Divorce can be a disaster for both emotions and bank account. But if you’re heading down this path, timing is everything.
Divorces are difficult for everyone involved – not just the emotional turmoil, but also the financial toll. Thankfully, both ex-partners can take some steps to come out of the proceedings in the best financial situation possible. Much of it depends on timing.
I hope there’s no divorce in your future, but if there might be, here are the five best situations to start from, along with the reasons why.
1. When there’s minimal credit card debt
Prior to deciding on divorce, you’ll want to get a complete financial picture of your household, including all joint and individual debts. This is especially important if you are living in a community property state.
Community property laws vary by state but some states view debts as well as assets as community property. So if your spouse has accumulated quite a bit of credit card debt during your marriage, you could be held legally responsible for these debts. If he or she decides to stop making payments on these cards, you might have to pay. Fail to do so, and your credit could take a serious hit.
2. When it’s a seller’s market
Unless you’ve determined that one of you will get the house as part of the divorce settlement, you’ll be in a much better financial situation if you divorce during a seller’s market: a period of strong prices. This will help get the most money from the sale of the house, so you can cover all mortgages and have money left over to split.
If it’s a shaky economy and housing prices are in decline – like it’s been in many parts of the country for the last few years – then try to agree that one of you get the house as part of the settlement. This way, neither of your savings accounts will take a hit for having to cover the difference between the sales price and the remaining loans.
3. When you have a good credit score
People who have poor credit histories are likely to see their credit score get worse during divorce. This is because bills may be missed while the settlement is in limbo. If you will be moving out of your current dwelling, you will want a decent credit score to rent or purchase a new home. And if your ex is getting the car, you’ll need a good score to purchase a new ride of your own.
4. Prior to receiving an inheritance
This is another important factor for couples who live in community property states. While these laws do vary by state, for the most part, they don’t apply to future assets. This means that if you come into an inheritance prior to divorce, you may need to split the assets with your spouse during the divorce. But if you receive an inheritance after a divorce is finalized, it’s likely that all of the assets will remain under your possession.
5. When your children are in high school
Obviously, there’s never perfect timing for divorce when children are involved. However, when finances are taken into account, high school may be the best time. One spouse will likely be ordered to pay child support, but it will only be in effect for a couple of years. And the divorce may actually help when it comes to financial aid for college – some forms only ask for the income information of the parent with whom the child resides for the majority of the time.