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First things first: Gather the paperwork. You will need names, account numbers, addresses and phone numbers for your assets and debts, plus title information, tax returns for three years, pay stubs, wills and deeds, birth certificates and Social Security cards.
Don't go it alone
Whether you're getting divorced or starting over for another reason, you're going to need guidance. Here are some options:- Get a lawyer. It's expensive but a good idea. Don't skimp, don't share a lawyer with your soon-to-be-ex and don't use your lawyer as a therapist.
- Try mediation. You and your spouse will gather and share information. Your mediator's rates may not be cheaper than your attorney's, but you'll spend less time with a mediator, and your bill will show it. Retain a lawyer to review the final settlement.
- Do it yourself. The cheapest way to divorce is to do the negotiating and paperwork on your own. If your finances are simple, Web sites such as Divorce.com and DivorceOnline.com offer information and services to assist you. (See "10 steps to a money-smart divorce.")
Property and assets
From the financial world, marriage is viewed as a business partnership. It doesn't matter that one spouse worked and the other stayed at home.- Assets you brought to the marriage separately are usually yours to take away. But if you put any separate assets into a joint account, they could be considered joint property. (See "What's the difference between community property and equitable distribution?")
- Make a list of your assets, including stocks, bonds and stock options; mutual funds; 401(k) and pension plans; bank accounts; frequent-flier points; vacation pay; tax refunds; safety deposit boxes; and prepaid insurance. Don't forget items like burial plots, club memberships and time shares. Photograph or videotape your valuables. Consider making copies of family photographs.
- If you were married for at least 10 years, you can collect retirement benefits on your former spouse's Social Security. See the details.
- Don't just move out of your home. Unless you fear physical harm, talk to your lawyer before you make your move.
- Consider selling the house. You'll have to decide whether you will be able to afford living in it alone and whether you want to. (See "Should you keep the house in a divorce?")
- If your remaining assets aren't easily tapped, make sure you have enough cash flow for living expenses.
- If you're getting divorced, don't defer your bonus, clean out the joint account or hide valuables. You'll look bad to the judge, if you go before one.
Your debt, my debt, our debt
If it's joint debt, creditors don't care about death or separation agreements. Each person is liable for the full amount until the balance is paid. Separate debt, such as a student loan you brought into the marriage, travels with you.- Pull your credit report and make a list of debts. Resolve disputed items immediately. (See "Don't let your ex trash your credit.")
- Put a freeze on your all your credit reports as soon as you separate.
- Close joint accounts. Open new ones in your name.
- Contact federal and state tax departments to see if taxes are owed. If so, you could be liable. You may not be exempt from future tax liability, either. For three years after a divorce, the Internal Revenue Service can perform a random audit of a couple's joint tax return.
Don't forget the tax man
The effect of your settlement on taxes can be costly if not addressed. Consult a tax professional.- Some property and assets are subject to a capital-gains tax of up to 40% if sold.
- If you were still married on Dec. 31 of the tax year, file a joint return, which could save you money. If you were single before Dec. 31 and you qualify, file as head of household.
- If a large portion of your settlement consists of retirement assets, find out about penalties for early distributions. It is possible for one spouse to transfer retirement assets without penalty under a court-ordered disposition. (See "Can I transfer my retirement plan assets without paying taxes and penalties?")
Continued: Alimony and child support
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Sudden financial change: Divorce