and what you owe before deciding how to split them. This may include some or all of the following:
- Property
- Vehicles
- Financial accounts
- Individual assets
- Debts and loans
As you consider how to divide these assets and obligations, it’s a good idea to always speak with a lawyer to understand and evaluate these considerations. You may also want independent financial or tax advice as valuing some of these elements may be difficult. As you work through this, consider these divorce do’s and don’ts:
9 Essential Things to do During a Divorce
1. Start talking specifics.
Educate yourself about the laws on asset division and spousal support or child support (if applicable) in your country and state/province. Then think about how you will live during the divorce and how you want to build your life after it goes through. Having a financial planner or accountant work with your divorce lawyer or mediator may help you make decisions about a divorce settlement that could help you develop and protect your plans for a comfortable retirement. A financial professional may also be able to help you determine your post-divorce budget and investment strategy.
2. Gather all records.
Make a clear copy of all tax returns, loan applications, wills, trusts, financial statements, banking information, brokerage statements, loan documents, credit card statements, deeds to property, and car registrations. Also consider current year-to-date pay statements for both partners, and tax-assessed values of property or current appraisals (less than 6 months old). Business owners should produce year-end profit and loss and balance sheets. Be sure to copy records that can trace and verify separately owned property, such as an inheritance or family gifts. Try to gather at least 3 years (or more as required in your location as needed for the financial disclosure part of the legal proceedings).
3. Know what is owed.
Hidden debt is a common surprise among divorcing couples. Consult with a legal expert about the extent of your responsibilities for debt, including debt incurred through jointly issued credit cards or loans, even when you did not benefit from such debt. Consider closing joint credit accounts and shift to single accounts so that an ex-partner’s creditworthiness won't affect your own (if applicable in your location).
4. Document household goods.
Take photos of valuables around the house—jewellery, art, antiques, and perhaps sentimental items that are valuable in other ways. It’s not unheard of for divorcing partners to hide assets from one another.
5. Get your fair share.
Depending on the laws of your country and province/state, and the length of your marriage, you may be entitled to a large share (e.g. half) of all of the assets acquired during the marriage or brought into the marriage. Understand those laws. Even if there are assets you have no interest in, you may be able to use it to trade for something you do want. If you helped put your partner through advanced education, you may be entitled to some reimbursement for the cost of tuition.
6. Keep a close record on legal fees.
Keep close track of the work lawyers are doing on your behalf. Remember that your lawyer is a paid professional who is likely billing you at an hourly rate. Be mindful of the time your lawyer spends with and for you. Doing some of the prework ahead of time will save you time and money in the long run.
7. Check government benefits.
Once you reach your full retirement age in your country, your ex’s earnings history may provide a larger government benefit than the one you are entitled to on your own earnings history. So, it can pay to check whether using your partner’s earning history is a better option for your government benefits.
8. Update registration types.
Consider how you'll need to change the registrations on any financial accounts that are owned jointly. Such ownership changes typically require specific documentation. Consider speaking with a tax advisor or other financial professional before making any big moves.
9. Update your legacy documents.
Review your will and estate plan, including beneficiaries named on insurance policies and retirement accounts.
6 Things to Avoid During a Divorce
1. Don’t necessarily hold onto the house.
A home can have significant sentimental value for a lot of people. After all, it may be the place where most of your favourite memories have happened. But keeping it doesn't always make financial sense, especially if it’s difficult to pay for the upkeep, mortgage, and property taxes. A home is likely to have ongoing and unexpected expenses, and its future value isn’t guaranteed. So, if you decide to keep the house, make sure you adjust your budget to account for all of the home-related expenses.
2. Don't ignore potential tax consequences.
Many decisions in a divorce may lead to a higher tax bill. You may need to consult an accountant or tax advisor to determine what makes sense for your situation. Make sure you understand how these changes could affect you.
3. Don’t forget about health insurance.
If you or your children have been covered by your partner's policy, you may need to make other arrangements. Investigate all of your potential options) and understand any provisions of your health insurance to continue your current coverage for a period of time.
4. Don't forget that depending on what country you live in, splitting retirement accounts may require specific documentation as well as a court order.
It could result in a taxable distribution from the account.
5. Don’t transfer all of an ex’s retirement account into your retirement account if you need some of the money for divorce expenses.
If you think you’ll need money for unavoidable divorce expenses, and you cannot pay them with any other money, you may want to make a withdrawal before you do a transfer. Otherwise, you may be subject to an early withdrawal fees or income tax on the withdrawal amount, depending on your country of residence and retirement plan.
6. Don’t spend lavishly during your divorce out of spite or vengeance.
This could interfere with the asset division and be treated as an advance on your share of asset division.
