Couples in the midst of a divorce proceeding have to work out issues involving property, assets, and any payments required for maintenance or child support. Yet the financial implications of divorce do not end there. Divorcing couples eventually discover that their decision to split has long-term consequences on their financial situations.
Divorce always has financial impacts. There is no way around it. But couples can lessen those impacts by being prepared for the financial aftermath of divorce. And once a divorce is finalized, the two parties can take the necessary steps to get their individual financial houses in order.
With that said, here are five financial tasks to complete after finalizing a divorce, compliments of the divorce attorneys at Chicago’s ABM Family Law:
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1. Change Financial Accounts
Divorcing couples with jointly owned accounts will find themselves in a better position if they change those accounts following divorce. A divorced individual should look at all bank accounts, credit cards, investment accounts, etc. to see whose name they are in. Any joint accounts should be changed to reflect the new marital status.
This task is especially important given that it is so easy for one spouse to financially abuse the other. As long as accounts remain jointly owned, one spouse can run up credit card debt and expect the other to pay it. Or one spouse can drain a joint bank account, leaving the other with nothing.
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2. Change Retirement and Insurance Beneficiaries
Naming one’s spouse as the beneficiary of a retirement account or life insurance policy is fairly normal. Furthermore, probate law generally gives surviving spouses ownership of such assets when no beneficiary is named. Therefore, it is in the best interests of a divorced individuals to change their retirement and life insurance beneficiaries. That is, of course, unless the individual still wants a former spouse to receive the benefits.
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3. Check Credit Reports
Credit reports typically list an individual’s marital status. It is important to check such reports in the aftermath of divorce to ensure they correctly reflect the individual’s new status as single. As long as credit reports are being checked, it’s also a good idea to look closely for any account errors or inaccuracies. If any are found, they should be corrected immediately. All three major credit reporting agencies have procedures in place for addressing errors.
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4. Assess Savings and Investment Goals
Divorce will throw a couple’s combined savings and investment plans out the window. It will not mitigate the need to have solid plans in place. Therefore, divorced individuals should make a point of sitting down with a financial advisor as soon as possible following divorce finalization.
For the record, a divorce attorney is not qualified to offer sound financial advice. Individuals need to seek out certified financial advisors. If possible, finding one with experience in helping divorcees is a big plus.
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5. Assess the Tax Situation
Finally, it is important that divorced individuals assess their tax situations as soon as possible. Being a single taxpayer can be significantly more costly than being married and filing jointly. That says nothing of the tax implications relating to retirement accounts, certain healthcare accounts, investments, etc.
The goal here is to minimize one’s tax liabilities as a single individual. A financial advisor or tax attorney is the most qualified to guide the divorced person through complicated tax matters.
Divorce impacts every area of a couple’s life. It certainly affects finances. Anyone planning to divorce or currently in the midst of a divorce proceeding should be prepared to address financial issues in the weeks and months following divorce finalization.
