Your 5-Minute Guide to Sudden Singlehood


By MSN Money Staff

Big life changes can be overwhelming. Use these 25 tips on finances, property, taxes, insurance and more to help protect yourself and your family as you start over.

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.

Property and assets

From the financial world, marriage is viewed like 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.

  • 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. Photograph or videotape your valuables.

  • 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.

  • 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.

  • 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.

Alimony and child support

Also called "spousal support," alimony is paid by one spouse to the other so that he or she can maintain the standard of living that was enjoyed during the marriage. Alimony is at the discretion of the judge and differs from state to state.

  • Alimony is tax-deductible to the person who pays it and taxable income to the person who receives it. If you and your spouse have dramatically different incomes, alimony may have tax advantages.

  • Each state has a child-support formula based on a percentage of parents' income. Roughly, 10% to 30% of the noncustodial spouse's income may go to child support.

  • Child-support payments are neither deductible by the payer nor taxable to the recipient.

  • Child support fluctuates only when it is changed by court order.

  • Decide who gets to claim the children as exemptions on their tax return and consider what that decision does to the eligibility of funds for college.

  • A custodial parent can't refuse or cut back visitation if child support hasn't been paid.

The details: Insurance, cars

In case of death or divorce, one person can end up uninsured. You do have options.

  • If you are on your spouse's insurance, get a checkup before the divorce is final.

  • Stipulate that your spouse carry insurance on your children.

  • Elect COBRA, which is continuing your coverage on your spouse's insurance plan. You'll have to pay 104% of the policy cost, but it can cover you for up to 36 months.

  • Purchase an individual health-benefits plan. You will pay the monthly fee on your own, but you won't be tied to your spouse's insurance.

Lastly, don't forget to:

  • Fix the car. Before you separate, get your car in good working order. That makes one less expense you'll have to cope with right away. After you decide who gets which car, don't forget to put the title in your name.

  • If your paycheck or other income is automatically deposited into a joint account, open a single account and change the automatic deposit.

  • Change beneficiaries. Despite what your divorce decrees, if you don't change beneficiaries on all documents, your ex could land a windfall in the event of your untimely demise.

  • Reclaim your name. If reverting to your maiden name, don't forget to register your name change (and adjust withholding) on your W-4 and other tax forms and with the Social Security Administration.

Reproduced with permission of MSN Money.com, from Your 5 Minute Guide to Sudden Singlehood, MSN Money Staff, 2008; permission conveyed through Copyright Clearance Center, Inc.

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