Divorce financial planning may be low on your list of priorities right now, but working through the various aspects (and implications) of your finances is important when going through a divorce. Not only will you get a good grasp of your current financial situation, you can start making plans on how you will manage everything after the divorce. Below you will find the top seven steps to take when going through a divorce that will help you through this difficult time.
Every day, there is a new report about a long-term marriage ending in divorce, reminding us that everyone is susceptible to marital problems that can't be overcome. Unlike those facing headline divorces, most people don't have the means to financially rebound from their divorce as quickly. However, it is possible to minimize the stress of managing finances during divorce.
Here are seven divorce financial planning steps to help reduce the stress of managing finances during a divorce.
Step 1: Resolve Financial Issues
Child support, maintenance, and division of assets are all financial issues that must be resolved during divorce. To make sure this is done properly, contact a trusted and reliable lawyer. Also, some couples turn to a professional mediator who won't take sides in the issue and will help work out a settlement that is fair and equal for both parties.
Step 2: Make a Budget
During divorce, most people will probably be running the same household with a reduced income. To help get through this, make a list of monthly expenses, including bills, alimony, child support, etc. Track all expenses - even the small ones, and then compare this to monthly income. By comparing expenditures and purchases to total income at the end of the month, it's often easy to decide what to cut back on and how to reduce overall expenses.
Step 3: Control Debt
With the new expenses related to a divorce, controlling debt can be difficult. It's important to keep debt during this time at minimum. For example, it is not recommended to use credit cards to make required payments. Consistently doing this may hinder one's long-term financial health as well as the ability to provide for family.
Step 4: Continue Paying Bills
Bills for which one is legally responsible for must be covered until financial obligations are settled in court. Arrange all bills from most to least important, and continue paying as many of these as possible. Bills that should hold the most importance are mortgage or rent, real estate taxes, health insurance, essential utilities, credit cards, car loans, and income taxes. Consulting a financial advisor is also recommended, as they can analyze one's financial situation and give a personalized plan of financial recovery.
Step 5: Secure Credit
A key to any financial future is a healthy credit score. Maintaining an excellent credit rating during divorce is vital, as having a strong credit score will help make financial transactions easier. To protect one's credit, consider converting joint accounts to one name only. Also, find out whose name is on the title of the home by contacting the local county assessor's office. Identity theft is also a concern, as those with access to Social Security numbers, credit cards, and other information can make unauthorized charges, obtain loans or commit tax fraud.
Step 6: Build Credit Score
If a low credit score is a concern, don't worry. There are many ways to repair credit. These include paying all bills on time, paying off debt, and not maxing out credit cards. To begin strengthening a credit profile, open checking and saving accounts and apply for a credit card. After a year or so of making regular payments and paying all other bills on time, apply for an installment loan (an auto loan, personal loan, or mortgage, for example). This will almost always raise a credit score.
Step 7: Plan for the Future
In the middle of a divorce, it may seem hard to plan for the immediate future, let alone years ahead. But when the time is right, take a longer-term view of the situation to ensure a solid financial future. Define financial goals. What are the plans for staying in the current house? What about retirement planning - how much has been saved? Re-examine all investments, and don't be afraid to explore alternative career or job options. Taking the time to do this type of divorce financial planning will help immensely.
Financial Planning During a Divorce Can Make a Big Difference
Going through a divorce can be a very difficult time for everyone involved. It's hard on the parents, the kids, and on the finances. But by taking these steps, financial difficulties can be minimized and the best can be made of a pretty bad situation.
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Jordan Fylonenko is a professional finance writer who enjoys helping people with their current finance problems. He writes daily for the Quicken Loans Mortgage News section on topics ranging from market activity to home refinance. He also is a huge soccer fan. May not be copied or distributed without the written consent of the author.
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