The Sun Herald reported eight financial tips for couples navigating the divorce process and unraveling their joint finances to handle divorce fees and avoid debt.
- Organize your bills and bank statements. File your paperwork in clearly labeled folders. Separate necessary from unnecessary information. California-based family law attorney David Pisarra suggests to “make copies of everything related to financial issues. When couples split up, bills are no longer jointly paid so if you are contemplating a divorce it’s critical to acknowledge the financial components that come along with it.”
- Organize important records. Important documents such as your will, birth certificate, passport, 401(k) retirement savings plan and tax returns should be filed neatly and safely in a secure place, such as a safe.
- Allocate a spending budget. Once that finances and assets are split, you can asses and allocate a spending budget as well as a savings plan. Document daily, weekly and monthly spending. Dawn Cardi, a divorce lawyer in Manhattan, suggests that you “write down from your checkbook and credit card statements what you actually spend and not what you estimate you spend.” She finds that “most people are shocked by what they discover.”
- Eliminate extraneous spending. By documenting what you spend, you will be able to identify how much you spend on essential items such as housing, utilities and food. You will be able to identify, cut down and perhaps eliminate extraneous spending by dining out less and spending less on entertainment and nonessential clothing purchases. Financial experts suggest that you pay cash for nonessential items; therefore, you’re less likely to spend on them. Costs can be cut by minimizing your lifestyle.
- Reduce debt. By saving in other areas and eliminating nonessential spending, you can begin to tackle debt by diligently paying credit card bills in full every month on time. If you are already facing credit card debt, consolidate to one credit card with a low percentage rate and a no or low annual fee.
- Reserve 6 months of savings. Financial experts such as Suze Orman suggest having 6 months of living expenses reserved for unforeseen difficult financial times.
- Plan for retirement. It is sometimes difficult to plan for yourself if you have children and potential college costs on the future horizon. Never cash in your 401(k) plan. Cashing out draws penalties and taxes that may outweigh the immediate cash benefit. Consider rolling your 401(k) into an Individual Retirement Account (IRA).
- Always have a backup plan. A 6 month reserve plan eases a transition time. Organizing and knowing your finances enables you to make smart, informed decisions on what you can and cannot afford in creating a manageable budget to ease the divorce process.
Source: Sun Herald