7 Ways to Prepare Your Finances for Divorce
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For some couples, no amount of marriage counseling is enough to avoid a divorce. Not only is it a tough process emotionally, but also financially, especially because most married people have shared income, accounts and property.
Long before spousal or child support is awarded or your post-divorce budget is in place, you’ll need to prepare your finances, protect your credit score and dig in for the work ahead.
Because each divorce is unique and state laws vary, specific advice can only come from experts familiar with your case. However, the following tips should point you in the right direction.
How to get your finances ready for divorce
1. Be wary of well-meaning, but generic, advice
Divorce laws vary by state, so be cautious of advice that seems to be a one-size-fits-all solution, whether you read it online or received it from a friend. If you're unsure whether you should move money, change accounts or make any other financial moves pre-divorce, consult with an attorney licensed in your state.
2. Track expenses — and anticipate future ones
As soon as you know divorce is inevitable, begin tracking your household income and expenses. A detailed list will help build a budget post-divorce, and it is also crucial for your attorney, and later, the judge in deciding how to split assets and debts, and whether to award spousal or child support.
If you’ve already been tracking as part of your budget, even better: You have a record of past months and years. If not, start now, and include household bills, food, clothing, entertainment, home maintenance, transportation, child care and anything else that you spend money on. Use any bank and credit card statements to estimate spending from past years.
Next, project future expenses. For example, if you have children, your expenses might transition from child care to after-school activities and, eventually, maybe even college tuition.
“Look beyond the normal monthly expenses and include things like your holiday trips, vacations and seemingly ‘one-time’ expenses like replacing the dishwasher,” says Avani Ramnani, a certified divorce financial advisor with Francis Financial in New York City. Use previous years as a guide, but remember, circumstances change.
3. Gather documentation
Your financial records tell the story of your marriage’s financial health. Gathering these documents can be tedious and time-consuming, so start as early as possible.
Start with:
Checking and savings account statements.
Retirement account statements.
Investment account statements.
Ledgers for any loans, including your mortgage, auto loans and personal loans.
Credit card statements.
Recent pay stubs.
Lists of assets and debts brought into the marriage and those accumulated since marriage.
Income tax returns.
For some of these items, you might only need the most recent statement. For others, you might need statements from the past year or longer. The Institute for Divorce Financial Analysts offers a checklist of financial records you’ll want to prepare.
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4. Prepare for resistance
“In amicable divorces, there is a free exchange of information," Ramnani says. “However, in adversarial situations, one spouse might not release documents unless they’re legally forced to do so.” This is especially likely if one spouse controlled the household finances.
Even if relations seem cordial, anticipate rough patches. You might decrease the likelihood of confrontation by gathering the important paperwork before filing. Collecting the necessary documents before filing might be a good strategy for people looking to secretly prepare for a divorce — whether that’s out of fear of violence, retribution or other sort of lashing out from their spouse.
If your spouse fights you every step of the way, ask your attorney about court-ordered options.
5. Refrain from big financial decisions
The divorce proceedings will determine all of your major financial changes. It might be tempting to get a jump on tasks such as adjusting your life insurance beneficiaries — but it's best to wait.
Consider holding off on opening a personal checking or savings account or making changes to your will or beneficiaries until you get your lawyer's go-ahead. They'll likely know what timing is best so you don't jeopardize your case in court.
6. Be conservative when spending and saving
Separating joint finances is sticky, and much of the process depends on your state laws — some treat all income, assets and debts as if they're part of a single pot. Emptying that pot, or even dipping into it more than usual, in the weeks and months before your divorce could be detrimental.
“There is no advantage, and perhaps a disadvantage, to being the first one to the bank,” says David Clarke, a divorce attorney with Blankingship & Keith in Washington, D.C. He recommends keeping all financial matters transparent with your spouse.
Continue to use your accounts — individual or joint — as usual. If you don't have money set aside for hiring a divorce attorney and other related expenses, try to agree with your spouse about spending a conservative and comparable amount, Clarke says. If your relationship isn’t amicable, ask your attorney about a legal separation, which would dictate how you both use money until the divorce is finalized.
7. Know when to get help
Whether your divorce is amicable or adversarial, a lawyer can help you sort through the separation of your lives and finances.
“Engaging a lawyer should not be seen as an act of aggression,” says Clarke.
He says the specifics of a divorce are “too weighty to be negotiated at the kitchen table.”
In addition to your attorney, a certified divorce financial analyst or other financial advisor can offer expertise concerning divorce's effect on your current and future financial health.
An increasing number of people contact certified divorce financial analysts to ask whether a divorce is financially feasible, sometimes even before contacting an attorney, according to Carol Lee Roberts, president of the Institute for Divorce Financial Analysts. You can also ask a divorce financial analyst to judge the merits of a proposed divorce settlement and how to best structure it.
Roberts says though wealth might spur someone to contact a divorce financial analyst, they're equally valuable for folks with few assets.
“Even if your divorce is more about dividing debts, it’s important to talk with a financial expert,” she says.
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