Getting a divorce is stressful and we often want to get it over with. You can hurt yourself financially—and permanently— if you rush through an agreement without giving careful thought to several financial considerations. Speak to a financial advisor before signing a divorce settlement to avoid common mistakes.
Of course your divorce agreement should cover support for your children and you if appropriate, however, here are often overlooked areas to think about:
Life Insurance and Long Term Care Insurance. This can be vital and is too often overlooked. Consider owning a policy on your former spouse to replace lost spousal or child support or college costs. If you remain single a long term care policy could be very important. You and your former spouse may be able to fund a lump sum (hybrid) policy as part of your divorce settlement.
College costs. This doesn’t have to be in a separation agreement, but often is when both parties want to help their children pay for college. Set realistic parameters in the event of a job change or loss.
Tax deductions for dependents. Make sure your divorce agreement says which spouse can take the annual child tax credit. Some couples rotate the deduction or each take a child on their returns. You must have in writing if you want the deduction and are not the custodial parent.
Pensions and retirement accounts. Understand how much in pensions and retirement assets there are. Many former spouses who have been married for 10 years or more may end up getting half of 401(k)s and guaranteed incomes.
Be sure to consult with your attorney, as well as a financial advisor before signing a divorce settlement to consider all these issues and more. It can be vital to your and your children’s financial health to have a comprehensive plan in place you can live with as life changes.
Jayne Di Vincenzo serves families and businesses throughout Hampton Roads and in 25 states. Securities & advisory services offered through LPL Financial, A Registered Investment Advisor (RIA). Member FINRA/SIPC. [email protected] 757-599-9111.
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