Under normal circumstances, financial planning is critical in securing your long-term well-being. But when you’re faced with a divorce, the need for financial planning may become even more essential.
While it can feel overwhelming, focusing on your finances can put you on track to transition to a new life successfully. With that in mind, here are five financial tips as you and your spouse start splitting up assets.
1. Collect the Necessary Information and Documents
It’s essential to collect as much accurate and comprehensive information as possible. If you don’t know how to get started, consider the following documents:
Tax returns – Even though your filing status will change with your divorce, your lawyer needs to know what tax bracket you used to be in when filing as a married couple. You should read more about tax returns here. Pay stubs – You can pinpoint exactly what has been coming from your and your partner’s paychecks. Besides, pay stubs show you any insurance or benefits automatically deducted that you may need to budget extra for. Expense worksheet – While it’s one of the most challenging documents to create, an updated expense worksheet detailing your daily and monthly needs will help you plan for maintaining your lifestyle after your divorce. Investment statements – They’ll help you assess how much cash available to cover the divorce costs. It’ll also help you decide whether to move assets around to create liquidity and lower risk exposure. Estate planning documents – We’ll explain them below, but you should save them to your personal files immediately.
2. Create an Agreement To Separate Debts
Create a separation agreement if you and your partner hold joint bank accounts or credit cards. Even though you’re separated, either spouse can continue withdrawing from joint accounts. You’re also potentially liable for any charges on a common credit card during this time.
Once you’ve agreed to separate debts, open a new bank account and a credit card in your name unless you already have one to start building a credit history. It’s crucial if you’d like to buy a home in the future.
3. Track Your Expenses
Start tracking your household income and expenses as soon as you know your divorce is inevitable. It helps build a budget post-divorce, and it’s crucial for your lawyer and the judge in determining how to split assets and debts, along with whether to award child or spousal support.
4. Think of Your Insurance and Beneficiaries
If you have children, you must ensure that funds are available to them in case you or your spouse pass away. Suppose you’ve already had a life insurance policy with your partner as a beneficiary. In that case, you can make your children the beneficiary. If not, one of you may be required to purchase a policy to benefit your children.
You should also review your health insurance when getting divorced. If your spouse’s insurance policy covers you, you may need to get your own. You must also decide whose health insurance will cover your children’s medical and dental needs.
5. Plan Your Estate
An estate plan outlines instructions for distributing your properties and fulfilling your charitable objectives in the event of your death. It’s vital to update your will and documents related to trusts you hold, such as changing your executor, beneficiaries, and power of attorney.
Each spouse may have financial and medical power of attorney for the other, so you should consider giving this designation to someone else. Moreover, remember to update beneficiaries on your retirement plan through your employer.
Know When To Get Help
Divorce laws vary, so you should be cautious of advice that you just got out of anywhere. If you are unsure about moving money, changing accounts, or making any other financial moves pre-divorce, consider consulting with a lawyer. You would have an even harder time at this if you were married outside of the UK or married a North American.
If your spouse is Canadian or you were married in Toronto, reach out to family lawyers in the country, like the team at Nussbaum Family Law. With years of experience handling family law, they can provide objective advice and personalized guidance to navigate this challenging time.