Regardless of why your marriage is ending, separation and divorce will impact your finances in some way. This is why it’s critical to financially plan for divorce as far in advance as possible.
If divorce is on the horizon, review the various aspects of your finances now, not later. Doing so will give you a clear idea where you stand as you enter the process, as well as the changes you may face in the near future.
Wondering where to begin? We’ve outlined seven steps so you can learn how to prepare for divorce financially.
1. Consider Opening a Separate Bank Account
Depending on your circumstances, you might benefit from a bank account only you can access. If you and your spouse currently merge all of your money, this option lets you build a safety net if you can’t rely on access to the merged funds.
For example, perhaps you’re concerned that your spouse is going to spend money you need for necessities or try to block your access to the joint account.
Maintaining another account for your paychecks and other deposits ensures you’ll have money they can’t touch.
In some cases, couples agree to fairly divide finances to simplify their separating lives. You might split what you have in a joint savings or checking account and transfer it to your new separate accounts.
Understand that separating your money does not automatically make it yours alone.
Depending on state law, what you brought into the marriage, and your specific financial and marital circumstances, the money in your separate account may still be considered marital property.
Legally, this means you both own it, despite the account being in your name only.
Never try to hide money or block your spouse from accessing what they need. This will likely be seen as financial misconduct and impact your future arrangements.
Talking to an experienced family lawyer is an important part of financially planning for divorce, and understanding how it
will impact your case.
2. Gather Your Financial Records
Finding and organizing financial records can take a lot of time, so don’t wait to get started on this one.
Your financial records include joint items and separate items, including:
- Savings and checking accounts
- Pay stubs
- Life insurance policies
- Retirement accounts
- Investment accounts
- Property and other major assets
- Credit card statements
- Mortgage, auto, and other loans
- Income tax returns
- Inheritance and financial gifts
- Ongoing expenses such as utilities, childcare, etc.
Check in with your attorney to be certain you’ve secured all relevant documents and have them ready to go.
3. Create a Debt and Asset Checklist
Write an overall list of assets and debts. Include who brought what into the marriage and what was established during the marriage.
Also, make note of which assets are separate property and which ones are marital. The other person may not agree, but you must know your stance.
By listing out your debts and assets, you’ll have a clear idea of how to prepare for your divorce financially.
Depending on your situation, this could get very granular. Be prepared for some difficulty, especially if unknown accounts or debts come to light that one spouse was not aware of.
Again, hiding any of this information is unwise, and could count against you down the road.
Know that the legal division of assets and debts is designed to be fair but not necessarily equal. It’s in your best interest to have a family attorney in your corner, ensuring you get what you deserve.
4. Review Your Credit Report
Divorce, in and of itself, does not affect your credit. However, common financial changes during a divorce often do impact people’s credit.
Pull your credit report from the major bureaus and determine which accounts are linked to it. Note which ones are joint or list the other spouse as an authorized user.
You can’t change how past credit influenced your report, but you can stop influencing one another’s credit going forward.
Remove one another as authorized users, and close joint lines of credit (you’ll both have to agree before they can be closed).
Be aware that divorce will not absolve you of debt the other person accumulated on joint accounts, so close them rather than divide them up.
It’s not recommended that you make major purchases during a divorce, but you may wish to do so in the future. Getting a handle on your credit now will make that easier in your new life.
5. Avoid Major Financial Decisions
Until the divorce proceedings are finalized and your money and credit are fully separate from your former spouse’s, hold off on major financial decisions whenever possible.
For example, now’s not the time to buy a new car, overhaul your investment portfolio, or rack up credit card debt.
Be assured that you’ll be free to do as you like with your own money after the divorce is final, and stalling large financial moves will likely make that happen sooner.
Less obvious money moves are things like listed beneficiaries on retirement accounts and insurance policies.
Of course, you’ll ultimately want to remove your spouse from these documents, but these changes will be addressed in the legal proceedings.
Initiating the adjustments on your own could work against you in court.
6. Create a Budget
With your household income and expenses changing, a budget can keep you on track during this difficult time. Be reasonable with the numbers you use, as you don’t want to give yourself a false sense of security.
Carefully consider all the ways your spouse may have contributed financially.
This includes income from their job, if they had one. But perhaps they had a side gig that paid for extras, such as dinners out with the kids or occasional fun purchases for the home.
Other things to consider are how bills may change with one less adult in the household.
For example, if you get a discount on bundled insurance, that will likely change when you remove a vehicle or house from a policy.
Be conservative with your spending in the meantime. It’s always better to have more money on hand than you expected, especially during a difficult transition.
7. Ask for Help When You Need It
Separation and divorce are challenging, even in the best of circumstances. There’s no shame in asking for help with the little things, not to mention complicated and important financial matters.
An experienced family law attorney knows the legal aspects of financially planning for a divorce, and keeps the best interests of you and your children in mind.
Beyond your lawyer, friends and family, explore local resources for people going through divorce.
More likely than not, others in your area have faced the same challenges and are ready and willing to offer support.
Contact Envision Family Law to Learn How to Prepare for a Divorce Financially
A divorce has the potential to steal all your energy, which often leads to a situation in which you don’t focus enough time on your finances.
If you’re facing the divorce process, a thorough financial review is a must.
Once you do this, you’ll have more confidence in your ability to financially plan for a divorce. You won’t receive every asset, but having a plan sets you up to negotiate from a position of power.
Call or text us at (888) 211-7814 to speak with an Envision Family Law attorney today.