Four Pre-Divorce Financial Planning Moves To Make Now
Divorce is undoubtedly a stressful time of major upheaval, but with good planning, you can help make one major factor for your future more secure. You have the power to make four financial moves now that will help smooth the way for a more secure future for you and your children, so read on to learn more about these moves to make now before your divorce is final.
Plan for the future.
Now is the time to take a hard, unemotional look at your financial situation, both for now and for the post-divorce period. A budget is a great start to this financial plan, but take that budget a step further and make a complete picture of your situation by listing all of your debts and your assets. A net worth statement is not just for millionaires. It can show at a glance what your liabilities (what you owe) and your assets (what you own) are and how those numbers equate to where you want and need to be. For example, if some of your assets can be sold, you can help even up the debt-to-asset ratio.
Reconsider automatically asking for the family home.
Just assuming that getting awarded the family home with a divorce decree without considering the ramifications is ill-advised. Homes can be money pits, so make sure that you fully understand the financial commitment that the mortgage, insurance, property taxes, upkeep, maintenance, and more can be. After looking at the numbers, you may just come to the realization that renting and putting aside money for savings and emergencies is far more prudent than taking on the responsibility of a home.
Look carefully at your divorce property division.
A particular asset is not just an object, it has value both beyond and below what may be obvious. Taxes must be paid on some income and assets, and some assets are more prone to lose value over time. A vacation home, for example, must be evaluated for the potential income that renting it out to tourists could generate, which could be a valuable source of income, though taxable. A financial planner may be needed to help you in the creation of your property division.
Don't neglect to take advantage of a QDRO
A Qualified Domestic Relations Order (QDRO) allows divorcing couples to access the funds in certain types of retirement accounts, like a 401(k), without paying the usual penalties for early withdrawal. The QDRO is separate from the divorce decree and must be filed before the divorce is final. You can prevent having to pay taxes on that disbursement by "rolling" the funds over into an approved retirement account of your own before a certain period of time has passed.
Take the time to plan carefully and consult with your divorce attorney for more information about a more secure financial future.
For a family law attorney, contact a law firm such as Baudler, Maus, Forman, Kritzer & Wagner, LLP.