In general, going through divorce proceedings is a trying experience, and understandably so. Spouses suddenly find themselves without a partner after many years of sharing their lives with another person. The legal and practical ramifications of severing this relationship can be enormously painful—and matters are even more challenging when financial considerations enter into the picture, as they inevitably do.
After divorce, one’s financial situation will be markedly different from the way it was prior to filing the papers. When dependent children factor into the equation, the problem of juggling financial responsibilities assumes an extra dimension of complexity. It can seem overwhelming to deal with all this, but, with some sound planning and wise decisions, it’s possible to minimize the hassles involved with reforming one’s post-divorce finances. Below we’ll discuss some tactics and strategies for achieving this goal.
Get a Financial Advisor
This may be the number one tip in this article, simply because a skilled, experienced advisor will be able to guide you through at least some of the steps mentioned later on. In general, spouses going through a divorce find themselves in highly unfamiliar territory—even if it isn’t their first marriage, it’s likely that there are specific aspects of the present proceedings that they aren’t sure how to manage. You can save yourself a lot of trouble by simply obtaining the services of a financial advisor who has extensive knowledge of divorce law. They’ll be able to help you make your way through the tangle of legal and practical obligations that divorcing spouses often have trouble with.
Get a Copy of Your Credit Report
Over the course of a marriage, spouses tend to amass a number of joint credit accounts of various types. In many cases, they lose track of these accounts, particularly ones that are long inactive or those that were never used at all. Now that you and your spouse are dissolving your marriage, you need to take stock of all these accounts, and you can do this by obtaining a copy of your credit report. This will list all of your active joint accounts, in addition to giving you valuable insight into your current credit situation.
Try to Remain on Amicable Terms with Your Spouse
Financial management during divorce tends to involve dividing assets and responsibilities; this process becomes much easier when the relevant parties are willing to “play fair” with each other and arrive at a reasonable, harmonious agreement under their own power. Given the contentious nature of divorce proceedings, this isn’t always an achievable goal, but be aware that everything will go more smoothly if you and your spouse are able to arrive at agreements on mutually acceptable terms.
Add Up Your Assets
You need to figure out what you have—what property belongs to you alone, and what can be classified as marital assets. Everything that you acquired prior to getting married counts as non-marital assets, and, for that reason, the courts have no jurisdiction over it. In addition, certain property can be classified as non-marital if both spouses agree that it should be legally regarded as such. Marital property—e.g., homes, vehicles, securities, and so on—is what comes into play when the courts decide to divide the couple’s assets.
The precise manner that the courts customarily divide these assets depends on many factors, such as the length of the marriage, any obligations persisting from a prior marriage, the needs of the couple’s children, and a host of other issues too numerous to list here. This is another area where a financial advisor will be able to help you grasp the various factors involved.
Separate Your Finances
If you have had a joint bank account during your marriage, it’s a good idea to establish a new account controlled solely by you. If possible, you should also close any joint credit card accounts, so you don’t end up paying for your spouse’s spending sprees, or damaging your credit score. In some cases, however, it may be wise to maintain a joint account in order to pay for bills shared by both spouses, especially if these expenses were incurred during the marriage. If your spouse is responsible for paying jointly held debts, it may be wise to check periodically to ensure that payments are being sent and processed properly.
Be Aware of Long-Term Consequences
When hammering out a deal to divide assets, be sure to keep in mind your future circumstances, as far as you can predict them. For example, any future schooling you may undertake will cost money, and this should be borne in mind during the process. Additionally, you will probably have to change the beneficiary of your insurance policy and/or retirement plan, as this will not happen automatically once the divorce is finalized.
Be Aware of Property Transfer Laws
It’s likely that divorce proceedings will result in dividing property that was once jointly owned by both spouses. This may or may not result in imposing new tax burdens on each spouse. Whether it does or not depends on your compliance with IRS Code § 1041, which holds that "no gain or loss shall be recognized on a transfer of property" from a particular individual to their spouse or former spouse—in the latter case, the transfer must be as a result of a divorce settlement, and it must take place within one year of the divorce.
In other words, property transfers that fall under the auspices of Code § 1041 are tax-free. If the spouse receiving the property elects to sell it to another party at a future date, then that spouse is responsible for all taxes incurred as a result of that transaction.
Make Sure the Kids Are Covered by the Agreement
If you and your spouse have dependent children, then this creates additional complications when it comes to arranging finances. It’s likely that your divorce proceedings will involve figuring out child support and custody obligations. In the state of Nevada, the courts generally expect spouses to go through a mediator in an effort to reach an amicable agreement. If this fails, only then will the court intervene to impose an agreement on the parties involved.
So, how do you go about calculating child support figures? Add up all the expenses that your kids incurred over the past year—food, clothing, schooling costs, and so forth. This should give you a reasonably accurate guideline. Furthermore, it’s a good idea to ensure that the party responsible for paying child support is covered by a life insurance policy, so the children will remain financially protected at all times.
Be Aware of the Possible Need for Lifestyle Changes
Going through divorce can be costly, with all the lawyer bills and court fees involved, and it tends to be a time-consuming process as well. For that reason, there may be a somewhat rocky period of transition before the dust finally settles. You should scale back your non-essential purchases, at least for the time being.
Understand the Liquidity of Assets
Liquidly refers to the ease in which a given asset can be traded. Cash is an extremely liquid asset; on the other hand, a house is not, as this type of property sometimes takes a considerable length of time to sell. It is possible for an individual to have a lot of money “on paper”—investments, real estate, and so on—and yet have little cash on hand to spend. How is this significant for spouses going through divorce?
Sometimes a spouse will receive a large amount of property in a divorce settlement, only to find that these assets can’t be easily converted to cash, and, as a result, they find themselves with few funds for spending on essentials. Be sure that your settlement leaves you with enough liquid assets to get by.
For more information about navigating divorce in the Las Vegas area, consult a local attorney you can count on at https://www.mcfarlinglaw.com/.