In a country where bankruptcy has becometougher to file, divorce is one of its biggest triggers,which means that financial planning is crucialwhen a marriage breaks up. Experts say thatspouses filing for divorce should seek the help offinancial and tax advisors as well as attorneys skilledin divorce, because the financial issues that getpushed to the background eventually can take a surprisingand disastrous toll on the newly single exspouseand their children.
Here are some ways to avoid a money debacle onthe other end of divorce.
•Start with a budget. Don't pass up theopportunity to set a basic financial budget for yournew life. A Certified Financial Planner™professionalcan help you understand what life will be like financiallywhen you are living with a single incomestream. The Lilac Tree (www.thelilactree.org), a not-for-profit organization for divorcing women, routinelystresses that the budgeting process is crucial,since women now outnumber men in filing forbankruptcy and their long-term earnings prospectsare generally dimmer.
•Find experienced divorce advisors. Thechoice of attorneys—for men as well as women—should fit the challenges faced by both sides. Gooddivorce attorneys definitely cost money, but they payfor themselves. Some Certified Financial Planner™professionals are also certified in divorce planningand can help your divorce team with financial discovery,analysis, and long-term projections.
•Properly value your assets. If you're gettingthe house, does it have a 20-year-old furnace and aroof that's about to cave in? A thorough homeinspection by a licensed inspector could help. If yourspouse runs a lucrative business, how do you knowyou're getting the right share? Hiring a valuationexpert may be necessary. Divorcing spouses need tomake sure they have enough money to financerepairs and replace assets.
•Your kids have rights. In many states, collegeagechildren have the right to demand financial supportor college funding at the state level so their educationisn't interrupted. While both parents shouldadvocate in their kids' best interest, this isn't alwaysthe case. Be aware of your state's divorce laws withrespect to secondary child support.
•File taxes wisely. There are always special situationsin a divorce that will determine whether acouple will need to file jointly or separately duringthe last year that the marriage exists. This is definitelyworth the discussion, since tax fraud can be a liabilityissue for the spouse who had no involvement orawareness of the fraud taking place.
•Document your child support. Child supportguidelines vary from state to state. Generally the criteriafor establishing child support are established byeach state's legislature. If your state has a special programthat allows a spouse to pay into a specialaccount so child support is recorded every month,consider it. It provides a paper trail and enforcementsystem for assuring that children obtain the moneythat they need.
•Watch your spending. Budgeting early in theprocess may cut down on the risk of overspending,but divorced spouses setting up new homes may notbe able to resist. For some, spending makes them feelbetter, one of the biggest reasons ex-spouses facefinancial disaster after divorce.
Reprinted with permission from the Financial Planning Association (www.fpanet.org),the membership organization for the financial planning community.