Going through a divorce can painful, and many people are tempted to rush things and get them over with as soon as possible. But it’s important to not rush or make mistakes during the process, as that could lead you to miss out on money both now and down the road.
Here are three major factors to consider to limit the financial implications of going through a divorce.
1. Look for any missing money.
Before dividing assets, you need to know what you have. Be sure to make a thorough accounting of current bank accounts, personal credit accounts, non-cash assets like a house, car or vacation properties, and future interests like pensions, business investments and stock options. Income earned before the divorce but received after it is filed is also fair game, including any raises or 401(k) contributions.
2. Unlink your assets.
Joint bank accounts can become a major headache once the divorce process begins. Introductory steps should include opening up a new, individual bank account to keep the new income separate, as well as running a credit report to see if there are any outstanding, linked debts. If so, you need to call your creditors and make the necessary changes to the credit line of authorization.
3. Keep one eye on retirement.
There may be perfectly legitimate reasons to borrow money from a 401(k) plan, like to pay for the divorce itself or to keep an individual on their feet by putting a down payment on a new house, but you should always consult a divorce financial analyst before doing so. Even though it can be tempting, bear in mind that if you borrow against your plan balance, you will lose the earning power of funds since you’ll have to pay yourself back (in interest) over a five-year period. If you fail to pay it back, you’ll be hit with a 10 percent penalty if you are under 59 1/2 years old.
Relying on the guidance of an experienced attorney or financial professional during divorce is essential. At Hoffman Divorce Strategies, we’ve been helping both attorneys and individuals with their divorce needs for more than 15 years. For more information, visit us at our website.