Financial Issues when DivorcingIn this section we will discuss the financial aspect of divorce and changing financial situations.
Divorce affects every aspect of your life. A large part of your life that changes is your financial situation. A reality of divorce is that your lifestyle is bound to change, and often not for the better. It may not be permanent, but chances are it will, especially if there is a large disparity between salaries and earning potential. With this in mind, you will need to carefully think through all your financial decisions. If possible, it is best not to make any major purchases, such as a new car, or another residence. Before making any kind of large purchase consult your attorney. It may have a direct bearing on your case. During a divorce is not the time to act impulsively.
You can also save a lot of money by doing the following:
Hard as it may be, you should try to treat the financial part of your divorce as if you were running a business. Don't let your emotions interfere with your financial decisions. You might love your home, but the reality may be that you simply cannot afford it any longer. Another costly mistake people make is to seek revenge through the finances. No matter what you may think, you are not entitled to everything. There are guidelines that are followed for splitting assets and determining child support and alimony. If you take the stance of "I'm going to wipe him/her out" you will probably end up wiping yourself out as well. Everybody loses in that situation.
It is in the best interest of both parties involved to cooperate fully when it comes to financial matters. If you can't agree on financial (or any other) issues, you will end up in court with a judge making the decisions. Judges don't care about the emotional issues of your divorce when making financial decisions. Generally, they don't concern themselves with issues such as tax consequences either. That reason alone should be sufficient motivation to negotiate as much as you of your settlement as you can.
Benefits For A Divorced Spouse
Benefits for Surviving Divorced Spouses
Benefits paid to a surviving divorced spouse who is age 60 or older (50-60 if disabled) will not affect the benefit rates for other survivors getting benefits.
Of all the assets that you have the one you are least likely to protect is your credit rating. It is very easy to let your credit rating deteriorate during a divorce. You might not think maintaining or establishing a good credit rating in your name is very important, you will one day find out exactly how important it is to your financial well-being. Under certain circumstances it is sometimes unavoidable that credit rating is affected, but you can take steps to maintain a good credit rating.
A credit report is information compiled about your credit payment history. All accounts in your name or any account opened jointly by you and your spouse after June 1, 1977 will appear in the report. If your spouse has an individual credit account and has authorized you to use it, that account will also appear in the report.
Banks, retail stores, credit card companies and other lenders report to credit agencies. Public record information such as tax liens, bankruptcies, or judgments against you also appear on your credit report.
Federal law regulates who may access your credit report and the reasons for accessing it.
The three major credit reporting bureaus are:
PO Box 740241
Atlanta, GA 30374-0241
800-685-1111 To order your credit report
800-525-6285 To report fraud
Experian (formerly TRW)
PO Box 1017
Allen, TX 75013
888-397-3742 To order your credit report
800-301-7195 To report fraud
PO Box 390
Springfield, PA 19064
800-916-8800 To order your credit report
800-680-7289 To report fraud
Consult a bankruptcy attorney as to the implications of filing for bankruptcy. The implications can last for 10 years and may not be in your best interest depending upon your circumstances and the results you were looking for. Bankruptcy is not always the easy way out of debt or your best solution.
Several types of debts are not dischargeable in bankruptcy court such alimony, child support and student loans. In addition if you and your spouse are jointly named as a debtor only you will discharged from the responsibility of paying the creditor. But, if your divorce settlement states that you are responsible for any part of that debt, then your spouse can collect from you the portion that you are responsible for if the debt is paid.
There are primarily 2 types of personal bankruptcy, Chapter 7 and Chapter 13.
Chapter 7 discharges most of your debts. In some cases you might have to surrender some of your property. If you own a home you might not have to surrender it if the equity of the home (current value of home minus mortgage balances) is under a certain amount. Some states also allow you to keep clothing, household furnishings, property and other basic items.
Chapter 13 allows you to keep all your property. You develop a plan that allows to repay a portion of your debts through monthly installments based upon your earnings. The plan would be in effect until the debts are paid in full or until the end of a three to five year period.
NOTE - There is currently legislation before Congress in regards to bankruptcy laws. Please consult a Bankruptcy Attorney as to the status of the proposed law changes and the impact it could have on your case.
Every state is different, but if you and/or your spouse have a pension there is a good chance it/they will be subject to some form of equitable distribution.
Few areas of equitable distribution seems to strike a chord more than splitting a pension, especially if one party has worked outside the home and the other party has not.
More than likely, if you are young, your retirement funds are not something you give much thought to. Going through a divorce will change that. As with every other decision you make concerning your divorce, what you decide about the division of the pension will affect your lifestyle. The only difference is that you won't feel the effects until it's time to retire. It's important to keep in mind that what was once going to support one household in retirement must now support two. This is a good opportunity to see exactly what you have and what you will need for your retirement and start planning for your own individual retirement.
Pension plans are complex to say the least. Each plan is different. You and your spouse may be able come to an agreement on how to split it, but to obtain the valuation will require an expert. Depending on the type of plan that you have, the "real" value may differ from the value the court assigns to it.
The value of the pension will also vary depending upon your individual state's laws regarding when the pension becomes qualified for equitable distribution and as of what date the pension is to be valued at. If you had a substantial pension prior to your marriage, that portion of it may be considered a pre marital asset. In addition the date to be used to determine the final value of the pension may be the date the divorce complaint was filed. Your attorney would be able to answer these questions for you.
Pension plans are an asset and can be used as a bargaining chip when negotiating your final settlement agreement. But beware, trading off the pension for an asset may not be in your best interest. Remember the real value of the pension and the values assigned by the court are not always equal. Consult a professional before making any decision to give up your share of the pension.
The QDRO QuandaryA QDRO (pronounced 'quad dro' and stands for Qualified Domestic Relations Order) is a separate court order awarding a share of the pension to each party in the divorce. Immediately upon filing for your divorce you must take action on the division of any pension that qualifies for equitable distribution. As the beneficiary of the plan you should contact the plan's administrator and request of the summary plan description. Once you obtain this description you can determine your rights under the plan. Each plan is different so you must find out the specific requirements of the pension in order to acquire your portion. It is your attorney's responsibility to prepare the QDRO. If the QDRO is not prepared according to the plans specifications it will not be honored. This will cost you additional money in attorney fees as well as putting your distribution at risk. It is very important that all pension issues be settled before the divorce is final. Even if the pension is included in your settlement agreement and you don't get the QDRO when the divorce is finalized you will have to go back to court to obtain it. This may be putting your share of the pension at risk. In a recent court decision (Hopkins v. AT&T Global Information Solutions Co. No. 96-1363, US Court of Appeals, 4th Circuit, January 24, 1997) if the QDRO is not prepared and submitted until after the divorce, and your former spouse remarries and retires before the submission, the QDRO may not be enforceable. His or her current spouse would become vested for the surviving spouse benefit.
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