For many parts of the U.S., this past winter was one for the record books, with more snow and colder temperatures than any of us can remember. Finally, though, it’s springtime. Days are getting longer, robins have returned, and crocuses are emerging. Whether it’s feeling warm sunshine on your face or clicking “submit” on your electronically filed tax return that gives you that springtime sense, for many this is the time of year for renewal, and there’s an urge to be out with the old and in with the new.
As a divorce financial advisor, I’d like to help you channel some of that springtime energy into getting yourself organized, financially. This is a good idea for everyone, but it’s especially important if you’re thinking of divorce. Whether you’re planning to file, or think your husband might be, it’s time to get your financial ducks in a row.
Here are six steps you can take to position yourself to begin the divorce process:
1. Change your mindset: Think Financially, Not Emotionally®.
If you’re anticipating the end of your marriage, you are no doubt experiencing a whole range of strong emotions. However, as the saying goes, “Marriage is about love, and divorce is about money.” While you may be mourning the loss of a once-loving relationship, you also need to be laying the foundation for your financial well-being as a single woman. Thinking financially is about setting emotions aside when it comes to planning for the future.
The divorce process will bring many financial decisions requiring long-term thinking. It may be tempting to act out of grief, spite, anger, frustration, and the like, but please, resolve right now that you won’t give in to that impulse. Negotiating a divorce settlement agreement out of emotion is a recipe for financial disaster. Time and again, I’ve seen it lead to serious regrets.
Instead, adjust your frame of mind, and Think Financially, Not Emotionally® about what’s to come. Stay focused on what makes the most sense for your future financial security.
2. Consider your tax situation.
Given the time of year, you are likely already thinking about your taxes, so this is an easy step. As you prepare your 2014 tax return, consider how a divorce will change your future tax status. This time next year, you might not be filing a joint return. You may be receiving alimony or other support payments, and you may have capital gains or other income to report after the sale of investments and other assets. Tax considerations account for much of the complexity of dividing assets in divorce. Negotiating a settlement with that in mind could save you tremendously down the road.
Also, keep in mind that filing a joint return with your husband could be dangerous financially, because if it should come to light later that taxes have been underpaid, it won’t matter to the IRS which of you was responsible. If the return was filed jointly, the government can go after you both…even if you didn’t personally earn one dime of the reported income! What’s more, you will still be liable for errors and omissions in joint tax returns even after your divorce.
If you have even an inkling that your husband is not approaching his taxes with total honesty and integrity, you should think about filing a separate tax return. Under the provisions for “Married Filing Separate” (MFS) status, you would be responsible only for taxes on income subject to reporting on your individual return. Using MFS status might mean that in total, you and your husband will pay more in taxes than if you’d filed jointly, but believe me, it will be worth it not to be considered responsible for a fraudulent return.
For more, see the IRS website.
3. Get your financial documents in order.
This is a concrete step you can begin immediately: Gather and secure copies of all your financial documents. Use my Financial Information Checklist as a starting point, and add to it as necessary based on your individual circumstances.
Get this done before you file for divorce. You cannot expect your husband to help you later. In fact, some husbands make it deliberately difficult. Having financial documents on hand early on will save you time, expense, and possible unpleasantness trying to get copies later.
Keep your documents with a trusted friend or family member, or use a safe deposit box that your husband can’t access.
4. Address your credit needs.
Request a copy of your credit report, and address any misinformation it contains. Many women don’t pay attention to their individual credit situation while married. If that describes you, it’s time to rectify that situation, whether or not you’re getting divorced. Good credit is essential for obtaining financing for any purpose, and these days, few people even manage household expenses without it.
Scrutinize your joint credit card statements closely. If your husband has used those cards to pay for a Sun Valley ski trip with his girlfriend, for example, you’ll want to be able to document that when your divorce gets underway.
Establish credit cards in your own name as soon as you can. This is especially important if you don’t have your own income. Although regulatory changes have been made to allow non-working spouses to apply for credit based on shared household income, it can still be difficult to get approved if that income isn’t individually yours. Apply to several companies, and be prepared for a wait.
5. Establish your own bank accounts.
While you’re waiting to be issued credit cards, you should also discreetly set up the bank accounts you will need as a single woman. Use a different bank than where you and your husband currently have joint accounts, and open savings and checking accounts in your name alone.
Fund these accounts as best you can. Divorce is expensive, and the more you can set aside toward the effort, the better off you’ll be.
6. Assemble your professional divorce team.
If you’ve been thinking that all it takes is a good lawyer to get through a divorce, you’re in for a surprise. Today’s financial portfolios and associated regulations are exceedingly complex, and the financial nuances will be outside your attorney’s area of expertise.
Start with a matrimonial/family law attorney, a divorce financial advisor, and a therapist. (As I mentioned earlier, it’s only natural for people going through divorce to experience strong emotions. A compassionate therapist will help you cope emotionally, while you’re thinking financially.)
Research likely candidates, and schedule interviews with the best ones. Make sure to seek out expertise in any circumstances unique to your case. Then, with your professional team on standby, you’ll be confident in knowing who to call when the time comes.
Spring is a great time to lay the groundwork for your life as a single woman. Make progress on these six points, you’ll be well on your way to starting that life with a strong financial foundation.
Jeffrey Landers is a member of the DailyWorth Connect program. Read more about the program here.