Baby boomers, who have a higher divorce rate than other age groups, may be interested in knowing that January is “divorce month.” The start of the New Year brings with it about a one-third increase in divorce filings, maybe because families decide to stay together throughout the holiday season.
Few life transitions are more difficult divorce. Both parties need arm themselves with knowledge to avoid complications, especially for finances, said Nicole Mayer, AIF, of RPG Life Transition Specialists, a financial planning firm.
“The number of people who jump into a divorce without realizing the kind of financial implications it has is disheartening,” says Mayer. “It’s like having a baby without ever reading a parenting book.”
1. Anticipate upfront costs
A divorce usually costs about $20,000 minimum, and understanding that will make for a smoother transition. “When you factor in lawyers, tax advisors, time off work, the cost of a divorce is greater than it may appear at the outset,” said Mayer. “Do your research so there are fewer surprises. Also, consider mediation as part of your divorce, which significantly reduce the costs.”
2. Understand your immediate needs
Over the short term, your number one goal should be survival. “If you’re concerned about making ends meet during and after the divorce, that should inform your negotiation strategy,” said Mayer. “Stocks and bonds, which can be easily liquidated, should be a priority above retirement accounts or other long-term investments.
4. Review Past Tax Returns
Sit down with your spouse and review the past five years of jointly filed tax returns to determine income and future tax advantages. “Oftentimes, there are tax benefits accrued during a marriage that come to fruition years in the future,” she said. “Those are negotiable assets to consider.”
3. Consider beneficiary information
Take time to review and adjust the beneficiaries on your retirement accounts and insurance policies. “Amidst all the paperwork and meetings, this is often overlooked,” said Mayer. “If you have to name a minor child as a beneficiary, you’ll have to determine a guardian who is not your soon-to-be-ex.”
4. Check your debt
Any debt realized jointly during the course of a marriage stays with a married couple indefinitely. “Regardless of what settlement terms you secure, if one spouse does not pay a debt you both incurred as agreed, the other is responsible,” she said.
Divorce is difficult, but knowing what to expect and having a clear plan for managing finances will help make this life transition smoother.