Breakups aren’t fun. One thing that can make a divorce even less enjoyable is dealing with the financial complications that often come along with it. Many couples don’t pay enough attention to the impact a divorce can have on personal finances. However, not taking care of the details can mean big trouble for your financial health for years to come.
Here are three big money mistakes couples make after going through a divorce.
1. Forgetting to Update Beneficiaries
Before you and your love breakup up permanently, don’t forget to update your beneficiaries. Check to make sure that your spouse is no longer listed as the beneficiary on your individual bank accounts, life insurance policies, and retirement accounts.
Attorney and mediator Daniel R. Burns advises taking a very close look at all of your benefits. “After I conclude a divorce settlement with my mediation clients, I recommend that they look carefully at everything they own, including benefits they have with their employer, which are often not obvious. Unless their agreement requires otherwise, I further recommend they change the beneficiary designations for any retirement accounts, pensions, and insurance policies. Even if your agreement requires you to maintain your former spouse as the beneficiary on any of these accounts, it is still a good idea to complete a new beneficiary designation so there is no doubt about what you intended. Your beneficiaries will thank you for saving them a lot of trouble down the road!” said Burns.
2. Forgetting About Joint Debts
Don’t forget about joint liabilities such as outstanding tax bills, mortgage debt, and joint credit card accounts. Your tax bill must be paid, your mortgage will likely need to be refinanced, and your joint credit cards will need to be canceled. Don’t wait until you receive a past-due notice to start handling your finances. Otherwise, old debts may come back to haunt you.
“Just as a divorcing couple must divide what they own, so they must divide what they owe,” said attorney Michael J. Davis. “The piper must be paid…Credit card companies are not bound by a divorcing couple’s property agreement. In all jurisdictions, joint credit card debt is jointly owned because each spouse has joint and several liability for the obligation. Even when one spouse agrees to take on a debt, if it has the other spouse’s name on it — or in some cases, even if it does not — the creditor has the right to come after both spouses for payment.”
3. Not Preparing for Finances as a Single
Once you go through a divorce, you’ll have the new task of re-learning to live on one income. Remember to draft a new budget with this in mind. Certified Public Accountant Tracy B. Stewart reminds newly divorced couples to look beyond daily cash needs and instead think long-term.
“Too often, [those] going through a divorce fail to educate themselves on post-divorce financial issues… Many [people] getting divorced concentrate only on daily cash needs and miss the financial big picture…Be sure you look at both the short-term and the long-term when forecasting what your finances will look like when you’re on your own,” said Stewart.
[Editor’s Note: It’s a good idea to monitor your credit carefully following a divorce or breakup. You can pull your credit reports for free each year at AnnualCreditReport.com or get a free credit report summary on Credit.com, which includes two free credit scores updated monthly. Your credit report should include all your open accounts, including joint accounts you may have forgotten about (and ideally, should close). And a drop in your credit scores could be a sign that your spouse is running up balances on joint accounts, or failing to pay joint accounts he or she promised to pay.]
This article originally appeared on The Cheat Sheet.
More on Managing Debt & Credit:
- The Credit.com Debt Management Learning Center
- How to Pay Off Credit Card Debt
- 5 Tips for Consolidating Credit Card Debt
Image: Izabela Habur