It’s like the song says - breaking up is hard to do. But breaking up and dealing with the financial implications of a split is even harder. Managing finances through this emotional time can be a very challenging task, but it is important to ensure that your finances don't suffer more than they have to. By protecting yourself and evaluating your finances, you can prevent the long-lasting impact of a divorce on your financial future.
#1 - Get financially prepared ahead of time
If you think your relationship is heading towards separation/divorce, start paying attention to all of the accounts in advance. In many relationships, one partner handles the finances and the other person may not know a lot about what is going on. If that's you, it might be time to start looking at everything – your account balances, your bills, your tax returns – anything that will help you get a handle on what assets you hold jointly with your partner. It may be beneficial to meet with a financial advisor ahead of time so you have an idea what you will need to do once you are out on your own. Your financial situation may change significantly once you're flying solo, so establishing a new budget that matches your new financial reality and sticking to it is important.
#2 - Divorce from joint accounts, too
Once you split, it is generally recommended that you immediately close any joint accounts, because an angry or disgruntled ex might decide to run up a bill or spend joint assets. By closing these accounts prior to the end of your relationship, you can save yourself the trouble of dealing with the messy aftermath of who gets what.
#3 - Update your beneficiary designations
In some cases, divorce will negate any beneficiary designations you made of your spouse during marriage (meaning courts will no longer see them as the primary beneficiary of your stuff after you die). However, some accounts, such as a Colorado PERA retirement account, do not automatically change this designation upon divorce. If you don't want your ex ending up with your assets should something happen to you, take this step ahead of time and choose a new beneficiary. (But remember, some divorce settlements require that you maintain certain designations so always comply with orders of the court).
#4 - Create a new system
As I mentioned above, you might not have been significantly involved in the finances prior to your split, and this means you may need a new system of financial management to follow. If you weren't primarily responsible for paying the bills or maintaining the budget before, a slew of new financial responsibilities may be too much to handle after all is said and done. By proactively thinking about how you plan to tackle your independence, you can make sure the transition is as smooth as possible. If you weren’t able to close joint accounts, it is particularly important not to rely on your ex to make payments. Better to be safe than sorry when your credit score is the one at risk.
#5 - Establish your own credit
When you decide to split, pull your credit report immediately. This report will give you an idea of where you stand and what outstanding obligations are being reported under your name. If you have spent your marriage sharing credit with your partner, it might be time to open an account in your own name so you can start building credit on your own.
#6 - Ask for help
This can be a very overwhelming time, and it's important to take care of yourself. This may mean finding comfort from friends or family, or reaching out to those who have experience with a divorce. There are many support groups and professional organizations, including financial advisors, counselors, and attorneys, who are available to help.
This post was written by Kimberly Riccardi from Colorado PERA.
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