iQuanti: A divorce can be overwhelming, but the more you financially prepare, the smoother the process will be. Among the major tasks to sort out are dividing assets, adjusting your personal finances, and sorting out your life insurance, which can be one of your best assets for protecting your children.
1. Gather information and records
It's important to have financial records so that you can provide the court with as much accurate information about your marriage as possible. If you're worried your divorce may be adversarial, it can help to gather this information before you file. Here is a brief general checklist of the records you will need:
- Statements for any checking, savings, investments, retirement, and credit card accounts for the past year.
- Statements for loans, including mortgage, car loans, home equity loans, and/or personal loans.
- Recent pay stubs (at least past three months) and income tax returns (past three years).
- Assets and debts you had before the marriage as well as those accumulated since marriage.
- Insurance policies, including health insurance, life insurance, and auto insurance.
2. Consider saving and reducing unnecessary expenses
As you finalize your divorce, you'll want to ensure that you can easily transition into financial independence. One of the best ways to prepare for this is to cut back on any unnecessary expenses and to start putting away money into your own account that you alone will have access to during the process.
This is not to say you should move money from shared accounts into an individual account, but rather divert your own income into a personal account. If possible, communicate openly with your spouse about your plans and see if you can work together to make dividing assets as fair and easy as possible.
In any case, be sure to keep records of everything that you can.
3. Update your life insurance
Most people name their spouse as their primary beneficiary on their life insurance policy, and unnaming your ex as your beneficiary will be one of the first natural steps you take in updating your policy. If you have children, the most important thing to update will be your death benefit so that it will protect your children.
To calculate how much life insurance coverage you'll need for your children, subtract the age of your youngest child from 18, (or the age you expect them to be financially independent,) and multiply that number by your income.
For example, if your youngest child is 8 years old, and you make $50,000 per year, a policy with a death benefit of $500,000 will provide for them until they're 18 years old in case something happens to you.
Consult your legal team about how and when to make these changes, as each state has different laws and procedures. If you're still wondering how life insurance works in a divorce, you can also consult a financial advisor in your state.
The bottom line
Getting a divorce comes with major financial impacts, but with proper preparation you can help smooth out the process. Be sure to consult with your legal team about your options to make sure you make the right decisions and at the right time, as every state will have different procedures for finalizing the divorce.
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Original Source: 3 Ways to Financially Prepare for a Divorce