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Free Divorce Checklist
Get a sample of the Money & Divorce book with a free
checklist included in the book. With or without the book you can use
this checklist to help you stay on track and on target.
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Money: The Third Side of Divorce
by Patricia A. Stallworth, CFP
Everyone knows about the
legal side and the emotional side of divorce, but all too often they
forget about the third side – the money or financial side. And that can
be a mistake. Whether you have a little or a lot, the decisions you make
during your divorce can have a major impact on your future.
Divorce at its core is a
financial transaction. Two people come together and, in the end, they
reach an agreement to divide a group of assets (things they own) and
liabilities (debts they owe), and settle custody and other issues. So,
with just a few exceptions, money-related issues dominate the entire
process, yet you can get so caught up in the legal and emotional sides
that you forget how important the money side really is until it’s too
late.
So, what should you focus
on when it comes to the money side of your divorce? Here are three areas
to seriously consider:
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What’s the divorce
going to cost?
Divorce is expensive. And the money you spend on your divorce will not
be available for you to spend on your new life. Forbes.com estimates
the average divorce costs to be roughly between $15,000 and $30,000.
There are all kinds of costs associated with divorce and many of them
are within your control. For example, if you plan to work with an
attorney, remember attorney’s fees can represent a large part of the
costs, so do your homework and hire someone who will really work for
you at a cost you can afford and be sure to get the terms in writing.
Then don’t stop there, look for other ways to cut costs.
-
What’s it going to cost
you to live after your divorce?
Many people believe
that their costs will go down when they get divorced, when they might
actually go up. To get a better idea about what might happen in your
situation, calculate what you’re currently spending and then determine
how your costs might change after the divorce. Remember, you are
taking one household and turning it into two, so your costs may be
going up in several areas while your income may be staying about the
same. It’s important to find out before the divorce is final if you
will be okay, especially if the possibility exists for spousal support
or other remedies.
-
What’s the true
value of what you own and what you owe?
Sometimes this can be a real eye-opener because things are not always
what they appear to be. While you’re pretty safe in taking the
statement value of your savings account as what you will actually get,
unfortunately, the same cannot always be said for some other
investments like retirement plans that have never been taxed and
stocks that have appreciated in value. Failing to take taxes into
consideration when dividing assets can mean that one spouse may end up
with a smaller piece of the pie when they make a withdrawal or sell
the investment. For example, let’s assume that in your settlement, you
get a 401(k) valued at $100,000 and your spouse gets a savings account
valued at $100,000. When your spouse takes money out of the account he
or she will get the full amount. However, you will not fare as well.
If you’re in the 25% tax bracket (federal and state), you could owe
25% or $25,000 in taxes, and if you are under age 59 1/2, you could
owe a 10% penalty or $10,000 for a total of $35,000 leaving you with
$65,000 and your spouse with $100,000.
So as you can see,
focusing on the money or financial side of your divorce can make a big
difference. Remember, if you don’t mind your money someone else will,
and then they will control your future! And this is especially true when
it comes to divorce.
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