Life Stages – Dealing with Divorce

Divorce can be costly, but it doesn't have to lead to financial ruin. Keeping a level head can help you through this difficult time.

Divorce Truths

Three things are usually true in any divorce:

• It's an emotionally distressing time.

• Your finances will be scrutinized and altered.

• Emotions and finances are difficult to manage at the same time.

That being said, there are ways to effectively handle your finances to keep from drowning during and immediately following a divorce.

Statistics show that about half of all U.S. marriages end in divorce, and there's a lot of information available to you if you're in that group. Going to any search engine on the Internet and typing in "divorce" will lead you to an astonishing amount of information. Since laws vary by state, be sure to search for information specific to your state of residence.

"Friendly" Divorce?

It may sound unbelievable, but it's possible to have an amicable and peaceful divorce. If you and your spouse can sit down and agree on the settlement details, you'll most likely save yourself a lot of time and money. After you work out the details, you'll need an attorney to file the appropriate paperwork in court.

Mediation and Arbitration

If you can't work things out on your own, you might look for information about mediation and arbitration on the Internet.

Mediation – With mediation, a mediator works out compromises and solutions between you and your spouse. There's no winner or loser — the settlement is fair and reasonable for both. The mediator doesn't have the power to enforce a settlement agreement.

Arbitration – With arbitration, an arbitrator listens to arguments from both you and your spouse and then decides the settlement. In some cases, the arbitrator's ruling is binding.

Mediation and arbitration are less expensive and less time-consuming alternatives to using lawyers to work out your settlement, but you'll need an attorney to file the divorce paperwork in court. For a broad overview of divorce issues, read the state of Iowa's booklet Divorce: Things to Consider.

First Things First

Marital Assets – Before meeting with a mediator, arbitrator, or attorney, it's important to know exactly where your finances stand. Make a complete list of your marital assets, including:

• Bank accounts

• Real estate

• Investments

• Retirement accounts, such as 401(k)s or Individual Retirement Accounts (IRAs)

• Furnishings

• Jewelry

• Fine art and collectibles

Once you have the list written, you need to have the items appraised for current market value. This information will be the basis for the division of assets.

Child Support Needs – You should also determine how much, if anything, you'll need for child support. Be sure to include:

• Food and clothing

• Medical and dental expenses

• Tuition and school supplies

• Extracurricular activities, such as camp, athletics or music

Your Spouse's Income – Do you know exactly how much your spouse earns? It's a good idea to have written documentation of income, including:

• Salary

• Bonuses

• Stock Options

See the Bankrate.com divorce to-do list 10 Steps to a Money-Smart Divorce. For a discussion of women's financial issues during divorce, listen to the AARP audio webcastFinancial Planning During Divorce.

Handling Debt

After looking at your assets, take a look at your debt. Part of the settlement process should include a written agreement about which one of you is responsible for specific debts. An important thing to know is that your creditors don't care about your divorce decree. If your spouse is listed as the responsible party for a joint account and doesn't pay, the creditor can legally attempt collection from you. Read the U.S. Federal Trade Commission factsheet on Credit and Divorce.

Additional Tips

• Contact your creditors. Let your creditors know about your change in marital status.

• Get copies of your credit report. It's a good idea to review your credit report when you have a change in your finances. For more information about credit reports, read the related articles in our Knowledge Center Library.

• Get new titles of ownership. If ownership has changed on things like your home, car or stocks, be sure to have them listed in the appropriate person's name.

• Look at your insurance coverage. The spouse who pays child support and/or alimony should have sufficient disability insurance to cover the payment if disability occurs. Similarly, there should be sufficient life insurance to cover child support and/or alimony payments if the spouse dies. It's also a good idea for each party to reassess life insurance needs. For example, if you're the primary caregiver to your child, you may need more. For more information about insurance, read the related articles in our Knowledge Center Library.

• Redo your budget. A change in financial status is a good time to update your budget. For a detailed discussion on budgeting, read the related articles in our Knowledge Center Library.

• Review your mortgage. Some mortgage lenders include a clause that the loan is due in full once a final divorce decree is issued.

• Review your will. Some states automatically remove ex-spouses from each other's wills.

Going through a divorce can be manageable if you know what to do. Using the information above can help you maintain your financial well-being.

Take control of your finances with our debt help tools. Use ourcalculators and budget planner to help you manage your money.

For more information on personal finance, or debt consolidation, search the CareOne Credit Knowledge Center Articles.

To learn about our debt management service, see the CareOne Credit Quick Answer Guide.

Other Articles Related to Life Changing Events:

• Losing Your Job – Planning ahead for the potential loss of a job can help you stick with your debt management and financial goalsetting. Besides saving up each month, look at COBRA insurance to keep your health benefits, and check into unemployment insurance, designed to help out during this time while finding another job. By anticipating that one day you may lose your job you can decrease the actual stress levels of job loss and stay on track while finding new employment.

• Retirement – When the day arrives to retire, you need to know that you can actually live off of the income. Look into investing your retirement income over simply saving it, and check out your retirement payment options to analyze how your choice of income payments affect your other investment avenues. It's important to make your retirement income lasts!

• Losing a Loved One – While losing a loved one is hard, it is up to you to plan for this event and to possibly settle their estate. Make sure you know where the appropriate paperwork and contact information is located to find out about their insurance benefits, employer notification, social security income, and funeral expenses. Checking their will along with their liabilities is also important. The loss of a loved one should not derail your efforts to stay on track with your own debt management or financial planning.