Financial Tips for Women

TIP 3: Create a budget.
Go into the divorce with a sound post-marriage budget in mind. With­out one, you won’t have any way to gauge whether a settlement proposal will meet your new needs. Many soon-to-be ex-wives underestimate just how much it costs to live. “Divorce does not equal half the ex­penses,” said Johnson. “Sometimes there are hard decisions that have to be made,” said Fox. “You might want to stay in that big house where you’ve been raising your kids for the last 15 years, but realistically, can you afford to keep it?” That’s where advice from an expert can help. A divorce financial planner or analyst can run the numbers to help you decide, in this case, whether selling the property and using the proceeds to buy a smaller house would also provide you some money in reserve.

TIP 3: Create a budget.
Go into the divorce with a sound post-marriage budget in mind. With­out one, you won’t have any way to gauge whether a settlement proposal will meet your new needs. Many soon-to-be ex-wives underestimate just how much it costs to live. “Divorce does not equal half the ex­penses,” said Johnson. “Sometimes there are hard decisions that have to be made,” said Fox. “You might want to stay in that big house where you’ve been raising your kids for the last 15 years, but realistically, can you afford to keep it?” That’s where advice from an expert can help. A divorce financial analyst can run the numbers to help you decide, in this case, whether selling the property and using the proceeds to buy a smaller house would also provide you some money in reserve.

TIP 4: Know tax implications.
When considering an asset as part of a settlement, don’t just look at its dollar value. An asset’s tax consequences could make a big difference to whether you want it. Fox cites a couple whose assets include a retirement account and a regular investment account, each worth $100,000. She takes the retirement fund; he keeps the other account. But when she starts taking retirement distributions, she is likely to face a large tax bill on the tax-deferred money. He, however, is in much better financial shape because the regular account has been paying taxes over the years. Also consider the cost basis of property. It could make a huge difference when an asset is sold. Our couple also has two stocks, worth $30,000 each. One has a basis of $5,000, meaning $25,000 would be taxable upon liquidation. The other, however, might have a larger basis, meaning a smaller gain or possibly a loss that can be written off. “Divide the asset itself,” said Fox. “Don’t just say you take this stock, and I’ll take that one. Divide however many shares of each stock you have so that you both keep the same cost basis within the asset.” And don’t forget your largest asset: your house. If you sell it as a couple, you don’t have to pay taxes on up to $500,000 in profit. But a single seller only gets half that exclusion amount. Depending on the real estate appreciation your area, a single seller might exceed that tax-free amount and end up with an unexpected tax bill.

TIP 5: Keep up with details.
The devil is definitely in the financial details when it comes to divorce. “Before the divorce is final, make sure that you get life insurance to guarantee any child support or alimony and make sure the recipient of that payment is the owner of that policy,” said Fox. “If a husband is supposed to be supporting the family and something happens and there’s no life insurance to replace that, what already was a hardship is only going to get that much harder.” And don’t forget to redo your will and update your beneficiaries. “You wouldn’t believe how many times, years later, an ex-spouse is still beneficiary of an IRA or a 401(k). It’s just something that slips through.”


TO READ MORE

Click here to read expert advice for women on knowing marital assets.

Click here to read expert advice about the 15 financial mistakes in divorce.


Sources: Institute for Divorce Financial Analysts www.institutedfa.com; Association of Divorce Financial Planners www.divorceandfinance.com.