Going through a divorce is one of the most painful experiences a woman will go through in her lifetime. I know because I’ve been there. It doesn’t matter who initiates it, the process is enough to turn your whole world upside down, especially when it comes to your finances.
Recent conversations with my female clients, got me to thinking about the financial complexities of dissolving a marriage. If you are considering, or going through, a divorce, I thought this article might help you navigate the uncomfortable financial decisions you’ll be faced with making.
You should know that, statistically, divorce has a more dramatic impact on a woman’s personal finances, than it does a man’s.
According to The Financial Realities of Divorce: (Source)
- One in five women falls into poverty because of divorce.
- Three out of four divorced mothers don’t receive full payment of child support.
- About one out of every three women who own a home and have children at home lose the house after a divorce.
The sad truth of it is that being divorced, for women, sometimes means having to adjust to a lower standard of living. What really disturbs me is that with a little due diligence, an ex-wife can avoid, or at least mitigate, post-divorce poverty. But quite often, she discovers this possibility after the fact, when it’s too late.
So how can a woman take precaution when facing a dissolution of marriage?
Here are 3 important steps to prepare for divorce:
Step #1 – Document Your Assets – start a file for gathering important financial records that you will need during the settlement negotiation process. Compile the following documents:
- Tax returns and other tax documents such as W2s
- Any legal documents such as contracts or business documents
- List of your personal valuables such as jewelry, furniture, art and other collectibles
- List of contents of your safety deposit box and home safe
- Financial documents such as:
- Bank statements
- Retirement account statements
- Annuity statements
- Social Security statements
- Mortgage documents
- Life insurance policies
- Brokerage account statements
- Beneficiary forms
- Trust, wills and healthcare documents
- Automobile titles
Once you have your financial documents together, meet with your professional financial team (accountant, attorney, insurance agent and financial advisor) to discuss pertinent things you should know BEFORE you enter into divorce negotiations.
Step #2 – Know Your Social Security Benefits
As a former spouse, you may be entitled to Social Security benefits based on a worker’s account if you were married for at least ten years, as long as you are not currently (re)married.
This is great news if your ex-spouse’s income was a lot higher than yours.
Claiming ex-spousal benefits does not diminish your ex-spouse’s (or their new spouse’s) benefits.
This can be accomplished confidentially; your ex-spouse does not need to know. However, you will need your ex-spouse’s Social Security number.
As the claiming ex-spouse, you will be able to receive your ex-spouse’s benefit (most likely a portion thereof), or your own at any given time (once you qualify), but not both simultaneously.
Apparently, there are 567 ways to collect Social Security benefits, yet only 18% of recipients are planning to maximize benefits, according to an article on Bankrate.com. (Source)
Even if you’re a long ways out from claiming SS benefits, gather the information you will need now and keep them in a safe place, such as a safety deposit box. At the very least, keep a copy of your ex-spouse’s Social Security statement, their Social Security number and a copy of your marriage certificate. You’ll also need a copy of the final divorce decree.
Do your due diligence and get educated about everything you’re entitled to, including Social Security ex-spousal benefits. I strongly encourage you to consult your tax advisor, attorney, financial advisor and Social Security representative.
Step # 3 – Perform a Beneficiary Audit
I highly recommend periodically reviewing beneficiary designations. But it’s even more important when going through a divorce, because beneficiary designations override the will.
Meet with your financial professional(s) to review:
- IRAs, 401Ks and other qualified plans
- Nonqualified annuities and life insurance policies (including employer sponsored policies)
You’ll also need to reconsider other legal documents, such as power of attorney, health care directives and will & trust documents.
Obviously, this is not an entire divorce preparation list. But it’s enough to give you a strong foundation for getting your finances in order, before the outcome of the final divorce decree.
The bottom line is that you’ll basically be starting over financially. So, get your ducks in a row as soon as you know you are dissolving your marriage. Even if you’re just separating, and not divorcing, it would behoove you to prepare for what may come. That way you won’t encounter any surprises. Trust me, I’ve been there myself, and I’ve heard horror stories about what spouses tend to do to one another during separation. I’m sure you have too.
If you don’t watch your back, no one else will. Now, more than ever, you need to stand up for, and protect, your financial wellbeing.
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