The Keep - Your - Cash Divorce

Don’t risk losing your hard-earned money, your retirement account and your home. Here’s our in-depth guide to ditching your husband without forfeiting your finances.

By Jean Chatzky
Photograph: illustrated by Mark Matcho

Start with your life insurance policy and remember that “the goal of life insurance is to avoid the financial destruction of the family,” says Schatsky. When you’re divorced, you have to be sure there’s enough insurance money to take care of your children or older parents in the case of your death—but you no longer have to provide for your spouse, which can save you significantly on premiums. The exception: If your spouse owes you a lot of alimony or child support, he should name you as the beneficiary of enough life insurance to cover that debt in the case of his death, and vice versa if you’re the one who owes the money. This will ensure that your kids are covered even if your estate is decimated to pay off the debt. If your spouse already owns a life insurance policy that designates you as the beneficiary, says Michelle Smith, as part of the divorce negotiation ask to remain on the policy and to be made a “third-party recipient” of any changes—which means you’ll be notified if the terms are altered or if premiums aren’t paid. (In the latter situation, coordinate with your attorney to pay the premium yourself, then have your lawyer go after your spouse to recoup those funds.)

Next, review your health insurance. If you’re covered by your spouse’s policy (and he works for a company that has more than 20 employees), you can keep it for 36 months under COBRA. You will, however, have to pay the premiums, which can be high, so be sure to first compare them with the rates for a solo policy (though these can be expensive, too).

Then think about disability coverage and long-term-care insurance: When you’re single, both of these are more important than they are when you’re married, because there’s no one to provide you with extra income or care if needed. Unfortunately, policies for single people tend to be much more expensive than those for couples. If you purchased a policy with your spouse,
do not cancel it because you’re divorcing. Instead, if you have a joint policy, consider crafting your divorce agreement to make sure the premiums are paid (which is all that matters to the insurance companies), and you’ll both be able to continue your coverage for less than you could with a solo policy.

HAS THE RECESSION PUT YOUR DIVORCE ON HOLD?

There were 20,000 fewer divorces in 2008 than in 2007, largely because people felt they couldn’t afford to separate in the bad economy. But just because couples aren’t splitting legally doesn’t mean they’re not taking action, says Lili A. Vasileff, president of the Association of Divorce
Financial Planners in Connecticut. Over the past few years, she has seen a huge uptick in the number of couples visiting her for pre­divorce counseling. “The idea is, ‘We can’t afford to get divorced right now, but in the meantime we need to figure out how we’re going to preserve what’s left of our assets,’ ” she says.

What’s involved? Among other things:

 Setting up separate bank accounts so that each spouse starts managing his or her own spending and bill paying.

 Figuring out cash flow: How much money is necessary to maintain the house and lifestyle? How much will each partner contribute to do that? 

Deciding if retirement-account contributions are affordable or should be put on hold.
 Paying down debt and/or establishing credit, if necessary, so that each partner ends up with a good credit rating.

The number-one cause of divorce is money trouble, so for predivorce financial counseling
to work, both partners have to acknowledge the roles they’ve played—then agree to put their grievances aside. “They have to accept the fact that they’re not happy, so it’s time to figure out what to do,” Vasileff says. In certain cases, she adds, once the partners address their financial
issues, they decide they want to stay together after all.

First Published March 8, 2011

What’s your reaction?

Comments

Nancy Liebman05.17.2011

Part of having a successful divorce is understanding what you will need to live on going forward. Establishing a realistic budget will help you determine what assets are most important to keep. You need to be realistic about the future but you should have a financial plan that will guide your discussions with your attorney, mediator etc.
My website http://www.getyourfairshare.us provides numerous resources including a budget excel spreadsheet for you to complete.

Jeffrey Landers03.26.2011

When going through a divorce (or thinking about it) you should immediately start gathering all of your financial records. Having all the information together and organized will save you time and money. My company, Bedrock Divorce Advisors, created a Divorce Financial Checklist (you can download it for free at http://www.facebook.com/BedrockDivorce) that will walk you through the key documents that you'll need. Please bear in mind that not everyone will need every document listed. Do not keep these records in your home! Bring copies to your parents, a trusted friend and/or keep them in a safe deposit box that your spouse doesn't know about or have access to.

Phoenix Rector03.23.2011

Marriage is more than a 'business deal'. There is the emotional bank account to take into the equation & attempting to ignore it can be more dangerous than the loss of any finances.
Yes, protect your financial interests, honestly! Don't be a jerk just because the marriage is ending!

Missy 03.19.2011

This article states that, in dividing up stock for divorce purposes, "the ones with the smallest gain would be better to own...those that have lost money could be better still because you could write off the loss." This may be true only if the taxpayor is in a tax bracket that is higher than 50%. For example, assume a taxpayor is in the 25% bracket. If that taxpayor has $1 of capital gain she will pay 25% in tax and keep 75 cents. If the same taxpayor has $1 of loss the deduction would give her only 25 cents ($1 deducted by someone in the 25% bracket saves them 25 cents of tax). Am I missing something?

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