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Important Financial Factors Of Divorce

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By Author: Tim Harris
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There’s no getting around the fact that divorce can be a financially stressful, even catastrophic process. It can take years to recover from both the initial financial hit, and the recurring payments that come with it.

The most common reason for the demise of many marriages and their eventual divorce is matters of money. Strangely enough, financial matters continue to be the root of most of the arguments divorcing spouses argue over. Here are some important financial factors you should consider before and during any divorce negotiations.

Financial Factors to Consider

Taxes Will Be Handled Differently
There is no such thing as a “simple” way to file taxes. Surely, taxes seemed messy enough when you were filing as a married couple. The trouble is, divorce is not going to make this any more simple. In fact, filing taxes during divorce is probably more complex than it will ever be for most people.

It is a common misconception that separated couples file taxes separately. It sounds simple enough. Unfortunately, the IRS doesn’t see it that way. Unless you are completely divorced, legally you will have to file jointly. This means you and your spouse will have to be civil and put any hostilities to bed temporarily in order to keep both of your financial houses in order. Additionally, once the divorce is finalized, you will both need to keep five years of joint tax returns in your records.

If there are children in the picture, things can quickly become much more convoluted. The law has decided that parents can share custody of children, but that doesn’t mean the IRS follows the same rules. After a divorce, only one parent will be able to claim the kids for tax purposes. If one of you has majority custody, than this matter has already been settled. Parents with majority custody will be responsible for claiming dependents. However, if you are faced with an even custody agreement, then the responsibility of determining who claims dependents falls on the divorcing couple. Once again, you must set emotions aside and work together to find the best solution for both parties.

Your Insurance Will Change
In many households, typically one spouse serves as the policyholder for the entire family. For obvious reasons, divorce will disrupt this setup. Both parties will need to update their insurance policies, independently. Once again, children will make matters a little more complicated, as both spouses must decide who will be responsible for including the kids on their policy.

Your Income Will be Split
While it is common knowledge that splitting up means splitting income, it is no less important to remain very much aware of this fact as you proceed with a divorce. It is no small matter, and agreeing on and understanding the distribution of income can help in making some of the other important financial decisions that will come up. This goes double for stay-at-home parents who will be solely dependent on their spouses’ alimony payments until they can find new employment.

Create A Personal Bank Account
Most married couples hold joint accounts together. After going through with divorce, both parties will need to manage their own finances independently. This means opening a new account that only you can access to use as a primary. You will need to ensure that all your income points to the new accounts so you can manage it’s distribution without intervention. While you should channel all new income to this account, you do not want to transfer your existing funds immediately, as this will be treated as suspicious behavior.

Manage Your Credit Score
Divorce comes with a host of costs and changes to your balance sheet. This may mean having to borrow money to change residence or replace lost resources. This is why it is important to check your credit score, and begin to start working towards improving it if it is low. This includes paying down neglected debt and making sure all of your payments are made on time.

Take Care of Joint Debts
While divorce declares your legal separation from your former spouse, it does not free you from the bond to your mutual debts. Both parties are still responsible for making sure payments are made. This includes things such as student loans, car loans, mortgages and more. If your former spouse defaults, it is still on you to make sure the payments are made.

Negotiate Distribution of Real Estate
If you and your spouse own a home, it is likely that the most fair option will be to depart with the property and divide the equity. Both parties will need to agree upon who pays for closing costs and fees associated with selling, who will continue to pay the mortgage down, and how the equity will be divided fairly.

Don’t Neglect Your Finances During Divorce
The pain that comes from divorcing your spouse goes far beyond numbers and finances. However, if you handle financial matters responsibly and in a civil manner, it will free both parties up to begin coping with their emotions and private matters. Don’t be afraid to lean on your divorce attorney at this time. They are there to help guide you through what will likely be one of the most trying times of your life.

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