Divorce Finances: Taking Control
Aug 04, 2016 03:39PM
By James Stedman, Financial Advisor
Divorce is seldom easy for anyone involved. Still, certain steps you can take now may make the process less stressful and help simplify your life when the divorce is finalized. The more you know about the divorce process and your legal and financial options, the better equipped you will be to pursue your goals and protect your interests. The information here can help you start to think through key issues.
What to focus on first
Throughout the divorce process, keep clear answers to these questions in mind as you weigh alternatives and make decisions:
What is most important to you?
What are your short-term and long‑term goals regarding your work, home and children?
How can you reach these goals?
How can you control your financial future?
What legal path makes sense for your divorce?
Weathering divorce – Financial Q&A
Q: What financial steps can I take prior to divorce to simplify my situation later?
A: You may want to:
• Open accounts in your own name including your own credit card, checking and savings accounts. Also, have your paycheck deposited directly into your checking account.
• Contact creditors to explain your situation and, if appropriate, to ask to stop any future charges by your spouse.
• Be aware that late payments or liens related to jointly owned assets may remain a legal obligation to you as a co-owner of the property.
• Check your credit report by using an Internet site like Annualcreditreport.com, a free federal government site.
• Open an interim account to manage interim family expenses during the period between separation and divorce.
Q: What financial support can I count on for my children?
A: Laws vary by state, but typically a judge will determine the financial resources that you will receive if you are the custodial parent. Some states base these payments on the parents’ combined income and the number of dependent children. Keep in mind that your respective contributions to college expenses will need to be addressed in the divorce agreement.
Q: Should I retain my house?
A: When it comes to your home, you will likely confront three options: sell the house, buy out your spouse or have your spouse buy you out. The best solution will depend on both personal and financial considerations. You may not be comfortable remaining in your current home. On the other hand, staying may offer your children a sense of continuity. On the financial side, you should evaluate the tax consequences of selling your interest in the house. Longer term — after the marriage is dissolved — you need to determine if you can manage the costs of the home, such as mortgage, taxes, utilities, maintenance and general upkeep. There is another, lesser used alternative: Rent out the house. This option could boost cash flow to help you meet mortgage payments — or it could “buy time” for the housing market to improve, while building further equity in the property. This avenue might be particularly useful if the house is “underwater” — a situation in which the home’s market value is less than the balance owed on the mortgage
Q: What long-term issues should I focus on?
A: Although your current situation may demand most of your attention, it is important not to lose sight of your long‑term goals and financial needs, particularly as you negotiate a settlement. For example, your retirement goals are an important and valid concern. The terms of your settlement also may trigger financial changes if you remarry. In the area of estate planning, you should review your will as well as any trusts that you have established with your spouse. Certain trusts can protect your children’s inheritance if your former spouse should remarry. If you have done any irrevocable charitable planning, you may be able to divide your charitable trust or family foundation between you and your former spouse.
Making It Work
The good news is you have more control over your finances than ever before. You can take significant steps to help build a secure financial life.
Divorce can complicate the future, but with good financial advice and sound planning, you can make things happen — and you can do it your way. While you now have more responsibility, you have also gained more flexibility and control — advantages that can serve you well as you focus on the long view.
James Stedman is a Financial Advisor at Morgan Stanley and co-founder of The Short Hills Group, dedicated to advising individuals on how to navigate through key life changes and events and be better equipped toward making sound financial decisions before, during and after the often difficult divorce process. Contact him at 973-467 6355 or email [email protected]
James Stedman is a Financial Advisor in Morgan Stanley’s Short Hills office. Although Mr. Stedman has not compensated Natural Awakenings to have this article featured in its publications, this is not a solicitation nor intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC. Member SIPC.
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
©2016 Morgan Stanley Smith Barney LLC. Member SIPC. CRC1530963 06/16