After a Divorce, Follow These Steps to Help Improve the Long-Term Money Situation
Divorce affects the finances of both parties as they split. Sometimes one partner faces a much lower standard of living — and dramatic lifestyle changes because of that. With the housing market down, interest rates falling and the costs for goods and services is increasing, there’s an even bigger effect on couples, said Barbara Shapiro, vice president of HMS Financial Group in Massachusetts and regional director of the Institute for Divorce Financial Analysts.
It is putting a dent in every couple’s finances, but it is especially true for the couple trying to split their assets, she said. “Everything becomes depressed, the value of things become depressed, so there is less to divide,” Shapiro said.
If you are facing this situation, here are tips to help you improve your money situation long-term.
1. Create a financial plan.
Much of the financial information regarding your expenses, child care needs, your income and other assets was collected for use during the divorce process. Now look at those costs, factor in any child and spousal support, and adjust accordingly to reflect your single status. Don’t forget health care and life insurance costs and those of your children if they are not covered under the noncustodial parent’s policy. The key is to be realistic and not to make any rash fiscal moves as you are settling into your new situation. Once your financial plan and everyday budget are established, follow them.
2. Separate your finances.
Make sure all joint credit card accounts have been closed. Open new accounts in your name so you can begin building a separate credit history as soon as possible. Change the title on your home and record the change with the mortgage company. Change the name on the utility bills to reflect who is now responsible. Change registration, tags and title on vehicles. Update wills and beneficiary information. Close joint safety deposit or post office boxes, and open new ones if needed. Put a certified copy of your divorce decree in your new safety deposit box.
3. Inspect your insurance.
Obtain all necessary insurance to protect yourself and your property now that you are on your own. This includes health, life, auto and homeowner or renters insurance.
4. Notify others of a new name.
If the divorce decree provided for a name change, get a new Social Security card, driver’s license, passport and credit cards. Notify your bank, investment account manager, all credit accounts, personal lawyer and accountant of the change. To change your name with the Social Security Administration (SSA), file Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency’s Web site, by calling toll free 1-800-772-1213 and at local offices (you can find these addresses at the SSA Web site).
5. Get your credit reports.
You’ll also want to notify the three major credit bureaus — Equifax, Experian and TransUnion — of your name change and, at the same time, get a copy of your credit report. Federal law allows you one free report from each bureau each year. Review the reports to ensure that any closed accounts are noted as such and that any other updates have been made in the credit agency file.
Credit Reports Sources Annual Credit Report Request Service:
http://www.annualcreditreport.com (877) 322-8228, P.O. Box 105281, Atlanta, GA 30348-5281
Equifax: Credit Information Services
http://www.equifax.com/home P.O. Box 740241, Atlanta, GA 30374
Experian:
http://www.experian.com/ National Consumer Assistance Center, P.O. Box 2002, Allen, TX 75013
TransUnion:
http://www.transunion.com/ Consumer Disclosure Center, P.O. Box 1000, Chester, PA 19022
6. Review retirement plans.
If there was a division of a pension, 401(k) or IRA, confirm that a Qualified Domestic Relations Order has been submitted to the fund administrator and implemented correctly. Also make sure that, as recipient of the distributions, you have established an account for the funds to be transferred to. If you were married for at least 10 years, you are entitled to make a claim against your former spouse’s Social Security when you are eligible for the benefit. And ex-spouse can receive either 100 percent of his or her Social Security payment, or 50 percent of the former spouse’s entitlement. Check with the Social Security Administration for details.
7. Audit yourself.
Speak with your accountant or personal attorney about potential tax ramifications of your divorce. Make sure that all joint tax responsibilities are taken care of properly.
